FXP (Short China)

Yesterday I posted a couple of times on FXP, the first FXP Update was to let you know that the 6+% move (+5.04% on the close) was looking a LOT like it was going to pullback today and fill the gap. I pretty much left it open for each individual to decide what they'd prefer to do in making it clear that it could be traded around, but that it also could be held and the draw down on the gap fill may be a little ugly, but it didn't change anything as far as FXP's reliability as a nice long asset as a short play on China.

As you can imagine, with China's Beat/Miss Q1 GDP last night coming out and generating the myth of PBoC intervention/QE which they have stated they will not engage in (but then again Bernanke said they wouldn't monetize the debt and look at what happened), it's no surprise that FXP pulled back in to the gap as expected (according to financial sources, on the expectation of QE on "poor" GDP results), but we had signals long before the Q1 GDP data even came out so either someone knew something or this is just typical market behavior which is useful as a concept, the perpetual and never ending gap fills of the last 5 years.

In any case, I like FXP as an add to or a new position if short exposure to China is something you might be interested in.

From yesterday's FXP Update ...

"Right now I'm trying to decide whether to take the position off for a bit for a gap fill pullback or just leave it. "IF" this were an options trade I'd be taking the position off, waiting for a pullback to fill in some of this morning's gap and then re-enter, but as a trade that was envisioned as at least a swing trade and likely a position trade, I think I'll just keep it open as I have little doubt it will be higher a week from now."

So it was pretty clear yesterday at 12:05 that a gap fill was likely today and perhaps a bit further...

If you are interested in FXP as I am, then these charts should give you some idea of how things are progressing...

 There are plenty of posts showing why we entered FXP long so I'm not going to go in to that.

Yesterday we ended the day with a bearish (semi) Shooting Star reversal, the tail is a little short, but few things in real life look like the cherry picked textbook charts.

Note the increased volume yesterday on the reversal candlestick making it MUCH more likely to be an effective reversal candle. Today we have a star candle on the daily, not a lot of downside momentum and right in the gap. I'd say before we get an upside reversal and continuation of the new uptrend, we will see a bullish candlestick with increasing volume over the previous day.

This is a 15 min chart of FXP, note the rounding "reversal Process" yesterday and large volume near the top which is often bearish "churning" telling us a downside move is more likely.

Today we are in the gap, we haven't filled the gap which is high probability.

 The 60 min chart and our lucky break down in FXP allowing us a great entry at low risk with a very strong positive divegrence.

The 5 min chart shows the very bottom with a head fake move before the upside reversal as well as accumulation of the stop run. Yesterday's leading negative divegrence is just more evidence of what was likely today.

As the 5 min chart goes, FXP still needs some work before it's a new long or add to position.

The 1 min chart is already showing signs of accumulation meaning this is a constructive pullback, not a decline. These are the kinds of pullbacks we want to buy, but they must be confirmed.

 We also have positive migration of the gap fill moving out to 3 mins which isn't a big deal, but the migration of the divergence is actually the important signal here.

 At 5 min there's a slight migration moving in to the timeframe which is good, but overall this chart is not there yet for a new position or add to entry (long).

Interestingly on my Custom DeMark Inspired "Buy/Sell" indicator we can see some accurate signals with a recent buy right at the very bottom which was also a head fake move, this is still in effect as a long position although we probably have at least another day of work and that's not counting options expiration.

All in all, things are going exactly as envisioned and this will give us a SCBO very soon in an area I want short exposure to, that's real diversification... China!