After years of underperformance vs. U.S. markets, the Chinese stock market is looking more interesting. Rather than take the single-stock risk in our swing trading, we will often gravitate toward an ETF for China exposure.
The KraneShares CSI China Internet ETF gets you exposure to Chinese stocks with top holdings in Alibaba, Tencent, PDD, JD.com and Baidu.
Here's why we entered the KWEB trade and why we took our profit quickly.
Understanding The Personality Of Chinese Stock Market
When gaining exposure to the Chinese stock market, be prepared for a quirk that can be found in many international stock trades. Their trading on U.S. exchanges has to account for the overnight action on their home exchanges. Such action frequently happens while U.S. markets are closed.
KWEB has a lot of price gaps on the chart as a result of these adjustments (1). A big problem with most of the gap-ups for KWEB is that they were almost always immediately followed by weakness the next day. While past behavior doesn't necessarily predict the future, it's worth noting said behavior and being prepared for it.
As much as those gaps can signal uncertainty, we also like to take a step back and observe when any trading instrument gets tighter. Looking at weekly charts it might smooth out some of the day-to-day volatility and give you a view of the bigger picture. That's why when KWEB broke out of a three-weeks-tight pattern (2), we took the opportunity to add it as a full position (10% weighting) to our Current Trades list on SwingTrader.
Here are some of the best Chinese stock market setups right now.
Acting in character, KWEB gapped up the next day (3). We took the opportunity to lock in profit on a quarter of the position into strength. While KWEB closed down the next day (4), it wasn't as weak as usual following a gap-up. It only gave up about a sixth of its gains as it consolidated the gains of the gap-up. Still, we locked in profits on another quarter of the initial position.
Portfolio Needs Can Outweigh Individual Stock Action
The next day saw another nice gap-up as the Chinese stock market continued to show strength (5). On a positive note, the personality had shifted from looser action to tighter action. The ETF went from weakness following gains to holding its gains. But sometimes decisions on the individual position rely on the needs of the portfolio. That was the case here.
With some of the rotation plays rebounding and offering new entries, the money for new purchases had to come from somewhere. Taking profit with the strength of our Chinese stock ETF was our choice. Many of the stocks bought with that money were sold the next day, but the top priority was getting a foothold in Tesla, which more than made up for the small losses.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
