[FXI] update

In the backlink I suspected that there was a bit more down side that short traders should cover into to sidestep the expected upward retracement.  The model from that link is provided below (lower left).  The accompanying text was,"I think somewhere around that lower line (a specific Fib level) the shares find some level of support so if you shorted this based on my blog, it will soon be time to cover so that you can watch to see if the next move is wave 4 or if this recent 3 wave move down is going to morph into something larger.  My primary model remains the top model above.".

The right hand chart below gives a bit more of the data that transpired since that post.  The red arrow marks the time of that post.  Things began to happen so quickly in time that I had to zoom the time scale in on the right hand chart in order to see the detail.  Having done this you can see that FXI did indeed take one more step down to not only meet but to slightly break the 38.2 fib.  That was the near term signal for shorts to cover.

 


Below is the more current FXI chart showing all data.  The drop to $39 was followed by the expected bounce, a sizable 10% from $39 to $43 even if it did all take place in an eye blink.  That bound was likely red 4 as modeled below.  After near term rally next week I expect one more wave down into red 5 and then we should see a significant bounce to $43, probably based on some news that is supposed to matter but which in fact is just more noise spewed at the herd.






That big rally to $43 could stop there or it could play out per below which would be a deep vee 2nd wave that kisses the top rail before collapsing below into a devastating 3rd wave down.  If I see this declining double top form then I will certainly be buying out of the money puts on FXI.

If the current wave punctures the lower support rail that it is sitting on then a move to the top rail falls drastically in odds.  But if this lower rail holds then the odds go up considerably and I would caution shorts to BOLO this formation and just be patient.  After all, governments are part of the herd and governments panic just like the rest of us are prone to do.  And economically ignorant people actually think that government controls the markets.  So governments can come out with statements and programs designed to support the markets, thus causing a little short covering but not changing the fact that the herd has already decided to go south for the winter.  I think the herd tipped its hand in that regard as mentioned in this post in which I modeled a massive collapse to happen for Chinese stocks.