China, Mining ETFs Lead Market South
Companies:Ishares Msci Emerging Markets IndexIshares Ftse/Xinhua China 25 IndexUltrashort Ftse/Xinhua China25 Proshares Related Quotes
Symbol Price Change
EEM 41.61 -0.16
FXI 40.53 -0.61
FXP 8.96 +0.23
GDX 45.47 -0.26
GLD 108.60 -0.34
{"s" : "eem,fxi,fxp,gdx,gld,uup","k" : "c10,l10,p20,t10","o" : "","j" : ""} Trang Ho , On Wednesday January 20, 2010, 6:14 pm EST
China and mining stocks led world markets lower Wednesday on news that the world's largest country is tightening lending standards, which could slow economic recovery.
The most widely traded China ETF, iShares FTSE/Xinhua China 25 Index (NYSEArca:FXI - News), gapped down 3.5% to 41.27 in strong volume. The grouping of the 25 largest stocks listed in Hong Kong undercut prior support at 41.04 but closed near the top of its intraday range.
The ETF has formed a bearish chart pattern with two lower lows and two lower highs since hitting a 16-month high of 46.66 in mid-November.
Since its mid-November 52-week high, FXI has fallen 12% and has drastically underperformed its benchmark, as tracked by iShares MSCI Emerging Markets Index (NYSEArca:EEM - News).
FXI's Relative Strength Rating has eroded from 75 to 50 over the past two months and its Accumulation/Distribution has dropped to E -- the lowest possible. By contrast, EEM has 70 RS and D Acc/Dis Ratings.
FXI is overvalued and vulnerable to further corrosion because of its heaving weighting -- 46% -- in financials, which are suffering from the clampdown on lending, according to Carl Delfeld, founder of ChartwellETF.com, who specialized in foreign ETFs.
China real estate prices soared nearly 8% in December from a year earlier. China's government is trying to prevent a bubble by making it harder to borrow money. Housing costs in major Chinese cities have exploded to 15 to 20 times average household income. In Japan's economic bubble, housing peaked at 12 to 15 times average household income.
In addition, stock prices have gotten ahead of fundamentals. China's market trades at 50 times its average 10-year earnings, whereas the U.S. market has a price-earnings ratio of 15, Delfeld noted.
Delfeld is recommending his clients buy ProShares UltraShort FTSE/Xinhua China25 (NYSEArca:FXP - News), which goes up twice as much on a daily basis when FXI goes down. He advises setting a 5%-8% stop-loss on the trade to control risk.
Gold Miners Down Nearly 5%
China's action and a rising dollar pummeled miners and commodities on fears that slower growth will dampen the country's robust appetite for materials.
"If China is curtailing lending, then it is reasonable to expect that buying of commodities by the Chinese will stop, and further it is reasonable to expect that some liquidation on the part of inventory holders shall begin to assert itself," Dennis Gartman, an independent market analyst and publisher of the Gartman Letter, wrote in a note to clients.
Market Vectors Gold Miners (NYSEArca:GDX - News), the most heavily traded materials ETF, plunged 4% to 45.76 in robust volume. The ETF has dropped sharply below its 50-day moving average, but may have found support near its prior low at 44.80.
SPDR Gold Trust (NYSEArca:GLD - News) gapped down 2.3% to 108.95, falling below its 50-day moving average. It's tumbled 8.9% from its all-time peak of 119.54 reached Dec. 3. Its RS Rating eroded from 56 to 45 since then.
PowerShares DB US Dollar Index Bullish (NYSEArca:UUP - News), which tracks the dollar against a basket of the most widely traded currencies, gapped up 1.2% to 23.12 in heavy turnover.
It faces prior short-term resistance at 23.20. It's crossed above its 50-day moving average after hitting a 16-month low in November. But it's still trading below the longer-term 200-day moving average.
surf's up......crikey
