Chinese stocks have been on a tear over the last year. Mainland stocks are up 25% just this year. They were probably due for a pullback and they got one on Friday. Chinese authorities tightened rules on margin selling (and made it easier to do short selling). But they did it after the Chinese stock market had closed. That explains why the Shanghai market showed gains on Friday. The selling was reflected in Chinese ETFs which trade all day. Chart 1 shows the CSI 300 China A-Shares Fund (which tracks stocks in Shanghai and Shenzen) tumbling 5% in heavy trading. The ASHR, however, still remains above its 20-day moving average (green line). China iShares (FXI) lost 4% on the day. The weekly bars in Chart 2 show the FXI suffering a downside weekly reversal (losing 1.5%) on the week. The FXI recently hit a new seven-year high. Its 14-week RSI (top of chart) had reached overbought territory over 70 which also suggested that a pullback was due. Even with this week's selling, its uptrend is still very much intact.
