Yesterday afternoon, one of my favorite trading systems, a self-styled ETF reversal swing trader, gave a signal to go long FXI, the iShares FTSE/Xinhua China 25 Index (for those who are interested, the 29 components and weightings of the FXI are available from the iShares FXI holdings page.)
If one looks at the daily chart of the FXI, there is not much in the chart to inspire bullish optimism, as FXI has fallen by 35% since late October and has logged distribution days in three of the last four trading sessions.
When the action is particularly volatile on a daily basis, I like to spend more time with the weekly charts. In the case of FXI, zooming out to weekly bars offers a different perspective, with more in the way of bullish opportunities. In the weekly chart below, it is easy to discern that the 40 week simple moving average contained all of the pullbacks from 2005 to the beginning of 2008. Also of interest, the March low just touched the 100 week SMA before bouncing off of that level and moving up. As the current 100 week SMA is approaching the 130 level, yesterday’s 135.30 low looks like it may be a relatively low risk entry, with a potential short to intermediate-term upside target of 155 or more.
The Chinese markets are about as volatile as any at the moment and bullish reversal trades are notoriously risky, but this does not exclude the possibility of entries with a favorable risk-reward profile.