World markets followed the Chinese stock market higher on Monday, and the upward momentum has many traders interested in adding exposure to markets such as China, South Korea, Taiwan, Hong Kong, and Singapore. In the paragraphs below, we'll take a closer look at the charts and try to determine how followers of technical analysis will be looking to trade a move higher over the weeks and months ahead.
iShares Asia 50 ETF (AIA)
When looking to add exposure to a specific geographic region, many traders will turn to niche exchange-traded funds (ETFs) such as the iShares Asia 50 ETF (AIA). As you can see from the chart below, the surge in market optimism has resulted in the price of the fund moving past the short-term resistance near $65.
The breakout has also triggered a bullish crossover between the 50-day and 200-day moving averages, which is a popular long-term buy signal that is used by followers of technical analysis. Based on the pattern, traders will most likely look to buy into the strong upward momentum and place stop-loss orders below the long-term moving averages near $61.50 in case of a sudden shift in market sentiment or fundamentals.
iShares MSCI China ETF (MCHI)
With a weighting of 39.45%, exposure to the Chinese stock market comprises the largest portion of the AIA portfolio. Those traders who find themselves looking to gain even more exposure to Chinese markets may wish to take a closer look at funds such as the iShares MSCI China ETF (MCHI).
As you can see below, the price has bounced sharply off of the support of its 200-day moving average, and Monday's surge in buying interest has resulted in a close above an very influential trendline. Again, the bullish crossover between the long-term moving averages, known as the golden cross, will likely be used by active traders to mark the beginning of a major long-term uptrend. From a risk-management perspective, stop-loss orders will most likely be placed below $60.63 in case of a surprise selloff or significant shift in fundamentals.
iShares MSCI South Korea Capped ETF (EWY)
The financial markets of South Korea are also well positioned to capture the attention of traders over the coming weeks. As you can see from the chart of iShares MSCI South Korea Capped ETF (EWY), the price has recently tested the newfound support of its 200-day moving average, but it has lagged the performance of other markets such as China or India.
Based on the performance of other markets, traders will most likely keep an eye out for a move above the nearby trendline, which could trigger buy-stop orders and send the price back toward 2019 highs. As discussed above, stop-loss orders will most likely be placed below the long-term averages to protect against a sudden shift in momentum.
The Bottom Line
Strong price action in the Asian financial markets has drawn the attention of active traders from around the world. Based on the charts discussed above, the recent breaks beyond key long-term resistance levels suggest that we could be in the early days of a major trend higher. Stop-loss orders will most likely be placed below long-term moving averages in an attempt to maximize the risk/reward of a trade and to protect against any sudden shifts in sentiment.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.