Action In The Chinese Stock Market ETF Suggests That SPY ETF Selling Is Almost Over – Mike Swanson (01/28/2020)

Yesterday’s stock market action brought with it a 453 point in the DOW Jones Industrial Average and the S&P 500 as worries over the coronavirus in Asia spread to the United States. However, price action in the Chinese stock market and the iShares FTSE/Xinhua China 25 Index (NYSEARCA: FXI) suggest that the selling is almost over. It doesn’t mean that the stock market is going to go just straight up, but that a bounce is coming. Take a look at the FXI ETF price chart.

On Monday the FXI ETF had a big gap down in the morning and then rallied for the rest of the day. Even though it still finished in the red it put on a classic candlestick reversal pattern and did so in the context with its daily stochastics indicator below 20 signaling oversold. This suggests that a bounce should come for this ETF and since it basically has helped drag the rest of the global markets down with it should mean that most of the selling for the US stock market is done. Let’s take a look at the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) price chart to see what is likely to happen next for it.

The SPY ETF isn’t even oversold on the price chart as it only has fallen for one day since making a new high last Friday morning. It’s still likely to at least test its 50-day moving average now at some point in the coming weeks. However, if FXI bounces then we’ll likely see SPY bounce too and perhaps go through a choppy up and down basing process like it did last August before rallying higher. The problem with the FXI is that it is not going to go straight up from here. It’ll have to stabilize and go sideways to consolidate before it can do that.

So there is no reason to be in a hurry to buy this ETF or the broad US stock market at this moment, but one shouldn’t worry about some huge crash right now either. There are still things going up and traders have stocks to play and stocks to avoid that are getting hurt by these fears such as RCL. I talked with David Skarica of addictedtoprofits.net in a podcast yesterday about the US stock market and this coronavirus about what to expect. You can listen to that here.

We also have seen a big move in the price of gold this week much like we did at the start of the year. But that move has to be put in context with what gold and silver did last year and what is now driving the metals markets and the price of gold now. Gold is poised to benefit all year almost no matter what the US stock market does but you need to understand why as it isn’t really news events like this that are the reason.

-Mike



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