The KraneShares CSI China Internet ETF (KWEB) holds names like JD.com (JD) and Baidu (BIDU) , which have suffered big declines the past year. Could an out-of-favor country and industry stage a rally? Let's check the charts and indicators.
In the daily bar chart of KWEB, below, we can see a serious decline in the past 12 months. The shares were down from $75 to just $20 in about 10 months. Prices have turned from down to sideways the past three months despite the bearish news background.
KWEB is still trading below the declining 50-day moving average line but it has been testing this line several times in the past four months. A strong close above this line could happen very soon.
Trading volume was very heavy in March and this may be a clue that the low is in place. The On-Balance-Volume (OBV) line shows a gain from mid-March telling us that there has been a shift from aggressive selling to aggressive buying. The 12-day price momentum study has been improving since March and is a technical positive.
In the weekly Japanese candlestick chart of KWEB, below, we can see some "light at the end of the tunnel." Prices are extended below the declining 40-week moving average line.
The weekly OBV line is showing some stability and the 12-week price momentum study shows a long bullish divergence versus the price action.
In this daily Point and Figure chart of KWEB, below, we can see a potential downside price target of $22 but a trade at $28.36 will change the pattern.
In this weekly Point and Figure chart of KWEB, below, we can see that prices reached a downside price target of $24.
Bottom-line strategy: Afraid to buy Chinese companies? I understand. Afraid to put money to work in the stock market as the word "recession" is being used like a comma? I get it. But sometimes the most uncomfortable trade can be the best trade. Aggressive traders could go long KWEB at current levels. Risk to $19. Look for a rally to $40.
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