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Tuesday, April 24, 2012


China is often proclaimed to be the engine of growth for the global economy.  There is lots of chatter on the financial channels, but there seems to be two widely different view points.  Some of the talking heads are very bullish on China.  They site immense government reserves.  There are a few people that expect a hard landing in China.  They usually site a real estate bubble.  Let see what the charts say.  I always like to start out with the monthly chart to get perspective on the big picture.

This is the China ETF FXI.  What an odd chart.  The parabolic move up into 2007, looks kind of like a bubble.  The crash in 2008 wiped out the entire accelerated move up.  After the initial surge up in 2009, FXI traded sideways until breaking down last fall.  The economic growth was strong throughout that sideways price pattern.  Why didn't FXI keep going up like most markets around the world did?  The usual cause is valuations.  I think they were way too high back in 2007.  It takes some time to work off a wildly over valued market.  Price is currently below its 18 SMA and price bars are white.  This makes the overall chart neutral/bearish.  There is certainly no clear sign that FXI is ready to fly up.  What about the weekly chart?

We have pretty much the same condition here.  Price is neutral/bearish on this chart as well.  It will be easier for these charts to turn fully bearish then it would be for them to turn fully bullish.  That leaves us with no clear sign the slow down in China is coming to an end.  There is some risk that it gets worse, but no clear sign that will be the case either.  Many talking heads expect Chinese growth in the second half of the year to pick up.  Maybe they will be right, and maybe not.


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