Buying China, Selling China
Outside of bond ETFs, there are relatively few exchange-traded funds trading in oversold territory above the 200-day moving average ahead of Wednesday’s open.
There are a few funds, however, that have begun to pullback from recent, short-term highs and could end up at technically oversold levels before the end of the week. Among these ETFs is the iShares FTSE/Xinhua China 25 Index Fund ETF (NYSE: FXI). FXI has closed lower for two days in a row, pulling back by 2% in recent days in the wake of the rally that brought the fund back above its 200-day moving average at the end of January.
In fact, the selling in FXI likely represents the first significant pullback since the fund climbed back into bull market territory. Up more than 30% from its October lows and still ahead by more than 15% since the ETF last pulled back to a signficant short-term low, there have been plenty of gains for traders along the way, and it should surprise no one that gains like these would result in some overdue profit-taking.
That said, if FXI continues to trade lower, the fund could easily wind up technically oversold. At that point, and assuming that FXI remains in bull market territory, the ETF could become a very attractive target for short-term traders looking to buy short-term weakness in otherwise strong markets.
FXI has a neutral rating of 6 out of 10, and a positive edge just shy of 1% in the near-term.
Selling in Chinese ETFs is widespread, with lower levels being reached in funds like the Guggenheim China Real Estate ETF (NYSE: TAO) and the Guggenheim China Small Cap ETF (NYSE: HAO). The difference here is that these funds are trading below their 200-day moving averages, which makes their pullbacks off-limits for traders who only buy non-leveraged ETFs when they are trading in bull market territory.
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David Penn is Editor in Chief of TradingMarkets.com