Chart Advisor: Exploring Chinese Markets

By John Salama, CMT

1/ China Internet Faces Decline Amidst Weakness

2/ Energy Sector Anticipates Potential Downturn

3/ Ark Rally Hits Resistance, Drop Expected 

4/ Bitcoin Struggles Amid Stagnant Range 

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China Internet Faces Decline Amidst Weakness

Courtesy of barchart

Earlier this week, I pointed out the challenges facing Chinese markets, and the KraneShares CSI China Internet ETF (KWEB) exemplifies this frustration. Concentrated in top holdings like Pdd Holdings, Ke Holdings, and Vipshop Holdings, KWEB dropped 4% today amid aggressive selling. Since peaking at $32.63 on May 17th, the ETF has consistently made lower highs, with a flatlining 200-day moving average at $27.00.

Despite only briefly entering oversold territory—one day in January near its 52-week low and one day in June—KWEB experienced a period of overbought conditions in May, when its Relative Strength Index (RSI) surpassed 70 for about a week and a half, leading up to its 52-week high. For the last six months, the 200 DMA has remained flat, indicating a lack of momentum.

Similar to the broader China ETF FXI, KWEB dropped to $24.80 during the Japan crash on August 5th before rallying 10.5% to $27.41 two weeks later. However, nearly half of those gains were wiped out today. Given its underperforming profile, I believe KWEB has already exhausted much of its rally and is likely to decline to around $24.95 over the next three weeks, representing a nearly 5% drop.

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 Energy Sector Anticipates Potential Downturn

Courtesy of barchart

Yesterday, I highlighted frustrations in the crude oil market, and today I’m turning to the S&P 500 Energy Sector SPDR (XLE), which is heavily weighted with Exxon Mobil Corp and Chevron, comprising 40% of the ETF. After bottoming out at $78.98 on January 18th, XLE surged to its 52-week high of $98.97 by April 12th, marking a 25% gain in just three months. Since June, the 200-day moving average (200 DMA) has flatlined at $88.66, serving as strong support since March when XLE began a month-long overbought phase driven by geopolitical tensions in the Middle East.

XLE has been confined to a 12% range between $85 and $95 since May. Following an 8% rally from the Japan crash until August 19th, energy stocks are down 2.6% today closing just above the 200 DMA. I anticipate a potential minor bounce to $90-92 this week, but I don’t expect much more upside. Instead, XLE is likely to decline toward $85.70 over the next three weeks, a drop of nearly 4%.

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Ark Rally Hits Resistance, Drop Expected 

Courtesy of barchart

The Ark Innovation ETF (ARKK) has experienced a remarkable rally since hitting a low of $36.85 during the Japan crash on August 5th, surging to $45.09 just two weeks later—a 22% gain. The fund reached its 52-week low on October 30th, as the “Higher for Longer” interest rate narrative took a toll on many of the pre-profitable companies within the ETF. However, it rebounded strongly, climbing 62% in two months to hit a 52-week high of $54.52 during Christmas week, underscoring the volatility of its components.

Key holdings in ARKK, managed by Cathie Wood, include Tesla, Roku, and Coinbase, which together make up 31% of the ETF. Since April, ARKK has been range-bound between $37 and $50, with its 200-day moving average (200 DMA) now showing some upward slope at $46.32. However, the ETF has struggled to maintain levels above its 200 DMA for any significant period since April. It was last overbought in mid-July,
reaching a 78 RSI as it hit its three-month highs.

Looking ahead, I expect ARKK to face significant resistance at $44.90-$45.60, just below its 200 DMA, reinforcing its overall trend of underperformance. I anticipate a decline to around $39 over the next three weeks—a 12% drop, giving back roughly half of its gains since the Japan crash.

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Bitcoin Struggles Amid Stagnant Range 

Courtesy of barchart

Bitcoin, the top-performing asset both year-to-date and over the past 52 weeks, has recently struggled to break out after reaching its all-time high of nearly $74,000 on March 14th. While it hasn’t entered oversold territory in the past year, it was overbought from mid-October through mid-November, and again from mid-February through mid-March as it climbed to those record highs. The 200-day moving average (200 DMA), currently near $57,000, continues to provide strong support. Bitcoin has remained above this key support level for nearly the entire past year, even during its 52-week low of $25,000 in September.

Despite multiple ETF approvals for Bitcoin and other cryptocurrencies like Ethereum, investors remain frustrated as BTC has been stuck in a $50,000 to $74,000 range for the past six months. The chart suggests a potential small surge to $61,000-$62,000 in the coming week, but I anticipate a subsequent dip in September toward its $57,000 support level. The outlook suggests continued frustration for BTC holders.

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Originally posted 21st August 2024