China – Andrew Thrasher

Slower Chinese Growth Pressures Shanghai Stocks

Posted on April 29, 2013 by Andrew Thrasher, CMT

This week I take a look at China’s Shanghai index for my TraderPlanet piece. China equities have been in a down trend for a couple of months now as softening economic data has been hitting the newswires. In the article I look at possible support for the equity index as well as bearish momentum.

Here’s a blurb:

China has garnered a great deal of attention lately with more reports of China’s economy slowing. Most recently it was announced that China’s industrial sector grew just 5.3% year-over-year in March, which is much lower than the growth experienced in the first two months of 2013. If we turn our attention to China’s Shanghai stock exchange, we can see the impact of these slower growth reports are having on Chinese equities.

Go read the rest: Slower Chinese Growth Pressures Shanghai Stocks (TraderPlanet)

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.

Chinese Equity Exhaustion

Posted on March 20, 2013 by Andrew Thrasher, CMT

China hasn’t been faring too well in 2013. All the talk of ghost cities and a cooling down of the Chinese economy appears to have put the brakes on for the iShares China 25 Index ETF ($FXI). While the weakness over the last few months is troubling, China has actually been underperforming U.S. equities since 2009.

Below we have a relative performance chart comparing $FXI and $SPY. As the line rises we know that China ($FXI) is outperforming (rising more or falling less) than U.S. large cap stocks – with the opposite being true when the green line is falling. In Sept. of last year we saw a bounce in relative performance with China taking back the reins and leading the S&P 500 to finish out the year. With the trend change favoring U.S. large caps we are now back near the level we saw in Sept ’12 and October ’08. This could provide a layer of support for $FXI to gain some steam and outperform $SPY in the coming weeks.

Looking at the RSI indicator we can see that momentum has fallen to previous lows. As you can see when the RSI has gotten to the present level it has corrected. While this can give a good indication of a possible low, we often see a divergence take place before an ultimate bottom is put in. However, with the low RSI reading and the ratio between the two markets nearing support, there is a fair chance we see some type of consolidation or short-term trend change approaching. If we do see a shift and $FXI begins to outperform $SPY then we would look to the previous high at the end of last year and the falling trend line to be possible levels of resistance for the ratio.

If there’s a chance of China picking itself up off the floor in relation to the S&P, we ought to look at a chart of $FXI by itself. $FXI has gaped down the past two trading days taking the ETF to the 200-day moving average (blue line). Typically moves like this that occur at the end of an identified trend are considered exhaustive gaps. That pattern could be what we are seeing in Chinese equities, which gives a point to the $FXI bulls.

New Short-Term High Could Take Us Either Way

Posted on July 19, 2012 by Andrew Thrasher

I’ve spent most of the evening thinking about this tape. With today’s close we are back to the early July high, which means it’s time to open the hood and look at the engine to determine if what’s driving this market is sustainable or not.

What is so frustrating is there doesn’t seem to be a clear signal from what I’m seeing. I could go either way. On one hand we have the Aussie dollar, which mirrored the move we saw in the S&P 500.

We also have the S&P breaking above a falling trendline (blue) and it still has room to run until it hits the rising trendline (orange) around 1390-1400.

We also have the fewest number of bulls based on AAII Sentiment data since August ’10, which has historically been a fairly good bullish contrarian indicator.

While on the other hand neither copper (JJC), China (FXI), the financials (XLF), or Technology (XLK) participating in hitting their early July highs. These four are typically leading indicators of price movement in the major indices. When we don’t see cooperation in any of them, a warning sign goes up.

Also, if you look at the S&P 500 chart posted above, in the bottom panel we see the On Balance Volume indicator which I’ve talked about numerous times. OBV simply adds the number of shares traded on positive days and subtracts the number of shares traded on negative days to give an idea of whether buyers or sellers are controlling the tape. During the recent rally we have not seen buyers step up in force while the S&P got back over 1370.

Finally, small caps (IWM) were also not present on the list of those hitting their short-term high. Typically, I like to see large caps be accompanied by the small caps during critical market junctures as a sign of traders adding beta to their portfolios. We saw a similar divergence where small caps were nowhere to be found when the S&P hit a new high back in April, with IWM putting in a lower high.

So now you can understand my frustration. We have cooperation from some and a lack there of from others. Although it will take more market action to play out before we may know if this rally can continue or if the intermediate downtrend is still intact, it seems there may be a slight bias to the upside for the time being.

The Chinese Fork in The Road

Posted on July 13, 2012 by Andrew Thrasher

China released some economic data this morning with Q2 GDP growth dropping to 7.6% from from 8.1% in Q1 according to the National Bureau of Statistics, the slowest growth in three years. Industrial output growth also slowed to 9.5% in June from 9.5% in May.

J.C. Parets over at All Star Charts did a nice job pulling out this weekly line chart of China’s Shanghai index last night and he discussed the implications the stock exchange is currently in pertaining to its long-term trendlines.

From All Star Charts:

The current prices are near the 2001 highs, right before the Shanghai Composite got cut in half. There is memory at this price. That former resistance adds additional support at these levels.

The consequences of a breakdown below long-term support would really be damaging to this chart, and paints a poor picture for China. But I think there is an overwhelming amount of support where the higher probability move is a bounce. And a breakout above an almost 5-year down trendline could be explosive.

I agree with J.C. in that China has approached a fork in the road, if this trendline that goes back to 1994 breaks then we could see some serious weakness out of not only the Asian markets but the global markets as a whole. However with this much support, it’d be surprising to see the price action slice through support like hot butter on the first approach.

Source: This is The China Chart to Watch (All Star Charts)

Copper Update

Posted on June 9, 2012 by Andrew Thrasher

Copper, or Dr. Copper as some refer to it as since it has a tendency to ‘predict’ moves in equity markets, is at an interesting place right now. Below I am looking at a weekly chart of the commodity, with a 200-week moving average plotted alongside price. As you can see by the orange circles, since 2010 the 200-week MA has done a fairly good job of back stopping the price of copper. This is where this past week of trading found some (so far) potential support.

When we look at the popular RSI momentum indicator, we typically get a break of 30, or at least get pretty close to 30 prior to seeing a bottom made in copper. We aren’t quite as low as we have been on this momentum indicator as past bottoms, but as Mark Twain once said, “history doesn’t always repeat itself but it sure does rhyme.”

So we have a potential bullish situation in copper based on a moving average support area and a possible oversold RSI indicator. Lets see where traders positioned themselves in the futures market. The chart below shows us the COT data going back to 2007. As you can see, commercial traders are extremely net long copper futures, while small traders are very bearish towards the metal – just the combo bulls like to see.

One of the important things to remember when looking at copper is its strong ties to China. If China’s economy is in fact slowing, which we saw additional signs of this morning with their weaker industrial output and CPI data, then copper is likely to feel the impact.