{"id":21797,"date":"2024-05-20T07:30:38","date_gmt":"2024-05-20T11:30:38","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=21797"},"modified":"2024-05-20T07:30:38","modified_gmt":"2024-05-20T11:30:38","slug":"whats-next-for-the-beijing-bounce","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/whats-next-for-the-beijing-bounce\/","title":{"rendered":"What\u2019s Next for the \u201cBeijing Bounce\u201d"},"content":{"rendered":"

Managing Editor’s Note: <\/strong>Today, we’re handing the reins to colleague Larry Benedict – a market wizard and legendary hedge fund manager.<\/p>\n

And today he dives into the “Beijing bounce” and what’s happening in Chinese stocks.<\/p>\n

Here’s what Larry thinks will happen next…<\/p>\n

\n

After a three-year downturn, the iShares China Large-Cap ETF (FXI) bottomed out in January…<\/p>\n

During that time, FXI, which holds large-cap Chinese stocks like Tencent and Alibaba, dropped by 62%.<\/p>\n

FXI has rallied 36% since then. That’s largely thanks to serious intervention by the Chinese government. It placed huge buy orders from its sovereign wealth fund.<\/p>\n

We checked in on FXI last month<\/a>. I was looking for it to break short-term resistance.<\/p>\n

That since played out, and FXI rallied. So let’s check its prospects from here…<\/p>\n

Breaking Through Resistance<\/h2>\n

In the chart below, you can see the tail end of FXI’s bear trend.<\/p>\n

This three-year move kicked off after Chinese stocks peaked in February 2021…<\/p>\n

<\/p>\n

iShares China Large-Cap ETF (FXI)<\/strong><\/p>\n

\"Image\"<\/p>\n

Source: eSignal<\/em><\/p>\n

That downtrend corresponded with several common bearish signals…<\/p>\n

    \n
  1. \n

    The 50-day moving average (MA, blue line) trended lower. And the 10-day MA (red line) mostly tracked below it.<\/p>\n<\/li>\n

  2. \n

    The Relative Strength Index (RSI) tracked mostly in its lower band (below green line). That showed declining momentum.<\/p>\n<\/li>\n

  3. \n

    The blue moving average convergence\/divergence (MACD) line also predominantly traded in its lower range. That’s below the zero (0.00) line.<\/p>\n<\/li>\n<\/ol>\n

    FXI’s reversal had come off the back of the RSI forming a “V” and rallying (red line) from oversold territory (lower gray dashed line).<\/p>\n

    The RSI bullishly broke into its upper band. But it kept bouncing along support (green line). And it was unable to gain any traction higher.<\/p>\n

    As you can see, this caused FXI to track in a sideways range. The $25 level (orange horizontal line) acted as short-term resistance.<\/p>\n

    For FXI to break up through resistance, I was looking for the RSI to track longer and higher in its upper range…<\/p>\n

    Plus, we needed the 10-day MA to start reaccelerating above the 50-day MA. And the MACD (blue line) had to cross back above the signal (orange line), with both then tracking higher.<\/p>\n

    Take another look at the chart. As you can see, that’s how things unfolded.<\/p>\n

    <\/p>\n

    iShares China Large-Cap ETF (FXI)<\/strong><\/p>\n

    \"Image\"<\/p>\n

    Source: eSignal<\/em><\/p>\n

    You can gauge the strength of FXI’s breakout higher by the rate at which the 10-day MA is accelerating above the 50-day MA.<\/p>\n

    However, the speed of that rally leaves FXI in danger of overheating…<\/p>\n

    Note that the RSI is tracking sideways in overbought territory (upper gray dashed line). At the same time, FXI keeps making higher highs. That’s a diverging pattern.<\/p>\n

    So what should we look out for next?<\/p>\n

    <\/p>\n

    \n
    \n

    Free Trading Resources<\/strong><\/p>\n

    Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/p><\/div>\n<\/div>\n

    <\/p>\n

    A Potential Trigger for a Pullback<\/h2>\n

    When the stock price and the RSI are diverging like this, it can often precede a change of direction. In this case, that’s a reversal.<\/p>\n

    However, the RSI can often track around its upper level (overbought line) for an extended period when a stock is trending strongly higher…<\/p>\n

    That’s what we’re seeing here.<\/p>\n

    Here’s where the MACD fits into the picture…<\/p>\n

    As you can see at the bottom of the chart, the MACD line is still climbing and pulling the signal line with it (red circle).<\/p>\n

    <\/p>\n

    iShares China Large-Cap ETF (FXI)<\/strong><\/p>\n

    \"Image\"<\/p>\n

    Source: eSignal<\/em><\/p>\n

    We need to watch and see if the MACD line reverses sharply below the signal line, with both then tracking lower. <\/p>\n

    If that happens, it would be a potential trigger for a pullback.<\/p>\n

    Regards,<\/p>\n

    Larry Benedict
    \nEditor, Trading With Larry Benedict<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

    After a three-year downturn, the iShares China Large-Cap ETF (FXI) bottomed out in January\u2026<\/p>\n","protected":false},"author":55,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-21797","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/21797","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=21797"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/21797\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=21797"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=21797"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=21797"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=21797"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=21797"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=21797"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=21797"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}