FXI: Lots Of Airspace Below

Figure 1 is a weekly chart of the i-Shares FTSE Xinshua/ China 25 (symbol: FXI).

Figure 1. FXI/ weekly

Before breaking down FXI, let me set up the chart. The pink labeled price bars are negative divergence bars between price and an oscillator that measures price, and as we know, a cluster of these negative divergence bars is consistent with waning price momentum. The red dots are key price points, which are points where buying and selling are most likely to take place.

FXI essentially found resistance at the $42 level. This was the prior area of breakdown back in August, 2008. Technically, this was noteworthy in that it was a break below 3 key pivot points. So for the most part from the lows in March, 2009, FXI has retraced all the way back to its break down point. $42 is also the area where slowing upside momentum appeared, and it was at this price level that negative divergence bars started to show up. As we know, a cluster of negative divergence bars has been associated with market tops. FXI did go slightly higher but has since broken down and it is trading back below the $42 level. $42 was support, and it is now resistance.

Below $42, there is a lot of air space or no area of natural support. In fact, the next level of support comes in at $32, which is the breakout point of the October, 2008 to March, 2009 base. At this level, this is an ideal buying opportunity.