FXP Update

FXP is a long in the trading portfolio, I have my mom in the asset as well for full disclosure.

FXP is UltraShort (2x) FTSE/Xinhua China 25 ETF.

I've been looking for a way to play China short including Aluminum as companies that received shadow banking loans using their mining materials like copper and iron ore as collateral, the banks have been flush with cash, but not loaning and in fact, calling the cash which caused many of these mining companies ( a large industry in China) to sell their tangible assets (commodities) to meet the cash calls, thus the fall in copper, iron ore and I suspect Aluminum will be next.

FXP was my first choice, but it had not pulled back through 2014 as bad news keeps coming out of China, from bubbles to hot money flows, inflation, and most recently credit defaults.

Typically local governments or banks bailed out any companies that couldn't meet their coupon payments, just yesterday a high yield materials company failed to meet a 10% High Yield coupon payment, it seems today they were bailed out, which means it's likely that there is an impression, right or wrong...sentiment is all that matters, that China may start bailing some of these companies out, however I doubt it (I think this is an isolated incident). In my opinion the Chinese government is trying to establish free market principles so the days of investing hot money flows in High Yield Chinese bonds that have been backstopped by the government so they were virtually risk free up until recently, are now over causing bond traders to re-value all investments and discount real risk of failure or defaults.

Overnight the Chinese money market rate increased for a 7th day in a row as the PBoC drained liquidity out of the system at the regularly scheduled Tuesday/Thursday market operations.

Finally FXP pulled back as a Channel Buster, I'll put up a link explaining Channel Busters, but typically the initial break from the channel (up or down, depending on the trend) is faded, it's like a large head fake move, making the Channel Buster an ideal entry.

Here are the charts for FXP, I really like this one, I'd prefer to phase in to the position if possible, I believe it can be considered a core or trend position.

 Here's the 2014 Trend Channel and the Channel Buster below, these use to pullback to the former support trendline (now resistance) and fail, they'd make great shorts there and then head back down.

However since the change in Technical Analysis with the advent of the Internet all of these century long concepts are used AGAINST technical traders and this kind of move more often than not will move not only back in the channel, but often shoot through the top of the channel and/or continue the trend higher.

 Here's the reversal process, there's a nice rounding as well as a capitulation event and 3C confirmation.

The X-Over system is just starting to signal a long position.

Here's the 60 min chart, the distribution for the break of the channel is VERY obvious, however, so is the 60 min accumulation/leading positive divegrence.

As far as timing, there are some short term charts I'd like to see look a bit better and this is why I said I'd prefer to phase in to the position.

There are some shorter term charts that look outstanding , at this point in my view they are all just for timing, I think the long position and objective data supporting it have been established.

This looks like an ascending (bullish ) triangle, but it should fall in place amid an uptrend, so it likely is not, but technical traders usually don't care about the rules to verifying a pattern, they just see it and assume, so there may still be a head fake move to run stops below the $66.50 level especially because this morning did make a "breakout" of the triangle  around the $67 level (note the whole number) which some retail traders may have entered the position on breakout confirmation. Their stops would likely be just below the triangle's apex and lower trendline in the $66.50 area, I'd set an alert for a move below that area as a potential area to add or establish a new position, especially if you are phasing in to the position.

I REALLY LIKE THIS ONE, AS I SAID, I HAVE MOM IN IT.