Like emerging markets ($EEM) in general, China has had a nice last four months. Below we have a chart of the iShares China ETF ($FXI). For the last four months the relative performance for China compared to the S&P 500 has been fairly strong, albeit recently. However we must dig deeper to determine if China is the strongest chicken in the coup.
Using a top down process I’ll determine which is better, domestic or international? Over the last few months it’s been international. Next up should we be looking for developed markets or emerging markets? Since Mid-August emerging markets have been the place to be. Now which emerging market? Should we look at China, Brazil, Indonesia, South Africa, etc.? We can perform simple relative performance analysis to see that Brazil ($EWZ) has been one of the strongest emerging markets over the last few months. Meanwhile, China has actually been under performing the iShares Emerging Market ETF ($EEM) as we can see in the bottom panel of the chart. That’s a small piece of the process I”ll go through when looking for plays based on global regions. Taking a broad theme and going step by step deeper to see where the strength is coming from. From there I’ll use other methods of analysis to determine if the risk/reward is truly there.
Turning the focus to the latest price action within $FXI we can see it’s currently testing its rising trend line off the June low. Like all trend line breaks (if we do eventually see a break), I like to see confirmation in order to diminish the opportunity for a false move. With the advance in global equities today, China may see some benefit of hide tide raising all boats and the trend line holds. But I’ll continue to keep my eye on this one if we see future weakness in the coming days.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.
Hi Andrew,
New reader here. Congrats on obtaining the CMT a little while back. I caught this news while browsing Twitter for CMT related posts and followed the congratulations there back to your blog. I’m also thinking about going through with the CMT.
Regarding the post, are you also looking at outside news besides the chart? I’ve been following that much of Emerging Markets performance and activity going forward will depend on what the Fed will do in regards to it’s bond buying program. Are you factoring in at all that if they hold out on pulling back the program through the end of the year and possibly into 2014…. EM should continue to perform well and probably more so than China due to the continuation of liquidity being provided by the Fed?
Or as a tech analyst are you not paying attention to that and just letting the buying/selling tell you what’s happening?
Interested in your feedback!
Chris K.
Hi Chris, Thanks for reading. Some technicians will completely ignore outside news when looking at the market, strictly sticking to price. I could make the argument that this is a positive way of viewing the markets but I do review the news and headlines and see what is going on. Will I make a decision based on a CNBC or Bloomberg headline? No. But when Japan came out last Nov/Dec about stepping into the currency market, that’s a story you couldn’t ignore at the time.
EMs are severely impacted by the Feds QE, you’re right. I think it’s important to know what can have an impact on a market but then taking that back to price action. Again, I wouldn’t trade something based on news or economic data. If price finds it important, it’ll show up in the movement.
So to answer your question….yes I read the news but I do not let it dictate my actions. Hopefully that helps.
I definitely recommend the CMT. It’s a great program and anyone who is interested in technical analysis would benefit from the reading material and studying for the exams.