FXI/ FXP Trade Update

Yesterday FXP was entered as a long (2x short FTSE/ Xinhua China  25) Trade Idea (Swing to Position) FXI short / FXP Long with the intention of being at least a swing trade, but if things on a macro basis in Asia and by extension the US markets go according to expectations, than FXP may turn in to a longer held position trade. I liked the trade idea (and still do) a lot, thus no phased in entry, no speculative trading position, but rather a full size position.

The post above was the trade idea which I needed to get out quickly, so I followed that post up with the charts right after in this post, FXI / FXP / NKD-Asia Charts

Today FXI is down -0.80% and our FXP 2x short FXI is up +1.74%.

I PREFER USING FXI FOR ANALYSIS AS IT HAS SIGNIFICANTLY MORE VOLUME THAN FXP, HOWEVER ONCE A NEGATIVE DIVEGRENCE AND SHORT FXI TRADE LOOKS ENTICING, I PREFER USING THE 2X LEVERAGE OF FXP (ESSENTIALLY SHORT 2X FXI).

Here are the charts... I intend to stick with the position through any volatility unless something material changes on the charts, but since this and the Nikkei 225 Futures are two assets I've been looking for to make a move lower based on the charts, I doubt too much will change that will have a material effect on the position, today just served as initial confirmation of the trade idea.

 These two significant gaps up (the second being on the PBoC rate cut Friday, which seems to be poorly understood by many traders as does the difference between the long term policy horizon of the PBoC vs the F_E_D or even worse, the ECB-when they actually take action) both were on heavy volume, both lacked any kind of follow through and therefore both appear as churning or distribution days, especially Friday's gap up which closed well off the intraday highs and below the open on significant volume (which is not always a bullish sign, especially when considering market "Churning".

Remember, our position is FXP, 2x short FXI, so any moves lower in FXI like today's, benefits our FXP long entered yesterday.

The 60 min 3C chart of FXI easily confirms suspicions as we have a stage 1 base to the far left with two accumulation areas (white boxes) , however, the two suspected churning/distribution events both show a clear 3C divergence with price. While I would not expect a long term 60 min chart to confirm price action of a single gap up (it takes a bit longer for a 60 min chart to move that fast), I confirmed in other timeframes the failure of confirmation.

This 30 min chart, also a longer term, heavy underlying flow timeframe shows FXI in line/price/3C trend confirmation at the green arrow, however the first gap up already has a distribution signal in effect and the second has a strong leading negative divegrence which is a lot of downside 3C movement for such a long timeframe in such a short period suggesting intense distribution on price strength.

 The 10 min chart which is still a fairly long timeframe for this kind of movement confirms the 30 min chart's negative bias with a very deep and fast moving leading negative divegrence at both the first major gap up and even stronger at the PBoC rate cut gap from last Friday, in fact 3C is making a new leading negative low while price remains extremely elevated in contrast to where 3C is in the recent past vs. price.

 The 2 min chart is fast enough that it can easily make a higher high with price in a single day, in fact in a m,matter of hours or at minimum show the intention by moving in that direction, but here we see none of that.

 And the near term 2 min chart's action is leading negative at a very tight, very flat price range. These are the ranges I warn about as they tend to have very active underlying trade. While most think that big market moves are evidence of smart money buying or selling, our experience over nearly a decade of using 3C is that it is these tight ranges in which institutional activity is heaviest which makes perfect sense as institutions use VWAP to grade a market maker or a specialists fill of an order they place with them, that typically means keeping price in a range (VWAP) for the fill at a pre-determined average price. By the time price makes large moves, smart money has long been in place.

Just for confirmation, this is FXP, the inverse of FXI above. Note the 2 min chart is leading positive whereas FXI's is leading negative and also in a tight range.

We not only have multiple timeframe confirmation with the long strategic probabilities in place and the shorter timing charts in place, but we have multiple asset confirmation as well.