Keep Your Eye on the Bouncing Chinese Ball (and Google)


iShares FTSE/Xinhua China 25 Index (Amex: FXI): 8:40 PM NYC time, November 8th: Just a follow up on my most recent three blogs, which focused on China.

We talked about the Chinese stock market as the bellwether for the global rally off the August lows, marked on the chart above. That rally has now faltered, as indicated by the 1 (pullback off new high), 2 (subsequent attempt at new high) and 3 (close below the low at point 1).

It should be noted that today’s action also shows an intraday rally that developed below the 50-day moving average (shown) and closed at/above it. And on strong volume. The end result was a hammer-type candle, which is easily visible at the other places on this chart from which rallies began. Does it mean that the selling of the past week has been completed? Perhaps, but…

… I personally doubt it (although I did close out a short position today). A valid hammer usually comes after a decline of at least 1/3 of the prior move. We haven’t done that yet. The August lows came at the 200-day moving average, which you see is a ways below where we’re at now.

Just watch the Chinese stocks and Google (NSADAQ: GOOG), chart shown below. Also below is a CBSMW article.



Hong Kong leads sell-off; China stocks battered
By Chris Oliver, MarketWatch
Last Update: 3:37 AM ET Nov 8, 2007

HONG KONG (MarketWatch) — Asian markets skidded lower Thursday, with Hong Kong leading the sell-off as traders rushed to protect profits in large-capitalization shares such as China Mobile, while Japan’s Nikkei average fell as export-related shares were hurt by the yen’s strength against the dollar.

Markets around the region were spooked by a 360.9-point plunge in the Dow Jones Industrial Average overnight, spurred by a record loss at General Motors Corp., a weaker U.S. dollar and record oil prices.
Markets were also weighing the outlook for the U.S. economy after more U.S. banks announced losses linked to subprime-mortgage securities Wednesday.

Sony set a weaker tone for export-related stocks, with its shares retreating 3.1% after the dollar slumped to the to upper 112-yen level.

Shares of PetroChina fell 7.4%, while China’s largest offshore oil producer, Cnooc, fell 6.7%.

Traders said the sell-off among the energy blue chips was likely driven by fund managers pulling up stakes and intending to switch into shares of comparable companies in other markets that trade at cheaper valuations.

Hong Kong’s Hang Seng Index ended 948 points lower, off 3.2% at 28,760.22, narrowing from a 1,000-plus-point loss earlier in the session.

The China Enterprises Index, a gauge of 43 mainly Chinese state-owned companies listed in Hong Kong, fell 4.5% to 17,716.86.

China’s Shanghai Composite Index ended 4.9% lower at 5,330.02.

“A lot of people have got a lot of big profits that they are quite keen to protect, but because China has been such a good run, they’d be loathe to sell just in case they are wrong and the market continues to go shooting back up. … People are really quite confused.” said Andrew Clarke, a trader with Societe Generale in Hong Kong.

China Mobile, the world’s largest cellular-service provider by market capitalization, fell 3.8%; it recouped a bit from steeper declines earlier in the session. Industrial & Commercial Bank of China,, the world’s biggest by market value, saw its shares decline 4.1%.

“The party is over,” said Alex Tang, head of research for Core Pacific-Yamaichi. “It is very unlikely the market will be able to sustain its upward movement in the short term.”

Tang said large institutional funds and experienced traders had turned negative on the market following the weekend news that Beijing’s “through train” scheme to enable mainland investors to purchase stocks in Hong Kong is likely to be delayed until 2008.


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