FXP

I'm being very lazy these days, as I should have updated my position on Tuesday that I bought FXP again at $83.50. As you see i'm not hiding my position here to make up a good looking gain, I'm sitting at a loss of more than 15%.

This coming week is pretty critical. As DIA and SPY both tested the most highest daily EMA (in this case it's the 100-day). Many people might think the 200-day EMA should be the most important one as a test. I do not totally agree, as I saw on many charts that quite often the stock (or ETF/index) will test the most highest daily EMA from below and eventually heads back down.

I would say, a stock is resuming upward trend if:

1. After it breaks through the 200-day EMA with hugh volume, it doesn't drop below that again
2. Eventually the shorter-time EMA is above longer-time EMA (20-day > 50-day > 100-day > 200-day)
3. The uptrend may still be quite choppy until the stock/ETF makes new high

Of course, you may say, to wait till it shows all these characteristics I already missed a big move, that probably can be a hugh amount. Well, unfortunately trend following is not to find the bottom and get onto the bottom. A trend needs time to develop, so using a trend following technique you can never find a bottom.

To quickly find bottom or top I guess you need to use techniques of swing trading. I'm not good at that so I won't get into it here.

So when should I cover my FXP? Will China market drop given that US Fed will reduce rate on Dec 11 very likely? I want to use financial and brokerage stocks as the first measure.

Looking at XLF, in mid-Sept the Fed lowered the rate by 50 basis points, XLF went up from around $32 (when people started to anticipate a rate cut) to as high as $36, about 13%. Using the same time period we can see:

C: up from $45 to $50, about 11%
BAC: up from $48 to $53, about 10%
WFC: up from $33 to $38, about 15%
JPM: up from $43 to $48, about 12%
WB: up from $45 to $52, about 16%
MER: up from $68 to $77, about 13%
MS: up from $56 to $69, about 23%
GS: up from $165 to $220, about 33%
LEH: up from $50 to $65, about 30%
BSC: up from $100 to $127, about 27%

I don't want to include CFC or WM as they dropped so much that I guess you don't need to see them. The above 10 stocks (5 banks, 5 brokerages), only GS and LEH did not drop below the lowest price shown above. JPM and BSC dropped below the lowest price but not by too much. All the rest dropped by quite a lot from that lowest price. Let's take a quick comparison of new low price to last low price of the worse 6.

C: down from $45 to $30
BAC: down from $47 to $42
WFC: down from $33 to $29.50
WB: down from $45 to $37
MER: down from $68 to $50.50
MS: down from $56 to $47.50

That is not surprising to me, as usually when the Fed started to reduce rate, the weak sectors usually will continue to drop further. Anyone who thinks one rate cut from the Fed will save the economy is simply naive.

Now let's take a quick look of the 6 above and XLF due to the anticipation of rate cut on Dec 11.

XLF: up from $28 to $31, about 11%
C: up from $30 to $33, about 10%
BAC: up from $42 to $46, about 10%
WFC: up from $29.50 to $32.50, about 10%
WB: up from $37 to $43, about 16%
MER: up from $50.50 to $60, about 19%
MS: up from $47.50 to $52.50, about 11%

HHmmm, not much difference than the last rate-cut rebound. I don't think history will repeat exactly the same way, that is a stupid assumption. But at least these stocks have to show that they will not drop below the last lowest price first, before I can say they are really coming back. If they fall back to their lowest price, I will think about putting in some money in UYG maybe.

So given the US is not very clear, China may continue its volatile characteristics for a while. A Christmas rally may be true, but what about after Christmas? Anybody thought about that?