FXI – Andrew Thrasher

Chinese Equities Hit a Wall

Posted on December 3, 2013 by Andrew Thrasher, CMT

China has been experiencing some nice strength over the last few weeks. I’ve been watching the relative performance of $FXI in relation to $SPY to see if the outperformance of Chinese equities can continue to lead U.S. large caps. This relationship is hitting some resistance, and this is the topic of my TraderPlanet article for this week.

Here’s a piece:

On November 13th I tweeted a chart of the relative performance of FXI and the S&P 500 (SPY). There appeared to be a positive divergence in momentum being created which was bullish for the Chinese ETF. What made this divergence in the Relative Strength Index interested was it was happening at the same time as the relationship between FXI and SPY broke its short-term trend line. We can now see that it was a false break as China’s outperformance pushed the ratio back above the trend line and headed higher through the rest of the month.

Read the rest: Chinese Strength Hits a Wall (TraderPlanet)

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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.

China Tests Support While Under Performing Emerging Markets

Posted on October 17, 2013 by Andrew Thrasher, CMT

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.

China Hits Resistance

Posted on August 6, 2013 by Andrew Thrasher, CMT

There has been a lot of discussion of an emergence of emerging markets. China ($FXI) is no exception as it tries to break its downtrend. This is the topic of my TraderPlanet piece for this week.

Here’s a piece:

While 2013 hasn’t been a great year for China, but it appears to be gaining some steam as $FXI head higher. The general theme this year has been U.S. stocks or nothing at all. Nearly any attempts to diversify away from domestic equities you have likely been penalized. The iShares FTSE China ETF ($FXI) has been trying to break that trend with its recent rally.

Since January we have watched FXI make lower highs and lower lows as its downtrend protracted. With this recent bout of strength we can see in the chart below that China is back up against falling resistance. If price is able to break above the $35 level then the next target would likely be $37 – the May high.

Read the rest: China Hits Resistance (TraderPlanet)

Emerging Markets Approach Support

Posted on March 14, 2013 by Andrew Thrasher, CMT

While we have been watching the U.S. equity markets tick higher, the emerging markets don’t seem to be fairing as well. Today we are taking a look at the iShares MSCI Emerging Market ETF ($EEM). Since the start of the year $EEM has been hitting lower lows and underperforming U.S. large caps. The same price action can be seen in China ($FXI), which has also been weakening over the last couple of months. The iShares Emerging Market ETF has just over 17% of its allocation in China stocks, giving this Asian market a strong influence in the ETF’s price action.

The below chart shows the trading pattern being created in $EEM with price approaching support, presently at $42.50. It appears the test of support will likely be more of a function of ‘when’ rather than ‘if’ as the U.S. dollar continues to rise, applying pressure to foreign markets due to their negative correlation.

To gain interest in emerging markets traders will likely be looking for some degree of outperformance against U.S. equities. In the bottom panel of the chart we can see the relative performance of $EEM and $SPY, when the line is falling it tells us that $SPY is outperforming (rising more or falling less) than $EEM. The green dotted trend line, which outlines the down trend in relative performance, likely needs to be broken for any meaningful advance to take place in $EEM.

As long as we have a strong dollar and see weakness out of China, it will be very difficult for emerging markets to gain their footing. This is a great example of using outside markets to gain understanding of why a security like $EEM is performing the way it is.

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.