China's market is unchartable: Technician

The gut-churning moves in the Chinese stock market have investors grasping for answers.

The Shanghai Composite soared more than 50 percent in the first six months of 2015 but has since sold off more than 25 percent from its mid-June high. With that type of volatility, one might be tempted to ignore fundamental valuations and search for clues in the charts.

But one highly regarded technician says don't look there; China's stock market is virtually unchartable.

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"Usually I would stay away from something like this that is so volatile and doesn't really have a strong trend in place," Ari Wald said Tuesday in a "Trading Nation" segment.

Specifically, Wald looked to the FXI, an ETF that charts China's large-cap stocks, which is down more than 20 percent in the past three months.

"Recently the ETF does appear that it's oversold, but the broken uptrend line over the past few years suggests that [investors] should take a pass on this one and look for a better setup elsewhere," added Oppenheimer's chief market technician. Wald pointed out that since the FXI's collapse in 2007 to 2008, the ETF has been trading in a wide, $20 range of $32 on the low end and $52 on the high end. It's currently trading in the middle of that range, at around $41.

The options market is pricing in even more volatility ahead.

"The options market is implying about a 15 percent move either up or down for the FXI by February," Andrew Keene of Keene on the Market said Tuesday on CNBC's "Power Lunch."

And for Keene, the move could result in a massive rally. "I think it could rebound higher." A 15 percent move higher would put the ETF roughly $6 higher than its current price of just under $41 a share. Keene arrives at his 15 percent prediction buy looking at the price of both at the money near dated puts and calls.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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