Asian ETFs and Another Shot at The China Trade

With a number of Asian country funds moving back above their 200-day moving averages and into bull market territory in late January and early February, high probability traders will have the first opportunity in several months to trade many of these exchange-traded funds from the long side.

Or at least with the edges on their side, as well. There can be special situations trades in which a stock or exchange-traded fund has fallen so low and become so oversold that even if it is trading in bear market territory, the stock or ETF can be worth a small, speculative trade in an overall portfolio of diverse strategies.

This was one way that traders and active investors were able to take advantage of the rallies in beaten-down bank stocks late in 2011. By allocating small portions to these more speculative trades and looking for truly extreme conditions that would be most likely to move powerfully in any reversion to the mean, traders and active investors can get exposure to a broad range of potential opportunities that any given set of strategies may overlook.

That said, with Asian ETFs like the iShares FTSE/Xinhua China 25 Index Fund ETF (NYSE: FXI) and the iShares MSCI South Korea Index Fund ETF (NYSE: EWY) selling off into technically oversold territory ahead of trading on Tuesday, traders in these markets are likely finding themselves in far less, speculative, and more high probability waters.

What may vex short-term traders is the lack of follow-through to the downside after these ETFs have become initially oversold. Overall, this exceptional volatility may simply represent the strong buying pressure that is supporting stocks prices in general, a buying pressure that does not allow markets, especially bull markets, to remain oversold for very long. In fact, while FXI and EWY have closed in oversold territory five times between the two of them since they traded back above their 200-day moving average in late January, none of these oversold closes have been back to back, with each drop in price met swiftly by another round of buyers.

Heading into trading on Tuesday, shares of FXI have neutral ratings of 5 out of 10, and a positive edge of half a percent. Higher ratings and bigger edges are in smaller Asian country funds like the iShares MSCI South Korea Index Fund mentioned above, which has earned a “consider buying” 8 out of 10 midway through trading on Monday, and the iShares MSCI Singapore Index Fund ETF (NYSE: EWS), which is set to open Tuesday morning with 9 out of 10 ratings and a positive edge in the short-term of more than one and a quarter percent.

Stock ratings provided courtesy of PowerRatings. Information about quantified edges on stocks provided courtesy of The Machine

David Penn is Editor in Chief of