Chinese stocks poised for next bull run as Wyckoff accumulation nears completion

A silver lining emerged after the deep oversold condition in the stock market last week, where a number of bullish telltale signs, as explained in the video at the bottom of this article, indicated a countertrend to extreme bearish sentiment.

On the other hand, Chinese stocks represented by Invesco Golden Dragon China ETF (PGJ) and KraneShares CSI China Internet ETF (KWEB) started the bottoming process in March 2022 and outperformed S&P500 since May 2022.

Using the Wyckoff method to spot the accumulation pattern in KWEB

This is significant because after losing the energy sector (XLE) as the stock market leader in mid-June 2022, Chinese stocks could potentially be the next leader to start the next bull run. It is only when the group takes the lead as the leader that individual stocks are more likely to maintain their uptrend. Let’s adopt it Wyckoff’s method find out the potential accumulation structure as shown in the table below.

After a parabolic rise created a buying high in Feb 2021, KWEB had a declining distribution from the high at 97, followed by a downtrend that lasted through May 2022 as shown in the descending channel.

The the first hint of the potential accumulation process appeared in March 2022 where a capitulation was observed as evidenced by the tip of the volume (annotated in blue arrow). A selling high was created, followed by an auto rally, which set the trading range between 20 and 33. The auto rally was seen as an Wyckoff changes characterwhich temporarily halted the downtrend in a trading range as this is the biggest bullish wave since the downtrend began in Feb 2021.

Subsequent reactions in May 2022 (highlighted in blue) were accompanied by an increase in volume while still forming a lower suggested supply uptake.

On May 31, 2022, KWEB decisively broke through the downtrend channel, followed by a decent rally testing the resistance at 31. This was the first time it broke through the downtrend channel, a suggested trend change is underway.

The story continues

The tight consolidation in June 2022 after reaching resistance at 33 was shallow and engaged above the immediate support level at 30. The increase in volume during the consolidation suggested an absorption in supply, similar to the reaction of Mays, but at a higher level.

The above are all bullish characteristics of the accumulation of KWEB stocks when market sentiment is extremely bearish.

A breakout and engagement above 33 in KWEB will mark the completion of the accumulation since the high point of the selloff on March 14, 2022 and likely to trigger a major sign of a strength rally to test 40 before another reaction. The next price targets for KWEB are 50 and 60.

If KWEB fails to hold at the support at 30, the duration of the accumulation process should be extended into the 20-33 trading range.

Spot the rally before it happens in The Extreme Bearish Sentiment

As mentioned at the beginning of this article, watch the video below to learn how to look for bullish telltale signs to anticipate the rally that occurred last week when stock market sentiment was extremely bearish.

Although the short-term direction is bullish for the S&P 500, it is still a bearish rally from the downtrend that started in January 2022. Visit TradePrecise.com to get more free stock market information via email.

This article was originally published on FX Empire

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