DataTrader: China ETF Races Toward Bull Market Territory
Traders who have been watching the ascent of the iShares FTSE/Xinhua China 25 Index Fund ETF (FXI) as it made its run of more than 26% over the past month and a half are likely wondering if the stock’s recent trading range will provide a new round of buyers with the opportunity to enter the market.
Up more than 1% ahead of trading on Wednesday, FXI continues to trade near its highest levels in a month. Since the beginning of November, FXI has oscillated back and forth in a narrow 2-point range, and has tended to have an overbought bias. Heading into Wednesday’s session, the exchange-traded fund has a small but clear negative edge.
As such, traders should not be surprised if FXI again attracts sellers. Recent rallies to overbought territory have been met with strong selling. Note in particular the three-day plunge that took FXI down by more than 5% in three days in late October.
Repeated finishes in overbought territory in mid-October also provided traders and active investors with the opportunity to sell the iShares FTSE/Xinhua China 25 Index Fund ETF short. A three-day string of overbought finishes in the middle of that month resulted in a slide during which FXI fell for four out of the next six trading days, losing over 5%.
With traders and investors having more than their fill of news from Europe, recent strength in the leading China ETF may reassure those looking for exposure to international markets, but who remain leery of the volatility of the stocks “from the Continent”. Interestingly, although short-term strength below the 200-day moving average in FXI has historically been short-lived, if the ETF does become overbought enough and remain so long enough, then a finish on the bull market side of the 200-day could happen as early as next week.
This would allow traders and active investors to begin trading the fund from the long side for a change, taking advantage of short-term weakness rather than short-term strength as the bull market in FXI is restored.
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David Penn is Editor in Chief of TradingMarkets.com