Reports Wednesday of China's economic problems dragged global stocks lower. China reported the softest reading in its purchasing managers' index since December. Interesting.
In my review of the iShares China Large-Cap ETF (FXI) and Alibaba Group Holding (BABA) on Jan. 17 I wrote, "I still look for the FXI and the Chinese economy to weaken. Avoid the long side of FXI and BABA."
Now that China's weakness is front page news (replacing the positive reopening news) I wonder if we need to "lean into the wind?"
Let's check out a few charts.
In the daily bar chart of FXI, below, I can see that prices made a low in October and then rallied into the end of January. The FXI has made two "legs" lower. A decline from the end of January to the middle of March was the first leg. A second leg lower from the end of March to the end of May. The FXI trades below the declining 50-day moving average line and the declining 200-day line.
The On-Balance-Volume (OBV) line shows a decline from the end of January. The 12-day price momentum study shows us higher lows from February even as prices have made lower lows. This tells me that the pace of the decline has been slowing and creates a bullish divergence when the indicator is compared to the price action. Divergences are imprecise timing tools but are still worthwhile to follow.