China stocks continued to advance in Shanghai but paused in Hong Kong on Tuesday. The Shanghai Composite advanced 8.85 points or 0.26% to 3,471.22, a 52 week high for China's domestic barometer. Commodity, metal and consumer staples gained while banks fell on possible tightening. The index is up 78% YTD, the best performance of any major index in the world this year.
But trading in Hong Kong succumbed to profit taking after the Hang Seng ran up from 17,200 to over 20,000 just in three weeks. Resource plays advanced on strong metal and commodity prices. Aluminum Corp. of China (HKG:2600)(NYSE:ACH) rose 3.3% in Hong Kong followed by a 1.1% advance of Yanzhou Coal (HKG:1171)(NYSE:YZC). Anghang Steel (HKG:347) was strong as well. But China Life Insurance (HKG:2628)(NYSE:LFC) fell on profit taking just as did Chinese airliners and banks.
As the following overbought/oversold indicator measuring Chinese indices testifies, the Hang Seng became overbought just as did its trailing ETF, The iShares FTSE/Xinhua25 Index (NYSE:FXI). FXI is in danger zone as it ran ahead of its index, so expect FXI to fall on Tuesday. To the contrary, the Morgan Stanley China (NYSE:CAF) is lagging behind the Shanghai Composite, indicating a bullish trend for the ETF.
Looking at Chinese ADRs before the bell on Tuesday, the picture is not too rosy for the short term. S&P and NASDAQ Index futures point to a lower open, China stocks fell in Hong Kong - a sure indication of a weak open. For China stocks in the danger zone, please look up this morning's most overbought China stock list. (http://www.chinavestor.com/technical-analysis/overboughtoversold/70796-bullish-on-shanda-nasdaqsnda-bearish-on-the-market.html)