China Stocks Are Ready For the Next Bull Run As Wyckoff Accumulation Is Near Completion

After the stock market became severely oversold last week, a few positive tell-tale signs—explained in the video at the bottom of this post—appeared, suggesting a countertrend bounce off the very pessimistic mood.

On the other side, since May 2022, China equities, as represented by the KraneShares CSI China Internet ETF (KWEB) and the Invesco Golden Dragon China ETF (PGJ), have outpaced the S&P 500.

Finding the Accumulation Pattern in KWEB Using the Wyckoff Method

This is crucial because China stocks may end up becoming the next market leader to kick off the next bull run once the energy sector (XLE) loses its leadership in the middle of June 2022. Individual stocks are only more likely to continue rising when the group emerges as the leader. As indicated in the figure below, let's use the Wyckoff approach to determine the potential accumulation structure.

A distribution on the way down from the high at 97 was followed by a down trend that lasted until May 2022, as illustrated in the down channel, for KWEB after a parabolic run up produced a purchasing climax off the top in February 2021.

In March 2022, when capitulation was evident as represented in the volume rise, the first indication of the probable accumulation phase appeared. The trading range between 20 and 33 was established by a selling climax and an automatic rise that followed. As the largest up wave since the decline began in February 2021, the automatic rally was seen as a Wyckoff change of character that momentarily halted the declining trend into a trading range.

Supply absorption was indicated by the following responses in May 2022, which were followed by volume increases while still establishing a higher low.

The down channel was firmly broken by KWEB on May 31, 2022, and a strong rebound that day challenged the resistance at that point. This was the first time it had crossed above the downward channel, indicating a shift in trend was imminent.

After reaching the resistance at 33 in June 2022, the tight consolidation was brief and committed over the immediate support level at 30. A greater amount of supply absorption, compared to May's response, was evidenced by an increase in volume throughout the consolidation.

The accumulation of KWEB shares exhibits all of the aforementioned bullish traits at a time when the market attitude is overwhelmingly unfavorable.

The accumulation from the selling climax on Mar. 14, 2022, in KWEB will be complete with a breakthrough and commitment above 33. This will also likely signal the beginning of a significant rally to test 40 before another reaction. The following KWEB price objectives are 50 and 60.

The length of the accumulation process is to be prolonged in the trading range of 20-33 if KWEB fails to hold at the support at 30.