Tuesday, April 08, 2008

Chindia

Continue on with the notion that we've made an interim bottom in the S&P, I want to take a quick look at both the Chinese (the Shanghai index) and Indian (the Bombay Sensex) today. Unsurprisingly, they both appear to have bottomed based on extremely over sold RSI and stochastics.

SSEC declined from a high of 6124 in October to a low of 3271 or 46.6% in a little over 5 months. Measured from the 2005 low just under 1000, it has given back over 50% of the gains. The low of 3271 was between the 50% retracement and a very strong support at around 3000 that went back to Feb-Mar 2007. Back then, a 9% one day drop in the SSEC was the shot heard around the world, but it's hardly noticeable in this chart. The 61.8% retracement sits just under 3000. While there is some danger that the 3000 level is in play since the 50% retracement was taken out, the extreme RSI reading argues for at least a temporary rebound. At any rate, the 3000 level has every reason to hold if things come to that. So I would argue that the risk/reward here is acceptable for a long term investor. Among the myriad of China funds, my old favorites are FXI and CAF.

Unlike the SSEC, the BSE has suffered much less technical damage in comparison. Recent lows in RSI and stochastics were consistent with previous bottoms. It's also important to note that stochastic buy signals in the weekly chart were often followed by many months of steady increases. I would consider both IPN and IFN, or even the new Wisdomtree India ETF, EPI, here.