Is the Chinese Market a Dead Man Walking?

Table of Contents

• Summary

• Technical Picture

• Sentiment

• Is China a Contrarian Play?

• Quiz Results

• EW and Cycle Analysis of SPX, NDX and DJI

• VXX Update

• Annex 1: Commodities Corner – WEAT

• Annex 2: Cycle Analysis of Chinese ETFs – FXI and …

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Summary

• We got the consolidation/pullback in the US indexes, just as “the doctor prescribed;”

• The Nominal 10D cycle is bottoming and is due to turn up for several days;

• So, there may be one more BTD long scalp opportunity for ST traders for up into the next week, but also a raise cash (STR) opportunity for MT and LT traders and investors;

• Though we should be cautious with the bullish plays because both cycles and EW counts, despite still higher cycle targets, suggest a turn down is due in several days, and the reversals are sometimes sharp and come out of the blue.

Technical Picture

• SPX hourly chart in Figure 1 indicates that SPX is oversold in ST and due for a bounce, although one more attempt lower is not precluded;

• Daily and weekly charts technical indicators are negative despite the expected bounce next week.

Sentiment

• Figure 2 shows CNN’s Fear & Greed Index that receded from extreme greed to almost neutral;

• This might be sufficient for a bounce;

• Will the bounce drive the investors’ sentiment to extreme greed again?

• Not sure, perhaps not. Often, the sentiment exhibits a negative divergence with respect to the final market top.

Is China a Contrarian Play?

• The “street” is fairly pessimistic on China’s market and economy:

  • ‘Chronic disappointment’: global funds make big cut in China stock allocation amid entrenched pessimism on economy, policies

  • 2023: The year China’s economic miracle ended 2023: The year China's economic miracle ended

  • China’s Stock Index near a 5-Year Low After Moody’s Outlook Cut.

• Let’s see what the chart says. Figure 3 shows the FXI price chart and technical indicators:

  • The price is quickly approaching 2022’s low, which is the lowest level since 2009, in what looks like a possible capitulation move in progress, a “falling knife;”

  • But, there are no strong positive divergences yet; I prefer to see positive divergences in technical indicators on the daily and weekly charts before taking an LT position (though sometimes we get V-bottoms without positive divergences in technical indicators);

• Is a contrarian strategy to buy China and sell Japanese and US stocks good?

  • I would not mind taking profits in Japan and US markets, but I would take a somewhat cautious view on China, as discussed below;

  • Although from a contrarian perspective, China may look “juicy” and may very soon develop a bounce, I am not convinced this would be a “final” low, and contrarians are often early buyers;

  • So, how to play China? It depends much on investors/trader's risk tolerances; one possible approach is to look for signs of a bottom and take an initial position, that may evolve into a trade, then on the next pullback or a new low, take a bigger position;

  • I will look at the cycle aspect of FXI and CQQQ in Annex 2 (premium content).

Quiz Results

Buy % (of those voted)

• GBTC: 66%

• BITI: 34%

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