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FXI2.27%  China Ishares Large-cap ETF breaking out today, as is most of Emerging market space

FXI2.27%  gapped up above its 2-year consolidation phase and has reached the 50% retracement level of its consolidation from October just in today's trading. 33.50 is important, but this move should lead to a move to 34.44 and then eventually to a retest and possible break of early Oct highs near 37.50. While overbought on hourly charts based on today's gap higher, this is a constructive development and the Decline in USD in the next couple months should aid China along with many other Emerging markets

Today's Monetary policy shift by China's Politburo, saying they will embrace a "Moderately loose" strategy, is the first real shift on monetary policy in 14 years. They also indicated a more proactive fiscal policy, so the combination has caused a big jump in FXI2.27% , KWEB3.30%  as this indicates much greater easing ahead.

FXI2.27%  (Ishares China Large-cap ETF) has violated support at 31.22, which likely leads to weakness down to at least 29.42, but more likely 28.28 or down to 26.83 into early December. This is a short-term bearish development, and warrants patience, as the decline likely will extend over the next few weeks. At present, i see this weakness as short-term only and investors could look at December as possibly providing support on this post-rally consolidation.

Today's downturn in Chinese Equities is not promising, and any decline under late October lows at 31.22 for FXI2.27%  would effectively serve to turn trends bearish over the next month, inviting possible weakness down to 29.46, or even 28.34, or 26.91. I'll discuss this more tonight, but investors need to watch this carefully given the About-face as technically it won't take much for FXI to structurally show evidence that additional consolidation is possible

China's move to new multi-day highs today (FXI as a gauge for Chinese Equities) gives some comfort that lows might be in place after the sharp consolidation of the last two weeks. As shown below, the weekly FXI2.27%  chart is set to close in the upper quartile of this weekly range given today's FXI strength. Thats a good sign with regards to time a potential bottom after a consolidation, and prices retraced just over 50% of the runup before bouncing sharply today. I feel that FXI is attractive at 32.26 and this would only change if this gets back under 30.65, which would lead FXI down to 29.50-29.65. For now, i am expecting a bounce in FXI next week as a result of this progress today

FXI2.27%  has broken last week's lows which will likely cause this recent selling pressure to extend potentially into November before being able to rally. Targets for FXI lie near 30.30 initially, but one cannot rule out 28.25 which would equate to an "Equal-leg" extension of the Oct 7-9 decline as measured from Oct 11. Overall, this recent selling should make FXI attractive to buy dips into November technically, but today's selling makes it a bit premature to consider FXI just yet.

I discussed in last nights report why FXI, TNX, Crude and Utilities might be close to peaking and showing consolidation. See 10/7/24 report, entitled "Crude, FXI, Utilities & Treasury yields all getting close to resistance" FXI2.27%  as shown below, made a direct hit with the 50% retracement level and down sharply today. See the report from last night for additional reasons

With 2 days left in the week, FXI2.27%  has advanced almost 40% in the last three weeks since bottoming 9/10 at 25.46. In technical analysis, they call this phenomenon a "runaway gap" as daily charts show three different gaps on heavy volume as China's stimulus got underway. While momentum is certainly overbought on a short term basis, monthly RSI is at at 63, so we're NOT as overbought as 2021, NOT as overbought as Jan 2018, NOT as overbought as April 2015 and certainly NOT as overbought as October 2007. My Target for FXI is 37.89, or a 50% retracement of the entire decline from 2021 into Oct 2022, which also lines up with a meaningful support trendline drawn from October 2008 lows. (Former support should now become resistance) It's right to stick with this for now, but on further gains over the next 3-5 days, this will certainly start to appear like a poor short-term risk/reward. As of today, 10/2, i don't have sufficient evidence to suggest this should peak out just yet.

Risk assets might be taking some solace from China's Equity market recovery. We saw PBOC reduction in the 14-day reverse repo rate to 1.85% from 1.95% and maybe front loading markets into the 5-day closure which starts on 10/1. FXI2.27%  is up 2.4% reaching the highest levels since May, and while more might need to be accomplished with regards to Municipal Lending Facility (MLF) also seeing a reduction, this Equity response is welcome news for China bulls, as China has lagged much of Asia this year. I'll discuss targets for FXI and KWEB this evening and look at some of the more attractive names within these ETF's. But clearly a very good technical move that puts Chinese Equities back on the radar, for now.