I've been meaning to get to these charts for a member, so here they are. FXI is the China 25 ETF (long), FXP is the China 25 ETF short. Like the market with the primary trend (ugly) and the sub-intermediate trend (bullish), I'm going to try to cover both here.
First FXI-basically long China. This is a daily chart, it is more of the primary trend or big picture, it has gone very negative around the Feb. highs and is leading negative, so the big picture doesn't look good, but even during the 1929 Crash and Depression, there were at least 5 counter trend rallies so nothing goes straight up or down.
A weekly chart of FXI (basically long the China 25), it really hasn't done much compared to the SPX since 2009, but then again they didn't have QE1/QE2, recently it looks to be breaking down as their #1 trade partner (Europe) is on the ropes.
This is FXI daily (still the long China 25) seeing a little change in character lately from a downtrend that has been in effect since Feb. 2012. This looks a lot like a sub-intermediate trend base, a place FXI can stage a counter trend rally from.
And here's the 60 min chart of that same area to the right where there's a 3C leading positive divergence (very similar to the market averages), suggesting FXI wants to break out of this base and move higher (again similar to the US averages).
This is FXP, basically the short version of the ETF (short the China 25). You may recall many examples of wedge patterns we have been watching; to the left is a bullish descending wedge. According to technical analysis, once price reaches the apex of the wedge, it should break out to the upside and the general rule of thumb for the target is, "Wedges retrace their base", suggesting a target of $50 or so. However as we have been documenting in both bullish descending wedges and bearish ascending wedges, this isn't what happens; often there's an initial false move in the direction traders expect, but more often than not (80+% of the time), we see price move in the opposite direction and move laterally in a base or in the case of a bearish ascending wedge, a top, then the move that was originally expected finally plays out as we see FXP finally did break out and move higher. Again, this is the primary trend, FXP higher (short China 25). However again, nothing moves in a straight line.
Here's the daily chart or primary trend for the FXP (short China 25) as it went negative at the Sept. top and headed down in the wedge pattern, then 3C went positive, FXP broke out and we have a strong daily leading positive divergence. So if I'm investing in the primary trend, I want to be short the China 25 by buying FXP above. However in the near term (sub-intermediate trend) there's a different opportunity.
As FXP has gained ground, 3C has gone negative on the 60 min chart, this is more in line with the sub-intermediate trend and suggest FXP is going to lose some ground before heading higher in the primary trend.
So to sum it up as I know this may be a little confusing, the long term primary trend looks bad for China, thus we want to consider buying FXP or shorting China via other assets for the primary trend, but in the near term (sub-intermediate trend), FXP looks like it will pullback, which means FXI (China 25 long) should gain some ground as it breaks out of the base it is in.
Even as FXP (China 25 short) has been pulling back, the short term 2 min intraday 3C chart shows a positive divergence, this may be our opportunity to get in on the sub-intermediate trend action and when the time comes, get back in the primary trend action at much better prices with much less risk. Should FXP bounce over the next several days as it looks set to do, FXI will pull back and FXI is what we would want to buy to play the near term move up.
The X-Over Screen to avoid false crossovers is just about perfect for the timing of a sub-intermediate move, so I'll use this to define possible entries long FXI.
Here's the sub-intermediate trend base in FXI, we are looking for a break out here and all of the indicators are moving in that direction. In the price window is a yellow 10-day m.a. and a blue 22 day ma.a, a pullback toward those moving averages in to the small gap created today looks to be a decent entry in FXI long. The other way to play this is to wait for the breakout to the upside above the red trendline, it's not as good of an entry, but you have better probabilities. If we see the short squeeze in the Euro as we expect, China should rally with the US markets.
This is FXP, China 25 short (inverse ETF).
We are seeing confirmation in the signals here, if I were looking to short FXP (which there is no need as you can just buy FXI), I'd be looking for a little bounce toward the moving averages.
If you are interested in the trade (I know several of you are), just email me any time and we'll see where things stand, however please remember that like the speculative long positions we have for a bounce in the market or short squeeze, this trade should also be considered speculative as it is the sub-intermediate trend which is basically a counter trend rally from the primary trend.
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