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Is It Time to Buy China ETFs?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (ETF Expert) -- The SPDR S&P China Fund (GXC) fell 37% from an April high to an October low. That was nearly twice the top-to-bottom devastation for the S&P 500 SPDR Trust (SPY). What's more, the dramatic selloff across all China ETFs met the commonplace definition of a bear market -- a 20% drop from the peak.

Often, commentators and analysts use technical data to confirm bearish trends. For instance, when the 50-day moving average for GXC crossed below its 200-day moving average in July, the "death cross" signaled the likelihood of a downturn.

GXC 1 Year



Yet few seem to be talking about whether or not China has turned a corner. In fact, prior to the beat-down in the last hour of Wednesday's trading, GXC had risen 24% off an October trough. Is the over-20% move to the upside worthy of the description, "New Bull In China?"

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Perhaps not. Technicians would note that the 50-day moving average has yet to cross above the 200-day moving average; the "golden cross" would confirm a new bullish uptrend. It is evident from the chart above, however, a cross-over event would take some time.

In brief, 20%-plus gains hint at a new bull. Yet confirmation in the form of a "golden cross" seems like a distant confirming indicator. Might there be a reasonable means for settling the current discrepancy?

Perhaps the simplest confirmation would come with the current price of GXC closing above its 200-day. At present, this would require GXC to rise 12.8%, then "tow the trendline."

Although 12.8% moves don't necessarily happen overnight, Wednesday's shellacking alone cost GXC 3.6%. Indeed, there have been scores of 3%, 4%, 5% moves for China ETFs over the last 6 months . . . so I wouldn't be shocked to see GXC break free in a late November-early December rally.

Naturally, a great deal rides on eurozone particulars. If the PIGs (Portugal, Italy, Greece, Spain) show modest progress - and if the U.S. government's "super committees" can do the same -- there's no reason to doubt a happy ending.

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