In our China stock market forecast for 2019 we predicted that China’s sell off is coming to an end in the next few months. It would result in a powerful move higher in 2019. If so, China internet stocks would end their sell off anytime soon. But are markets really on this path or not, given this week’s painful decline of China internet stocks KWEB ETF (KWEB) of 7.93% in?
Emerging markets, especially China’s stock market (SSEC), continue to face challenges. They have a hard time when U.S. markets went higher in recent months, and they have hard times when U.S. markets are struggling like this week.
As per our Emerging Markets Forecast For 2019 we believe that the end of the correction in emerging markets is near. However, we also said that the EEM ETF (EEM) should hold 40 points. Yesterday, EEM closed the day at 40.84 points.
Yes, this is a make-or-break level for emerging markets.
China internet stocks at make-or-break level in October 2018
More specifically, in China, and especially China internet stocks, there is even more outspoken ‘make-or-break’ levels. KWEB ETF closed yesterday’s trading sessions at 44.95 points.
Early August we wrote the following on China internet stocks, specifically in this article 3 Must See Charts On China’s Stock Market Selloff in 2018: “Note how the sell-off in China internet stocks accelerated 3 weeks ago, specifically on July 23d, with a 22% decline in a matter of 3 weeks. Visibly, KWEB has entered a strong support area. Although there is some downside to the 43 level, which is just 7% below current levels, we strongly believe this selloff is about to decelerate.”
Two months ago we forecasted that current levels would provide ultimate support, at least from a channel perspective. From a trendline perspective there was already a breakdown in August when KWEB ETF well through the rising trendline.
We believe China internet stocks still have a chance to stop falling but that is only provided the Shanghai Exchange (SSEC) finds support at current levels.
The sell-off in China internet stocks does not look good. A first sign of a slightly lower low is there, and it may be the start of a rounding bottom, which would be very bullish. However, more evidence is required, both by SSEC as well as bulls supporting KWEB ETF.
The bearish scenario: SSEC continues to fall and KWEB falls through support at 43 points. It might get nasty in that scenario. We believe the likelihood is small though!