Slower Chinese Growth Pressures Shanghai Stocks

This week I take a look at China’s Shanghai index for my TraderPlanet piece. China equities have been in a down trend for a couple of months now as softening economic data has been hitting the newswires. In the article I look at possible support for the equity index as well as bearish momentum.

Here’s a blurb:

China has garnered a great deal of attention lately with more reports of China’s economy slowing. Most recently it was announced that China’s industrial sector grew just 5.3% year-over-year in March, which is much lower than the growth experienced in the first two months of 2013. If we turn our attention to China’s Shanghai stock exchange, we can see the impact of these slower growth reports are having on Chinese equities.

Go read the rest:  Slower Chinese Growth Pressures Shanghai Stocks (TraderPlanet)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Chinese Equity Exhaustion

China hasn’t been faring too well in 2013. All the talk of ghost cities and a cooling down of the Chinese economy appears to have put the brakes on for the iShares China 25 Index ETF ($FXI). While the weakness over the last few months is troubling, China has actually been underperforming U.S. equities since 2009.

Below we have a relative performance chart comparing $FXI and $SPY. As the line rises we know that China ($FXI) is outperforming (rising more or falling less) than U.S. large cap stocks – with the opposite being true when the green line is falling. In Sept. of last year we saw a bounce in relative performance with China taking back the reins and leading the S&P 500 to finish out the year. With the trend change favoring U.S. large caps we are now back near the level we saw in Sept ’12 and October ’08. This could provide a layer of support for $FXI to gain some steam and outperform $SPY in the coming weeks.

Looking at the RSI indicator we can see that momentum has fallen to previous lows. As you can see when the RSI has gotten to the present level it has corrected. While this can give a good indication of a possible low, we often see a divergence take place before an ultimate bottom is put in. However, with the low RSI reading and the ratio between the two markets nearing support, there is a fair chance we see some type of consolidation or short-term trend change approaching. If we do see a shift and $FXI begins to outperform $SPY then we would look to the previous high at the end of last year and the falling trend line to be possible levels of resistance for the ratio.

China SPYIf there’s a chance of China picking itself up off the floor in relation to the S&P, we ought to look at a chart of $FXI by itself. $FXI has gaped down the past two trading days taking the ETF to the 200-day moving average (blue line). Typically moves like this that occur at the end of an identified trend are considered exhaustive gaps. That pattern could be what we are seeing in Chinese equities, which gives a point to the $FXI bulls.

China

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

New Short-Term High Could Take Us Either Way

I’ve spent most of the evening thinking about this tape. With today’s close we are back to the early July high, which means it’s time to open the hood and look at the engine to determine if what’s driving this market is sustainable or not.

What is so frustrating is there doesn’t seem to be a clear signal from what I’m seeing. I could go either way. On one hand we have the Aussie dollar, which mirrored the move we saw in the S&P 500.

We also have the S&P breaking above a falling trendline (blue) and it still has room to run until it hits the rising trendline (orange) around 1390-1400.

We also have the fewest number of bulls based on AAII Sentiment data since August ’10, which has historically been a fairly good bullish contrarian indicator.

While on the other hand neither copper (JJC), China (FXI), the financials (XLF), or Technology (XLK) participating in hitting their early July highs. These four are typically leading indicators of price movement in the major indices. When we don’t see cooperation in any of them, a warning sign goes up.

Also, if you look at the S&P 500 chart posted above, in the bottom panel we see the On Balance Volume indicator which I’ve talked about numerous times. OBV simply adds the number of shares traded on positive days and subtracts the number of shares traded on negative days to give an idea of whether buyers or sellers are controlling the tape. During the recent rally we have not seen buyers step up in force while the S&P got back over 1370.

Finally, small caps (IWM) were also not present on the list of those hitting their short-term high. Typically, I like to see large caps be accompanied by the small caps during critical market junctures as a sign of traders adding beta to their portfolios. We saw a similar divergence where small caps were nowhere to be found when the S&P hit a new high back in April, with IWM putting in a lower high.

So now you can understand my frustration. We have cooperation from some and a lack there of from others. Although it will take more market action to play out before we may know if this rally can continue or if the intermediate downtrend is still intact, it seems there may be a slight bias to the upside for the time being.

 
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.