Technical action by S&P 500 stocks was bearish yesterday. One S&P 500 stock broke resistance and fourteen stocks broke support. Most of the breakdowns occurred in early trading.
S&P 500 stocks breaking resistance
Stock Symbol Previous New
Trend Trend
Maxim MXIM Up Up
S&P 500 stocks breaking support
Stock Symbol Previous New
Trend Trend
Adobe ADBE Up Neutral
Best Buy BBY Down Down
BMC Software BMC Neutral Down
Equity Residential EQR Neutral Down
General Dynamics GD Up Down
Heinz HNZ Up Down
Honeywell HON Up Down
Host HST Down Down
Lennar LEN Neutral Down
Pfizer PFE Up Neutral
Sovereign SOV Down Down
TJX TJX Down Down
UnitedHealth UNH Neutral Down
Yum Brands YUM Up Down
Technical action by TSX stocks was quiet. One TSX Composite stock broke resistance and two stocks broke support.
TSX stocks breaking resistance
Stock Symbol Previous New News
Trend Trend
BCE BCE Up Up Possible merger with Telus
TSX stocks breaking support
Stock Symbol Previous New News
Trend Trend
Trican Well Services TCW Neutral Down
TLC Laser TLC Down Down Completed Dutch auction.
Tech Talk’s Weekly ETF Column
(Originally published at www.stockhouse.com )
ETF 101: Investing in China with Exchange Traded Funds
The Chinese equity market has become a lightening rod for world equity markets during the past few months. Where is the Chinese equity market going? How can investors participate in the Chinese equity market with Exchange Traded Funds?
The most recognized index for the Chinese equity market is the Shanghai Stock Exchange Composite Index. Strength in the Index has been exceptional during the past year. Indeed, the Index has been described as a bubble ready to burst. The Index reached an all time high on May 29th at 4,335.96. Short term swings of 10% or more have been common during the past year. Volatility has increased recently. The Index declined 21.5% from the high on May 29th to the low on June 5th. Now, the Index is testing its all time high. Its 50 day moving average has proven to be a reliable support level during the past year. Superstition could have an impact in the short term. The Chinese are wary about certain numbers such as 44. Superstitious profit taking as the Index approaches the 4,400 level could limit short term upside potential.
Chart courtesy of StockCharts.com www.stockcharts.com
Two Chinese based Exchange Traded Funds have attracted most of the volume: iShares on the FTSE/Xinhuu China 25 Index (Symbol: FXI) and PowerShares Golden Dragon Halter USX China Portfolio (Symbol: PGJ). The former is the most actively traded ETF. It tracks a portfolio of 25 well known Chinese stocks with a focus on the financial sector. The latter tracks a more diversified portfolio of 64 stocks and is more volatile. Other ETFs are available that invest in China indirectly or partially. Best example is iShares on the Hong Kong Index (Symbol: EWJ). Following is a summary of key features:
ETF Symbol MER(%) Optionable Average daily
Volume (3 months)
iShares FTSE Xinhuu FXI 0.74 Yes 2,264,000
PS Golden Dragon PGJ 0.60 Yes 245,000
iShares Hong Kong EWH 0.59 Yes 2,765,000
Fundamental influences
Economic prospects for China remain exceptional. The Chinese economy is growing at an annual rate of 8-10%. The Chinese government has been trying to dampen growth by raising interest rates and by boosting the value of the Chinese currency. However, their efforts have not been successful to date. Chinese stocks on the Shanghai Index are not cheap. They currently are trading near 60 times estimated earnings for the current year.
Technical influences
The Index and related Exchange Traded Funds have several things in common:
- Their short and intermediate trend is up. The Index has virtually gone “parabolic” during the past year with a gain of 270%.
- Their volatility is high
- Their volumes continue to rise
- Short and intermediate technical signs of a significant change in upward trend have yet to appear.
The Bottom Line
A fascinating sector! ETFs tracking the Chinese market are for traders only. They are not for the “faint of heart”. When will the Chinese equity bubble burst? No one knows. Historically, markets, that have gone parabolic, have caused considerable pain for investors who held too long. When the bubble bursts, look out for the splatter.
Tech Talk’s Weekly Financial Post Column
The column appearing on Monday is entitled, “Seasonality in Equity Markets”. Basics of seasonality analysis are offered. In addition, seasonality on well known equity indices is identified. The column can be accessed by paid subscription at www.nationalpost.com
Weekly Bullish Percent Index Updates for U.S. Sectors
Changes during the past week were mildly positive. Five indices rose slightly, four indices were unchanged and two indices eased. Five indices closed just above their 15 day moving average and six indices closed at or below their 15 day moving average. All indices remain overbought and below recent highs. Most notable was weakness in the Financial Services sector.
All charts courtesy of StockCharts.com
Disclosure: Mr. Vialoux does not own securities mentioned in this report.
June 22,2007
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