Let's notice that the iShares FTSE/Xinhua China 25 Index (FXI) peaked at 46.66 in November 2009 and was in the confines of a coil-like corrective pattern into the series of May lows near 36.60/25. Since early May, the FXI has carved out a 5-week basing pattern which could be the second coordinate of a larger Double Bottom formation established in February 2010.

Right now, the combination of the base formations argues for higher prices near term that project into the 41.50 area, on the way to test the multi-month resistance line in the vicinity of 44.50. Furthermore, there appears to be a reliable 15-16 week trading day cycle that bottomed in mid-May, which is exerting positive influence on prices into the first week of July.

It is with the foregoing in mind, as well as because the FXI pattern appears to be ahead of, or leading, the major U.S. equity market indices, that we are long the China equity market in our model portfolio.

 

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.