China ETF Faces Tough Chart Challenge After G-20 Pop

The A-shares fund consolidated into emerging support at its 60-day moving average late last week

by Bernie Schaeffer

Published on Jul 16, 2019 at 10:10 AM

The Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEARCA:ASHR) is a Beijing blue-chip tracker, as it's meant to reflect the price action of 300 of the biggest and most liquid A-share listings in the Chinese market. ASHR counts among its top 10 holdings such familiar corporate names as Ping An Insurance, China Merchants Bank, and CITIC Securities, with the fund's top-heavy 39.59% weighting toward financials rounded out by an 11.85% allocation to industrials, roughly 11% each to consumer non-cyclicals and cyclicals, and 8.15% to technology (per etf.com), amongst a smattering of others.

Understandably, then, ASHR was one of the prime beneficiaries of the U.S.-China "tariff truce" rally that gave stocks a shot in the arm on July 1. Shares of the exchange-traded fund (ETF) gapped higher and ended the session up nearly 3% -- racking up their best daily gain since June 20, when ASHR vaulted to a gain of 3.3% on global optimism over a dovish U.S. Fed statement.

In the wake of those two big bull gaps over the last few weeks, ASHR is now positioned firmly above a trio of moving averages that have each played a significant role in the recent past. First, since its lofty two-month intraday highs of July 1, the ETF has pulled back to find emerging support at its 60-day moving average. Previously, this trendline -- which roughly corresponds with about three months' worth of trading activity -- had served as a stiff layer of resistance for ASHR during the bulk of its 2018 decline, until it was finally surmounted in mid-January of this year.

Meanwhile, that big burst higher from ASHR in recent weeks took place from the launchpad of its 126-day moving average, which measures about six months' worth of trading days. This longer-term trendline briefly acted as support in March 2018, before immediately switching roles to act as resistance later that month. It remained overhead until a late-January 2019 breakout, after which ASHR successfully retested its 126-day as support just days later. The ETF's latest pop higher follows a roughly month-long huddle into support at this trendline.

And then there's the 320-day moving average, which is somewhat more useful for our purposes when viewed as a "demarcation line" between periods of bullish and bearish price action for ASHR, as opposed to an actively "in play" level of day-to-day support and resistance. When the ETF first closed below this trendline on June 15, 2018, the bottom effectively fell out for the share price, and the ensuing decline didn't conclude for nearly six months. By that time -- when the closing bell sounded on Jan. 3, 2019 -- ASHR was down nearly 26% from the day it first settled below its 320-day trendline.

That's why it was so encouraging for ASHR when it closed back atop its 320-day on Feb. 25 of this year -- and why it's such a relief for big-cap China bulls that the fund's 126-day moving average was able to help contain a brief bout of recidivism below this trendline from early May through mid-June. Adding to potential support in the area, the 320-day moving average for ASHR is currently located right near a round 20% year-to-date return for the shares, and just below a 38.2% retracement of the ETF's decline from its January 2018 closing high into its January 2019 closing low.

With these "technical green shoots" for the China A-shares tracker in mind, traders will next want to monitor ASHR's progress around a pair of upcoming imminent hurdles. Nearest at hand, the $28.18 level is a 50% retracement of the fund's year-long swoon, and could pose some potential pressure as resistance.

But quite a bit more "obvious" is the threat posed by the overhead $29 level, which previously acted as reliable support from August 2017 right up until ASHR breached its 320-day moving average in June of last year. Given that ASHR closed squarely at $29 per share on the day of its big G-20 rally before embarking on a quick retreat back down to the previously described emerging support at the 60-day moving average, this historically significant price point looks like the short-term chart challenge to watch for Beijing's biggest names.

ashr daily chart 0712

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, July 14.


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