Bulls were encouraged by the rally in China exchange traded funds on Tuesday since many analysts keep a close eye on Chinese ETFs as an indicator for the health of the global economy.
The iShares FTSE China 25 (NYSEArca: FXI) was up more than 3% in afternoon trading Tuesday, although the ETF remains in negative territory for 2012.
“Slowing global growth will negatively affect China’s export-oriented economy,” investment researcher Morningstar says in a report on FXI.
The last time this pattern occurred was last summer before the August waterfall sell-off.
However, some analysts think the China ETF experienced a “false breakdown” at a key support level from late 2011.
For FXI, the level just above $33 a share “is very important support that held back in the fourth quarter of last year,” says J.C. Parets at All Star Charts.
“This new found support created the higher low that helped take FXI to six-month highs earlier this year. More importantly this price also represents the 61.8% Fibonacci retracement from those key October lows that we always talk about in most of the major averages,” he wrote.
Meanwhile, the FXI price chart and momentum indicators are showing a bullish divergence.
“If this was indeed a false breakdown, I would expect a fast and powerful move higher in FXI,” Parets said. “This would certainly be a positive for U.S. equities and other risk assets.”
iShares FTSE China 25