China Technical Update: $FXI, $FXI/$SPY, $FXI/$SSEC (10/15/2012)

FXI (iShares FTSE China 25 Index Fund), the FXI/SPY ratio, and $SSEC (Shanghai Stock Exchange Composite Index) appear to be testing multi-year downtrend lines. FXI is almost at the apex point of a multi-year symmetrical triangle and is testing downtrend resistance above the 50dma and 200dma (daily moving average). In the second chart, which goes back to 2005, it looks like a huge move is setting up for FXI in the symmetrical triangle.

The Shanghai Stock Exchange Composite Index ($SSEC) is still in a downtrend and keeps making new lows, but it could follow FXI to test its major downtrend as well. It just broke through (or pierced) the 50dma, so the next barriers are the 200dma and major downtrend line. The low in 2008 was at 1664.92. What's interesting is the divergence between FXI and $SSEC since June. The FXI/SSEC ratio just hit a new 3-year high. If that gap gets closed in the immediate-term, I think it would provide a clearer view of what type of breakout (or breakdown) to expect. But it's not always that easy.

An interesting ratio to look at is FXI/SPY, or the FTSE China 25 Index versus the S&P 500 Index. Since July 2009, the FTSE China 25 Index has significantly underperformed the S&P 500 (China bears who were right: Jim Chanos, Vitaliy N. Katsenelson, and Marc Faber). FXI/SPY even tested the 2008 crash low recently, but with less force. And after bouncing off that low, FXI/SPY is now testing a major downtrend as well. So, when looking at the FXI/SPY and FXI charts, are Chinese stocks setting up to outperform the S&P 500 for a while? Outperform in this case could also mean that FXI falls less than SPY. Or FXI flatlines while the S&P crashes.

FXI (1)

FXI (2)


$SSEC (4)


Posts from last year on SSEC and FXI:

Shanghai Stock Index Broke the 2010 Low, Wait For Soft Landing on the Chart (December 13, 2011)

*Watch FXI and SPY quotes in real-time at the Distressed Volatility Market Center (and many more).
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