Sunday, December 5, 2010

FXI Double Top

The double top in the FXI (Xinhua China 25 Index Fund ETF) looks pretty solid. We have 5 waves down from the November high for wave 1 and wave 2 appears to be underway with a likely top at the previous 2009 high. Thereafter a break of the December low will confirm that an expanded flat or triangle is in progress at primary degree.

Given that the FXI has led the US markets by 4 to 5 months more or less for the last 2 years, if the relationship holds up, we should expect a top in the US markets around the end of December to first of January followed by a decline in January, another high in March/April and a low in May/June.

Overall the pattern in the FXI is long term bullish for stocks as it suggests that once the correction is over in US stocks we will see another leg up along with the FXI. Exactly how the pattern will develop is still open for debate, but we may see a sharp decline over the next two weeks which corresponds to the August decline in the FXI. The nature of that decline and the subsequent rally will tell us a great deal.

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