Interesting Rounded Reversal In iShares Xinhua China 25 ETF (FXI)
Headlines have featured on China and its pulling back of its economic stimulus, which has contributed in part not only to a pullback in iShares Xinhua China 25 ETF (FXI).
Let’s take a quick look at the FXI weekly chart to see a lesson in lengthy negative divergences and a likely developing “Rounded Reversal” pattern forming into a critical support level.
FXI bottomed in October 2008 and then rallied into resistance at the $30 level, and formed a higher low than the US Equity Markets when they bottomed officially in March 2009.
From there, the ETF has doubled in price from $22 to the November 2009 high just above $45 per share… but it did so on an ever decreasing posture in volume and momentum (3/10 Oscillator shown).
Lengthy non-confirmations often forecast price reversals, and that could be exactly what’s forming now, especially since price has taken on a “Rounded Reversal” shape (a price pattern associated with reversals).
However, there is a key level to watch to determine whether this will be all the pullback we get… or whether a true trend reversal is favored over a simple pullback retracement.
The level is $37.50, which marks the weekly “Line in the Sand” between simple pullback swing in an uptrend… or trend reversal.
That’s because the 200 week moving average currently rests just shy of $37.50, which is just one indicator to watch.
What gives this level more importance is that the 38.2% Fibonacci retracement from the March 2009 lows to the November high (not shown) also rests at $37.50 ($37.40 to be exact).
If we draw the larger Fibonacci grid from the October 2008 low, then the 38.2% retracement rests at $36.10.
Thus, we could assume that if sellers continue pushing price lower, particularly through the confluence $37.50 level, then the next likely stop would be the $36.00 level, and any move under $36.00 would strongly shift the odds that price is likely to continue lower.
For now, investors and traders should watch what happens at the $37.50 level – whether it is deemed a ‘buying opportunity’ and forms a support level, or whether sellers can muscle their way through the confluence support zone on a pathway to lower prices.