Charting China - The Big Picture, Andy Tabbo, and FXI/FXP

Over at Barry Ritholtz' Big Picture, Andy Tabbo is a regular commenter who offers up insightful analysis from a technical perspective. This comment discussing FXI, the China Xinhua 25 ETF, caught my attention, since I currently hold a significant position in FXP, the ultra-short China ETF:

Andy Tabbo Says:
February 13th, 2009 at 3:36 pm

ben22: Just charted the FXI.

I was just charting that puppy. You realize it’s in a perfect downtrend channel right? I can draw almost a perfect 6 pt down trend line on that guy. It might break out of that channel and scream higher, but I’m loathe to say this “the trend is your friend.”

In terms of Wave Principle..there’s a lot of elements to that chart that are similar to the SP500, which I guess is predictable.

FWIW.

Tabbo mentions a perfect downtrend channel. So I paused reading the comments and loaded up a weekly chart of FXI. I believe I've also spotted the aforementioned downtrend channel, and marked it accordingly in purple:

But I also worked up a quick-and-dirty daily chart of FXI, and spotted a triangle formation, marking it in green:



So will FXI resolve the triangle formation by breaking down lower, maintaining its longer-term downward trend channel on the weekly chart? That's what I think, and I back up that assertion with my continued position in FXP.

Other commenters that followed Tabbo's post (namely, I-Man and karen) think FXI is due to breakout to the positive. But they seem to have looked at the short-term daily chart, probably for just the past three months. Methinks they only noticed the bottom part of the triangle formation, i.e. a clear uptrend.

Tabbo returns to the fray, supporting the view that the longer-term trend that has yet to be broken:

Andy Tabbo Says:
February 13th, 2009 at 4:34 pm

karen, karen, karen….

C’mon sweetheart.

FXI. From 10/31/07 it’s very easy to see a DRAMATIC LONG TERM DOWNTREND. On a closing basis, the downtrend line touches on:

5/5/8
7/23/8
7/30/8
8/27/8
1/6/9
2/6/9

Compared to the SHALLOW pathetic uptrend line you’re referencing, I don’t think there’s any doubt which trend takes precedent here. We will break out of that powerful downtrend someday, but as far as I can see it has not yet done so.

In terms of Wave Principle, it’s a really perfect unfolding five wave move so far. I won’t get into the gory details, but similar to the SP500, it really looks like big Fourth Wave concluded at $32 on 1/6/2009. The Fifth Wave targets $17.50. The model I’m looking at right now is extremely bearish and it requires some strong moves lower, so any kind of good move higher would make rethink it. Certainly any break of the downtrend line from 10/31/2007 would make take another look.

Tabbo later continues with a fundamental thesis for China's troubles, and a trading setup:

Andy Tabbo Says:
February 13th, 2009 at 6:40 pm

O’ Mistress.

I am very difficult to satisify. I’m very much looking for a bottom, and when I see one I will start screaming from the rooftops to start buying, rest assured. However, some serious economists have concluded that China is the MOST similar to the U.S. in 1929 - 32, due to it’s huge reliance on exports and it’s massive reserves. The U.S. now is more similar to Europe in the Great Depression. We’re debtors and can monetize our debts if necessary. China’s reserves are going to DWINDLE rapidly and they will not be able to change the habits of the population so quickly, to go from savers to consumers.

So, yeah, I can see a full 75-80% decline in the FXI. It’ll be a nice setup down at $17 bucks…it’ll be a “new low” that gets most other technicians all bear’d….you’ll have tons of RSI divergence and be setup for a massive snapback rally.

These discussions are another excellent reason to read The Big Picture blog--Ritholtz has attracted a solid set of commenters who add surprising value to the discussion. The initial post (about the S&P fairly valued at 440) is mere kindling for more illuminating intellectual fodder.

And yes, I'll be keeping my eye on the downward trend channel on the FXI weekly chart, as well as looking to unload some shares in FXP if FXI approaches the high teens.