Reposition The Short
‘Once stopped out, the amateur never comes back.’
That’s the assessment from Dr. Alexander Elder, years ago.
The amateur thinks he has special analysis powers and has to be correct on the trade immediately.
On the other, hand, the professional may attempt up to three entries (or more) to get the position they want.
So, it is with Emerging Markets (EEM) and the correlated trade, China (FXI).
Yesterday’s jump higher in both the EEM, and FXI, did not invalidate the work already done, linked here.
Instead, that move told us where to look.
As shown below, the FXI had the least net upward movement. The percentage gains have reduced substantially
FXI, Daily Chart
Using that information, FXI appears at, or near the end of its short squeeze move.
The Emerging Markets trade (once stopped out) was re-positioned to be short the FIX via YANG (not advice, not a recommendation).
YANG, Daily Chart
Upon initial glance, it appears to be a lot of (short) positioning activity. That may be true for now.
However, the objective is to identify a sustainable move (before it’s obvious) and then continue to build on the trade.
Note how there’s a huge downward slash in YANG, that corresponds to the sharp short squeeze move in FXI.
From a risk standpoint, one way to look at this event, it’s not likely to happen exactly this way again (rule of alternation).
We’re about 20-minutes before the open.
YANG, is trading higher in the pre-market by + 0.25-pts, or about + 1.61%.
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