China has recently been in the spotlight after the economy
grew at a modest pace in the fourth quarter following a dismal
performance in the preceding quarter. While the growth recently
hasn't been China's best by any means, it surely does hint
towards a positive trend that could very well prove to be crucial
for the global economy going forward.
Some of the reasons for this key turnaround are thanks to a
favorable investment climate and stepped-up policy initiatives
from the country's government. Beyond that, an increase in
domestic demand fuelled by a rising middle class, and surging
industrial production have also boosted Chinese prospects in the
near term (read
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With this backdrop let us have a closer look at the Chinese
iShares FTSE China 25 ETF (
which seems to be decently poised for a further up trend even
from the current high levels.
A look at the long term price chart of the ETF reveals a
neutral to bullish picture. After bottoming out very nicely from
mid June till September at around $32 the ETF witnessed a
breakout of the then resistance of $35.50. Since then, FXI has
continued its long trek upwards and has currently reached its 52
week high and is hovering around it.
Also, the trend seems to be on a positive side for the ETF as
the bullish crossovers for the 50 and 100 DMA lines (blue and red
respectively) over the 200 DMA line (green). This trend seems to
be having some fuel left as indicated by the upward sloping
pattern for each of these moving average lines (read
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Now let us have a look at the short term price pattern of the
ETF. The chart below is a 6 month daily price chart of FXI and
the overlay used is Bollinger Bands.
As is clearly evident from the recent trading pattern of the
ETF, it is directionless and choppy. Since the beginning of the
year the ETF has witnessed a pretty range bound trading action
unlike most of its U.S. broad market counterparts.
Therefore, the underlying volatility of the ETF has clearly
diminished. Not surprisingly, the Bollinger Bands also bear
resemblance to this fact.
The bands have clearly witnessed a contraction of late which
is a sign of reducing volatility and lack of a clear cut
direction. However it is prudent to note that the bands usually
exhibit similar characteristics just before a significant bullish
or bearish breakout due to its mean reversion characteristic
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In any case, viewing the long as well as short term charts in
isolation does not reveal a clear cut direction pattern for FXI
and it is very difficult to predict a trend from the charts
individually. However, by combining the short as well as long
term analysis it is possible to arrive at a more concrete
assertion about the future course of action for the ETF (see
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While the long term price chart tells us that the ETF is
fairly neutral with a bullish bias, the short term chart tells us
that the ETF is brewing towards a more violent movement - either
upward or downward.
However, with the economic fundamentals of the Chinese economy
improving, one could well imagine that the recent subdued trading
action for FXI is just the calm before the storm upwards, at
least in the near term.
Nevertheless, the ETF might continue to witness choppiness in
the subsequent few trading sessions as indicated by the RSI
reading of 61.47 which is tending towards the overbought
territory. The same is concurred by the Williams R indicator with
a reading of -31.42.
Thanks to this we are a little uneasy about China
at this time, but believe that they could be poised to surge in
the coming days. The longer term picture is a little more
clouded, but at least right now, the space could continue its
technical momentum to new heights in February.
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ISHARS-FT CH25 (FXI): ETF Research Reports
SPDR-SP CHINA (GXC): ETF Research Reports
ISHARS-MS CH IF (MCHI): ETF Research Reports
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