FXP Update

FXP, our short play on China is slamming this morning, up +6.23%. I posted this idea numerous times and reiterated it numerous times to the point I felt like I was probably getting annoying with it, but I really like the position.

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.

First there's a lot more weakness in China and especially their credit system (I mentioned yesterday that banks are issuing preferred shares to raise a capital buffer over growing credit concerns), there are numerous other problems as well that we first caught on to about a year and a half ago like hot money flows from Japan and the US, the high Yield Bond market with investors seeing it as a no lose game, thus China which has been preventing defaults by making interest payments for companies in trouble, went ahead and let a few default, Chaori Solar was the first. Shortly thereafter the banks put in cash calls to these businesses that had mostly put up iron ore and copper as collateral for loans (largely mining companies), this is what drove and keeps driving iron ore and copper prices down as these companies scramble to sell their collateral to meet the banks' cash calls.

In any case, things just keep getting worse which is one reason I'm so happy we were finally able to find a short play in China (you may remember we were looking at aluminum as a possible next sell-off commodity to play China short, then FXP gave us the break we were looking for all of 2014).

Overnight the Shanghai Composite was down -1.4%, worse than its other Asian market peers, this was largely on the back of yesterday's weak Money Supply data and growing concerns about tomorrow's GDP data that many think will reflect a deeper slowdown in China than previously thought (why are these guys so late to the party?).

As for the charts, I'll show you why I was "considering taking gains and re-entering on a gap fill and why I decided to just stay put and where I think FXP (UltraShort FTSE/China 25) is headed.

 This is the uptrend channel for 2014 that wouldn't let us in until a recent Channel Buster, you can also see a bullish reversal candle at the lows with the typical increasing volume that makes them that much more effective, this morning we are up over 6.5%.

I believe as with many Channel Busters, we will not only hit the BTC or stops inside the channel, but many times these channel busters move right through the top channel before settling down.

*Note this morning's gap as well, there's a high probability that it is filled and 3C agrees on intraday charts.


This is the intraday chart of FXP, you can probably see why I'd be taking call option gains here.

 This 60 min chart shows distribution INSIDE the channel "1" and on the Channel Buster break, large accumulation "2", it appears smart money was well aware that China was going down the tubes and decided to pick up some FXP on the cheap.

 Intraday we have a series of negative divergences through all intraday timeframes, they may move to inline status, but gap fills have been the rage for the last several years unfortunately, I'd guess we'll see a gap fill, but with a 60 min chart looking the way this one does, I have no problem just riding it out.