Chinese stocks haven't been the easiest investments the past two years. KWEB stock tracks some of the highflying tech stocks and fell 84% from its February 2021 peak to its October 2022 low (1). There's been a zero-tolerance Covid policy, potential delistings from U.S. exchanges, unfriendly regulations toward business and potential trade headwinds just to name a few issues plaguing Chinese stocks. But there's been a nice bounce from the bottom. For swing trading purposes, taking a position required some adjustments.
Are China Tech Stocks Ready To Rise?
With all the issues facing Chinese stocks, KraneShares CSI China Internet ETF didn't have much on the technical side to be excited about until recently. The headline risk has added extreme levels of volatility. At its bottom day, KWEB stock plunged more than 14% (1). But that volatility wasn't limited to the downside. For instance, a 7% drop on one day (2) could be followed by an 8.5% rise the next (3). Nevertheless, KWEB stock made significant progress from its lows to the tune of an 84% rise in just over a month's time (4). It's not necessarily intuitive but an 84% drop followed by an 84% rise still left KWEB stock 70% off its high.
Despite the strong move off the bottom, it was tough to start a position when KWEB stock was so extended. It was more than 30% above its 50-day line and 11% above its 10-day line. But then it tightened up. Over the next two weeks it didn't correct more than 9% as the moving average lines caught up with the price. KWEB stock also seemed to find support multiple times around the 30 level (5).
Swing Trading Example: KWEB Stock
After the Christmas holiday, the tight action made KWEB stock look more attractive as it bounced on a strong day in the market (6). It earned itself a spot as IBD Stock Of The Day. While volatility had contracted significantly, it still carried a higher risk. Rather than skip the trade, we went with a half position as we added it to SwingTrader. It also helped that our exposure overall has been low through the 2022 bear market giving us cushion above our benchmark.
Rather than follow through on the strength, KWEB stock immediately fell (7). To its credit, it stayed above its 21-day line, within its base and got support at 30 again.
A 5% drop is never fun, but the half position in KWEB stock and low exposure overall minimized the damage. And with the support and bounce at 30, KWEB stock isn't broken (8). But one of the ways in which we've maintained our edge this year is cutting things quickly when they don't act as expected. We don't wait for them to get worse.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
