The financial media has been focused on the reopening of China trade for several weeks now. The short-sighted view of things is that demand will bounce back and Chinese businesses will respond positively and equities will be a great buy here.
The bigger picture is that the Chinese high growth economy is slowing as Chinese and global liquidity continue to contract.
Let's look at some charts.
In this daily bar chart of the iShares China Large-Cap ETF (FXI) I can see that prices did bounce to the upside in recent weeks but the rally has encountered selling or profit taking at the underside of the declining 200-day moving average line. Prices are above the rising 50-day moving average line but that may not last for long.
The On-Balance-Volume (OBV) line has weakened this month and tells me that sellers of FXI are being more aggressive. If China's reopening was that bullish shouldn't buyers be more aggressive?
The trend-following Moving Average Convergence Divergence (MACD) oscillator is still above the zero line but has crossed to the downside for a take profits sell signal.
In this weekly Japanese candlestick chart of the FXI, below, I can examine the price action of the past three years. The recent rally has stalled at the 40-week moving average line. The FXI held the $30 area on the way down (support) and that area is probably acting as resistance now.
The weekly OBV line bounced upwards but has not overcome its prior high so the major trend has not reversed. The MACD oscillator has only made a cover shorts buy signal. We are a long way from an outright buy message.
In this daily Point and Figure chart of FXI, below, we can see a lot of price history. The software is projecting a downside price target in the $8 area.
Alibaba (
BABA) is the largest weighted stock in the FXI. In this weekly Japanese candlestick chart of BABA, below, I see a bearish picture. Prices are still in a major downtrend. The slope of the 40-week moving average line is negative.
The weekly OBV line is in a longer-term downward trend. The MACD oscillator is still below the zero line even though it has moved higher for months now.
Tencent Holdings (
TCEHY) is the second largest holding in the FXI and its daily chart, below, shows weakness. Prices are above the 200-day line but that may not last for long.
The 12-day price momentum study in the lower panel shows a lower high from November to December even though price made higher highs - this is a bearish divergence and could foreshadow a correction lower.
In this last chart today I want to show you the weakness in the Chinese yuan. The currency is declining and could be foreshadowing some negative event in China's credit markets. This is conjecture on my part.
Bottom line strategy: 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.
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