China's Bubble-Ghost Cities and FXP

The entire market is focused on Greece when the blind spot that is sure to have devastating consequences is brewing right now in China.

Several months back I noticed commodities as a risk asset were starting to underperform, I theorized that the world's largest importer of raw materials was probably facing a slow down. Over the next two weeks we were proved correct when China's manufacturing ISM came in below 50 (contraction) followed the next week by their services ISM which also came in below 50 and China doesn't exactly have the most translucent economy, numbers and reports are vigorously massaged so the actual number was probably a lot worse and commodities were reflecting that.

Friday China cut their Reserve Requirement Ratio for banks to spur lending to a problematic real estate market. The initial enthusiasm was quickly reversed when the market recognized that problems in China are probably worse then thought.

I thought it would be interesting to share this video with you, I have seen this on a smaller scale in Miami after the real estate bubble burst and the skyline had seemingly more cranes then buildings; approximately 65% of condominium sales in Miami were speculative purchases, so the dark buildings at night made perfect sense, but that is nothing like these ghost towns.


A quick way to gain short exposure to China is through FXP, although I'll be looking at company specific stocks, this inverse ETF can really move and there's a decent looking set up in place now with relatively low risk and good probabilities.

 FXP's hourly chart has been in line with price until recently in a rather flat , quiet area.

 The same is true of the 30 min chart...

 As well as the 15 min chart, confirmation in these 3 longer term timeframes is important and suggests good probabilities.

 Here's the 5 min chart in that flat area I mentioned.

Because foreign stocks can be very "gappy" I used a line chart to display the price formation that appears to be an accumulation area. I would set some alerts and let the trade come to you, a break out above the $23-$24 area would be an area I'd be interested in buying FXP, a stop can be placed just under $23 or if you want to give it more room, then below $22.

FXP has had multiple smaller runs of 15% or so within a few weeks, but it also can easily double as it did last year, not that I put a lot of weight in to this fact, but the ETF has been as high as $1,000.00; there is potential there and this is a "prove it to me" trade.