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China Leaders ETF shows fatigue, SPDR S&P500 ETF breaks out

Goola Warden
Goola Warden • 3 min read
China Leaders ETF shows fatigue, SPDR S&P500 ETF breaks out
Lion-OCBC Securities China Leaders ETF may have run into resistance and could start to consolidate
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Minor signs that the uptrend of the Lion-OCBC Securities China Leaders ETF is fatigued have emerged. On May 13, the ETF formed a shooting star. After opening at $1.547 and rising to an intra-day high of $1.60, the ETF closed at $1.556, slightly above the opening. The price action formed a large shadow, many times the size of the body on the candlestick chart.

Interestingly, the $1.60 high has not been bettered although prices tested this level, again on an intraday basis, on May 20. The subsequent formation, which resembles a form of an evening star, included a black candle on May 21 which engulfed the ranges of May 17 and May 20.

As a result, the China Leaders ETF is likely to move into a consolidation phase following its March-May uptrend. There is some support at $1.46.

On the indicator front, the short-term RSI has not shown a major negative divergence with price. However, quarterly momentum has formed a negative divergence with price. If prices are unable to move much beyond $1.60, quarterly momentum could start to retreat sharply as it’s a three-month indicator and prices were in the early stages of an upmove three months ago.  

The China Leaders ETF may have moved ahead of attempts at reflating the Chinese economy. In a May 23 update, Commerzbank says large Chinese commercial banks have started “urging their branch managers to lend to state-owned companies that buy unsold homes from property developers”.

According to Commerzbank, on May 17, the People’s Bank of China (PBOC) announced it would offer RMB300 billion ($55.97 billion) of cheap funding through re-lending facilities to banks for this purpose. The PBOC also scrapped the mortgage rate floor across China and lowered minimum down-payment ratios for individuals’ first and second home purchases.

See also: Watch for balance sheet liquidity, not just P/NAV

The Federal Open Market Committee (FOMC) minutes from the meeting on May 1 showed that Fed officials discussed holding rates higher for longer should inflation not show signs of moving sustainably toward 2% and reducing policy restraint in the event of an unexpected weakening in labour market conditions.

Schroders says the “no landing” scenario — where interest rates remain high and inflation is sticky — has receded. “Over the past month, we’ve dialled back the risk of a ‘no landing’, increasing the probability of ‘soft landing’ (our base case) in reflection of early signs of moderation in the US economy and better news on inflation.”

Oil prices have retreated from their April highs as geopolitical tensions abated. Meanwhile, the US Consumer Price Index (CPI) data for April showed further improvement from March, especially in core areas such as services excluding housing. Jobs growth has moderated, and the ISM Survey fell below 50. Schroders reckons this is worrying but adds “it is too early to raise the risk of a hard landing based on one very weak survey indicator”.

See also: As US risk-free rates slump, Straits Times Index sees mild consolidation

The SPDR S&P500 ETF made a new all-time high on the back of rising short and medium-term indicators. The correction in April and early May was sufficient to send short-term RSI to oversold levels while keeping quarterly momentum at neutral levels. This may indicate an upward bias in the S&P500 ETF. The breakout above US$527 indicates an upside of US$562. The new support/breakdown level is US$527.

 

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