October 10, 2019
By Mish Schneider
I dreamed I was a salmon swimming against the tide.
Only along the way, a giant fishing net scooped me up, put me on ice and sent me to a fish market for sale to the highest bidder.
Maybe this has nothing to do with today’s theme.
Yet, after I awoke, my next thought was whether it was time for a hedge trade.
I dunno. Maybe swimming against the tide or getting placed on ice, whatever the spark, I scribbled down this question—
Is it time to buy China and sell the U.S.?
The simplest comparison is to look at 2 timeframes, weekly and daily, and the phases.
On the weekly chart, the S&P 500 (SPY), what I am choosing as a good representation of the U.S. high flying market, is in a bullish phase.
On the daily chart, SPY climbed back into a bullish phase, clearing the 50-DMA today at 293.31.
On the weekly chart, FXI-or the ETF for large cap Chinese stocks, is crossing back over the 200-WMA (green) and if holds, puts it in a caution phase from a distribution one.
On the daily chart, FXI popped nicely over the 50-DMA into a recuperation phase confirmed.
One way to look at the trade is to sell SPY tomorrow if it does not hold the 50-DMA. You are selling strength in anticipation that its inability to stay bullish on the daily timeframe is negative.
Another way to sell SPY is if it breaks down under around 288.49 or the lows this week.
On the buy side, if SPY breaks down, most likely so will FXI. However, if you sell SPY on strength, you can take advantage of any selloff and buy FXI a bit cheaper.
I especially like this if FXI holds 40.00.
Otherwise, you can do them both at the same time.
You know who likes salmon?
Maybe that is why I had the dream.
Nevertheless, the bigger theory on this hedge is that ultimately, China outperforms the U.S. regardless of the trade outcome.
Russell 2000 (IWM) Stopped right at the 10 DMA or 148.50 with 146 support.
Dow (DIA) 264.50-265 pivotal support
Nasdaq (QQQ) 188 pivotal support
KRE (Regional Banks) 50.00 support 51.55 resistance
SMH (Semiconductors) 118.45 support 120.85 resistance
IYT (Transportation) 175 the big support level and 181.25 resistance
IBB (Biotechnology) 95 support 100 resistance
XRT (Retail) 41.00 50-DMA pivotal support. 42 resistance
Every day you'll be prepared to trade with: