The “Beijing Bounce” Is in Danger of Overheating

[Trading With Larry Benedict]( The “Beijing Bounce” Is in Danger of Overheating By Larry Benedict, editor, Trading With Larry Benedict After a three-year downturn, the iShares China Large-Cap ETF (FXI) bottomed out in January… During that time, FXI, which holds large-cap Chinese stocks like Tencent and Alibaba, dropped by 62%. FXI has rallied 36% since then. That’s largely thanks to serious intervention by the Chinese government. It placed huge buy orders from its sovereign wealth fund. We checked in on FXI [last month](. I was looking for it to break short-term resistance. That since played out, and FXI rallied. So let’s check its prospects from here… Recommended Link [Elon Musk’s Massive “AI Upgrade” to Shock Markets]( [image]( After years of “behind the scenes” development, Elon Musk is ready to unleash a massive upgrade for artificial intelligence. It could create a new class of ultra-wealthy Americans. Wall Street Legend – Louis Navellier – will show you how to take full advantage. [Click here for details.]( -- Breaking Through Resistance In the chart below, you can see the tail end of FXI’s bear trend. This three-year move kicked off after Chinese stocks peaked in February 2021… iShares China Large-Cap ETF (FXI) Source: eSignal [(Click here to expand image)]( That downtrend corresponded with several common bearish signals… - The 50-day moving average (MA, blue line) trended lower. And the 10-day MA (red line) mostly tracked below it. - The Relative Strength Index (RSI) tracked mostly in its lower band (below green line). That showed declining momentum. - The blue moving average convergence/divergence (MACD) line also predominantly traded in its lower range. That’s below the zero (0.00) line. FXI’s reversal had come off the back of the RSI forming a “V” and rallying (red line) from oversold territory (lower gray dashed line). The RSI bullishly broke into its upper band. But it kept bouncing along support (green line). And it was unable to gain any traction higher. As you can see, this caused FXI to track in a sideways range. The $25 level (orange horizontal line) acted as short-term resistance. For FXI to break up through resistance, I was looking for the RSI to track longer and higher in its upper range… Plus, we needed the 10-day MA to start reaccelerating above the 50-day MA. And the MACD (blue line) had to cross back above the signal (orange line), with both then tracking higher. Take another look at the chart. As you can see, that’s how things unfolded. iShares China Large-Cap ETF (FXI) Source: eSignal [(Click here to expand image)]( You can gauge the strength of FXI’s breakout higher by the rate at which the 10-day MA is accelerating above the 50-day MA. However, the speed of that rally leaves FXI in danger of overheating… Note that the RSI is tracking sideways in overbought territory (upper gray dashed line). At the same time, FXI keeps making higher highs. That’s a diverging pattern. So what should we look out for next? Free Trading Resources Have you checked out Larry's free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. A Potential Trigger for a Pullback When the stock price and the RSI are diverging like this, it can often precede a change of direction. In this case, that’s a reversal. However, the RSI can often track around its upper level (overbought line) for an extended period when a stock is trending strongly higher… That’s what we’re seeing here. Here’s where the MACD fits into the picture… As you can see at the bottom of the chart, the MACD line is still climbing and pulling the signal line with it (red circle). iShares China Large-Cap ETF (FXI) Source: eSignal [(Click here to expand image)]( We need to watch and see if the MACD line reverses sharply below the signal line, with both then tracking lower. If that happens, it would be a potential trigger for a pullback. Regards, Larry Benedict Editor, Trading With Larry Benedict [The Opportunistic Trader]( The Opportunistic Trader 55 NE 5th Avenue, Delray Beach, FL 33483 [www.opportunistictrader.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. The Opportunistic Trader welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-888-208-6550, Mon–Fri, 9am–5pm ET, or email us [here](mailto:feedback@opportunistictrader.com). © 2024 Omnia Research, LLC. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Omnia Research, LLC. [Privacy Policy]( | [Terms of Use](