The China US Relationship Has Room to Move Lower

With the stall in the Shanghai Composite, $SSEC, and the rebound in the SPDR S&P 500, $SPY it may finally be time for the downward channel in the ratio between the two markets to fully retrace. It does not look like much but a full retracement would be another 7% lower. Have your attention now? You all know what to do with the SPY side of the relationship but there are several options for

the Shanghai Composite side. The iShares FTSE China 25 Index Fund, $FXI is one. That has been a fairly stable relationship with the Shanghai Composite. A good proxy to short against the SPY long. The ratio can move higher by either the SPY rising, the Shanghia Composite falling, or both. The SPY vs FXI proxy is best if you are uncertain, but if you have a view that the Chinese market will fall then consider substituting the ProShares UltraShort FTSE China 25, $FXP, the FXI’s suped

up brother, or even the Direxion Daily China Bear 3x Shares, $YANG. This is not an easy trade to manage, and should be stopped against a ratio in the original chart at 17.25. What it tells you though is important. That the relationship between the US and Chinese market has more room in favor of the US. You do not have to trade the pair to find that useful. It does not mean that the ratio will fall all at once or today even. But this close to a full retracement makes it more likely.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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