The S&P 500 has taken quite a beating this week as U.S. President Donald Trump has threatened to ramp up the trade war with China by raising tariffs on $200 billion of Chinese imports from 10 percent to 25 percent.
As bad as the week has been for U.S. stocks, the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) is down more than 7 percent since last week’s close, and the drop has done some major technical damage to the popular China ETF’s chart.
The FXI peaked at $52.71 back in early 2018, but drifted lower throughout most of 2018 as fears over the impact of the U.S. trade war mounted. The FXI finally seemed to find a long-term support level when it reached a double bottom at $38 back in October 2018 and January 2019.
Since that drop to $38 in January, the FXI rallied hard for the first four months of the year, reaching as high as $45.96 in early April. The FXI then retested the $46 level roughly two weeks level and failed again to break out to new highs. After drifting steadily lower for a couple of weeks, the FXI has plummeted for four consecutive days this week, breaking through the red support line in the chart below that had been in place since January.
After crashing below its 50-day simple moving average on Monday, the FXI tumbled below its 200-day simple moving average for the first time in nearly three months on Thursday.
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With medium-term support broken, the FXI doesn’t have any clear support levels below the 200-day SMA until it gets to the $38 double-bottom from October and January. Below $38, the next potential support range is the $35.50 to $36.50 range that was resistance in late 2016 and support in early 2017.
In the near term, however, Thursday’s trading action is somewhat bullish given the FXI bounced off of its opening levels. Traders should be watching Thursday morning’s intraday low of $41.08 and Thursday’s opening price of $41.41 as potential near-term support levels after this week’s sell-off pushed the FXI’s relative strength index (RSI) down to 29 and into near-term oversold territory.
Unfortunately, with medium-term support broken, any near-term bounce should be approached with caution until a new support level is established.
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Of course, given the uncertainty surrounding the trade war in the near term, traders should be cautious relying too much on FXI charts. Any headline regarding the completion of a trade deal, a retaliation by China against the U.S. or any other fundamental trade war developments could override any near-term technical signals in the chart.
The FXI traded at $41.86 at time of publication.
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