I returned to my desk Tuesday morning and did my usual "reading in" of news stories. I read that meme-stock "promoter" Ryan Cohen has built a stake in Chinese e-commerce giant Alibaba (BABA) and is reportedly ready to push for share buybacks. I don't want to delve that much into shares of BABA but rather look again at the (FXI) , the large-cap Chinese stock ETF.
In my December 30 review of FXI and BABA, I wrote that "Various pundits have been on FinTV voicing their opinions on what may lie ahead for China. In reality these are probably all sound guesses but I prefer to pay more attention to the price trends in the markets and these suggest more contraction in the months ahead." Let's check the charts again.
In this daily bar chart of FXI, below, I see a negative-looking picture. Let me explain. Prices have made three small "waves" higher from early November. The news flow has been bullish with media reports of fund buying, reopening economic strength and the ending of Covid restrictions.
Today I am reading about an American investor supposedly taking a big stake in BABA. Being more interested in the price action than the story I see the FXI is trading lower. Prices made a new high for the move up Monday and is likely to close below Monday's low Tuesday for a "close below the low of the high day" reversal signal. While trading volume looks like it has been more active since late October, it also looks like it has diminished during the past three months.
The daily On-Balance-Volume (OBV) line has moved up from early November but is now stalled at its early December zenith. The 12-day price momentum indicator shows lower highs from the middle of November telling me that the pace of the advance has slowed and this is a bearish divergence when compared to the price action making higher highs. Bearish divergences can foreshadow price declines at times.