Domestic equity indexes started off the week in red territory after Euro zone euphoria seemingly disappeared. Traders were quick to scale back their risk exposure after German Chancellor Angela Merkel implied that investors were getting ahead of themselves in anticipation of a quick-fix to the region’s towering debt troubles. It’s not terribly surprising to see clouds of uncertainty emerge once again, seeing as how equity markets were a bit too optimistic last week in pricing in a debt-resolution plan, when in fact lawmakers are far from devising a comprehensive solution [see Euro Free Europe Portfolio Now Available]. Gold futures remain range-bound and prices for the precious metal continue to drift along rising levels of support, with futures contracts settling around $1,670 an ounce for the day.
China’s third-quarter GDP report came out earlier today, which makes the iShares FTSE China 25 Index Fund (FXI) our ETF to watch, seeing as how this is by far the biggest and most popular product offering exposure to the Chinese equity market [see FXI Holdings].
Since breaking below its 200-day moving average (yellow line) in June, FXI entered into a serious downtrend, shedding more than 30% between 6/8/2011 and 10/4/2011. FXI appears to have bottomed out above the $30 level; notice the high-volume trading in the early days of October during which this ETF held above $30 a share, although it did slip down briefly to $28.61 a share on 10/4/2011 [see FXI Returns].
FXI has gained upwards of 10% since rebounding from $28.61 a share, however, establishing a long position in this fund is still quite speculative seeing as how it remains underneath the significant 200-day moving average (yellow line). Despite its recent strength, FXI is far from being out of the woods just yet, this ETF is still down over 20% year-to-date [see Van Eck Launches China Dim Sum Bond ETF].
FXI appears to be facing significant resistance at the $35 level, and we advise conservative investors looking to get long to hold off from buying until shares can definitely establish support above that level in the coming days [see Commodity ETF With Asian Twist On Tap]. If China’s GDP comes in way below analyst expectations, serious selling pressures may develop, potentially pushing FXI down to major support at $30 a share, or perhaps even lower. Likewise, if profit taking is not so severe, FXI may only come down to minor support near the $32 level. If investors cheer on the latest GDP data, then FXI could surge to $36 a share, at which point we would advise conservative short-term traders to take profits. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.