After a crash and a significant rebound, it looks like the Chinese stocks may be heading lower once again. As you can see on the following chart, shares of the iShares China Large-Cap ETF (NYSE:FXI) appear to be forming a new downtrend.
This ETF tracks large-cap companies that are based in China and this move lower may be a bearish dynamic for the U.S. markets.
Many large institutions in the U.S. hold both domestic and international stocks in their portfolios. If they need to cover their losses in their international holdings, they may sell their domestic stocks in order to do so.
If FXI continues to head lower, it could find support right around the $26.00 level. This is where the lows were in March and there may still be support. It could end up forming a classic double bottom pattern before rebounding once more.
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