Sunday, January 24, 2010

Chart of the Week: Weekly FXI

Investors who have been waiting for a significant VIX spike to signal a changing of the guard in investor sentiment finally got something to sink their teeth into last week. On the other hand, investors who have been watching China closely have seen a slowly deteriorating picture since about mid-November.

In fact, FXI, the iShares FTSE/Xinhua China 25 Index, is now down 15.8% from its November high water mark and after declining sharply on large volume for the past two weeks is now below its 40 week (200 day) moving average.

As this week’s chart of the week shows, FXI has been locked in a largely sideways pattern since last July after retracing approximately 54% of the fall from an October 2007 high of 69.92 and a subsequent low of 18.95 in October 2008.

Note than in short pullbacks from 2005-2007, the 40 week moving average acted as support. Last week’s breach of the 40 week support line looks more serious than anything experienced during 2005-2007. Should FXI not be able to close this week above the 40 week moving average, I would not be surprised to see that level flip from support to resistance and further confirm that Chinese stocks are in a bear market.

For more on related subjects, readers are encouraged to check out:

Also, for an excellent blog devoted to the fundamentals of the Chinese economy, I highly recommend China Financial Markets by Michael Pettis.

[source: StockCharts]

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