The recent bounce has helped to bring US Equity indices ever closer to an area that will be important resistance into late October. While this bounce was largely built on Uber-bearishness, near-term oversold breadth and momentum, the rally happened yet again from a cyclical area of importance, obeying the mid-month cyclical rhythm that has provided quite a few turns thus far in 2022. As seen below, this hourly structure remains pointed higher, but has taken the shape of a three-wave advance. Failure to extend to a five-wave before this turns back lower would invite new low territory into early November, which at present, does not necessarily need to happen. Important support on pullbacks is raised to 3650, while upside likely should contain market gains near 3825-3855. At present, stocks have been able to bounce over the last week without much pullback in Bond yields, though this will prove difficult to continue in the week ahead.
China hitting new decade lows means bounces are fade-able
China’s recent consolidation of power under President XI wasn’t taken too kindly by markets to kick off the new week. The NASDAQ Golden Dragon China index of 65 Chinese stocks fell over 14%, posting its biggest drop on record, erasing about 93 billion in market value.
FXI monthly charts show prices having undercut all yearly lows going back since 2009, a full four years ahead of when XI was named the country’s president. Technically, prices have reached the most oversold levels on monthly charts going back further than 2009, as September’s support violation coupled with October 2022’s follow-through has caused a massive amount of technical deterioration. The question most have at present given the hugely negative sentiment is of course, when does China become investable?
Technically I can make the case for buying dips during November into December based on a combination of oversold conditions combined with DeMark exhaustion, which is now present on a daily and weekly basis. Yes, price action is nearly “so bad, it’s good” with regards to contemplating buying dips. However, I expect rallies to prove short-lived given the massive ongoing downtrend still present over the last 20 months.
One should consider any bounce from current levels up to the mid-to-high $20’s as being a gift in the near term, and any rally attempt will require a move back above the giant multi-year base, which was broken, to have any vision of China having put in a larger market low. Following a bounce over the next six weeks, I anticipate that October 2008 lows near $19.35 in FXI should be tested, and potentially undercut during 1st to 2nd quarter 2023, technically. It’s difficult trying to catch falling knives, and some evidence of stabilization is imperative before giving China much consideration.
China Large-Cap iShares ETF now signaling both daily and weekly exhaustion
While it’s difficult trying to buy dips in downtrends that haven’t stabilized, nor have given any indication of breaking downtrend lines, one can attempt to pick spots to consider FXI given the presence of several different counter-trend exhaustion signals.
Normally, it’s wise to wait for these signals to be confirmed (by daily and/or weekly closes finishing above the close from four periods ago, daily and/or weekly respectively). At present, both daily and weekly TD Combo and TD Sequential “13 Countdown” signals are present, but not yet confirmed.
The extreme oversold nature of this market along with the pessimistic sentiment likely does suggest a bounce should be right around the corner. However, technically I feel like this market is difficult to invest in at present given the uncertainty and lack of confirmation. While aggressive investors might consider trying to buy dips, I prefer awaiting minor bounces into December and seeing if/when this market starts to stall out again on rallies.
$FXI as shown on a weekly Symbolik chart is highlighted below, showing the completion of a 9-13-9 pattern (note, this pattern isn’t officially completed yet, being on an 8 count of the TD Buy Setup, and certainly has not been confirmed). Some often attempt to “jump the gun” on taking advantage of these signals, yet, it’s normally prudent to await stabilization and/or some evidence of trend break.
$FXI vs. $SPY shows no evidence of an intermediate-term Bottom
Interestingly enough, while $FXI is certainly oversold, the ratio of $FXI vs. $SPY does not show proper evidence of exhaustion in ratio form to suggest that $FXI might turn up in a manner quicker than the $SPX.
As monthly charts show below, the two different indicators I employ to study relative relationships show an 8 and a 10 count (DeMark indicators) on a monthly basis. Thus, it would take at least another 3-5 months before any indication is in place that China’s FXI might be giving “buy signals” vs. the US.
Overall, I view China as a laggard in comparison to the US, which likely lasts into at least the second quarter of 2023. Any absolute bounce certainly can happen at any time, but likely proves short-lived, and not something that I view has the fortitude to begin outperforming the SP for at least the next few months. While many view these companies within Chinese Technology to potentially offer a compelling value fundamentally, I see above-average risk in trying to buy dips in the short run and don’t think they have any staying power.
If/when monthly signals start to appear, and are properly confirmed, one can start to give this market a closer look. At present, both India and the LatAm space are far stronger technically speaking.