European markets soared on Tuesday following news of Berslusconi resigning, paving the way higher for domestic equity indexes as well, with the S&P 500 gaining 1.17% on the day. Confidence in the Euro zone improved considerably after it was reported that Italian Prime Minister Berlusconi plans to resign after the country’s 2012 austerity plans are approved. Investors are hoping that Italy’s new leader will take a firmer approach to reign in the nation’s spiraling deficit, as well as working diligently with other EU leaders to devise a comprehensive plan that ensures stability in the debt burdened currency block [see Three Long/Short Ideas For Euro Zone Debt Drama]. Gold climbed higher alongside stocks, and futures prices for the precious yellow metal hit a fresh multi-week high of $1,804 an ounce before the trading session drew to a close.
China’s consumer price index is slated to come out which brings the spotlight on the ultra-popular iShares FTSE China 25 Index Fund (FXI) for today [see FXI Holdings]. Analysts are expecting a down-tick in inflation from the previous reading of 6.1%, which may lead to volatile trading in shares of FXI as traders scramble to re-adjust positions based on the latest economic data release [see our Asia-Centric ETFdb Portfolio] .
FXI has endured a serious downtrend since tumbling below its 200-day moving average (yellow line) back in early June of 2011. Since breaking below support at the $40 level on 8/4/2011, FXI sank desperately lower as investors pulled money out of this popular emerging market fund, hitting a low of $28.61 a share on 10/4/2011. Since bottoming out in early October, FXI has staged an impressive comeback, gaining 30% in a little over a month [see FXI Scorecard & Rankings]. Despite this impressive rally, entering into a long position in FXI remains quite speculative at current levels seeing as how the fund is still trading below its 200-day moving average and the closest level of support is all the way down at the $35 level [see FXI Technicals].
FXI appears poised to move higher from current levels seeing as how this ETF has established relatively high-volume support around $35 a share, however, it may soon encounter profit-taking as it attempts to summit the $40 level.
If the latest China CPI release comes in far lower than expected, investors may get a little worried that growth in the booming Asian economy is slowing down, potentially putting downward pressure on FXI [see ETF Misnomers: Why You Never Judge A Fund By Its Cover]. In terms of downside, FXI has support at $35 a share, while a close below this level would be worrisome since the next level of support is all the way down around $30 a share. In terms of upside, a stronger than expected CPI could send FXI higher, potentially towards $40 a share, at which point we would advise short term traders to lock-in profits seeing as how this is a resistance level. 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.