China tech stocks nearing bear market — bet against the downturn
Thesis
Chinese stocks are getting hit from all sides right now. Global investors are already pulling away from risky assets due to the escalating war in Iran and the threat of higher interest rates around the world. Technology stocks, which make up a huge portion of the Chinese market, are leading the charge downward. When a market drops this fast and approaches a 20% decline, it often triggers a wave of automated selling and panic as investors rush to the exits. This creates a classic downward momentum that can push prices even lower in the short term.
Strategy approach
Build a rule-based trend-following strategy for FXI (iShares China Large-Cap ETF) on a daily timeframe. Enter a short position when the 10-day moving average crosses below the 50-day moving average, and the RSI(14) is below 40. Exit the short position if the RSI drops below 20 (extreme oversold conditions), or if the price closes above the 10-day moving average for three consecutive days.