How to Handle a ‘Gut Check’

Pre-Market FXI, Shows Sharply Higher Open

The daily chart of FXI below has pre-market action as the blue line.

Currently, we’re sharply higher but still below the March 30th, high.

FXI, Daily Chart

The next chart shows the March 29th, recovery high.

For the market to continue a next leg higher, obviously, it needs to penetrate that high.

Inverse (YANG) Fund Tracking Errors

At this juncture, about 30-minutes before the open, YANG is trading at 14.01 – 14.09, slightly below the 14.16, stop.

Even though FXI is not above the March 30th high (used to locate the YANG stop), the inverse fund is trading slightly below that stop level.

This is the tracking error that’s common with every leveraged inverse fund.

Trading Action

We’re either in a ‘gut check’ upward move in FXI, before reversing to lower lows, or it’s the start of a next leg up.

Words of wisdom from the late David Weis … ‘Prove it’.

If this is the next leg higher, FXI must first penetrate the March 30th, high of 33.62, then penetrate the March 29th high of 33.73.

Using that requirement (of higher highs), the plan is to partial exit YANG if/when FXI penetrates the 33.62 high and full exit at penetration of FXI: 33.73 (not advice not a recommendation).

Summary

With each price action move, FXI is successively removing the probability of repeating the same action(s).

We had a short-covering gap higher during the week of March 18th. That massive volume move is not likely to be repeated.

We now have what may be a ‘gut-check’ move testing current highs. This move would also join the ranks of price action that’s not likely to be repeated.

If FXI, is unable to move higher from this juncture, it weights the probability even more to the downside.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

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