Looking To Trade China-Based Stocks Bullishly? This ETF (CHAU) Offers 2X Leverage

Zinger Key Points
  • CHAU is trading in a strong uptrend, making a consistent series of higher highs and higher lows.
  • The ETF is designed to outperform the CSI 300 Index by 200%.

Direxion Daily CSI 300 China A Shares Bull 2X Shares CHAU was trading higher on Wednesday but pulled back to near flat after the Federal Reserve applied a 0.5% interest rate hike.

The reaction was in tandem with the S&P 500, which was attempting to bounce but suffered a bearish reaction to the 2 p.m. news from the Fed.

China-based stocks have rebounded significantly since Oct. 31, with CHAU surging up over 42%. The Hang Seng Index has soared about 34% since that date, most recently propelled by Xi Jinping’s decision to halt the CCP’s "zero-COVID" policy, which caused economic woes for the Asian country.

CHAU is a double-leveraged fund designed to outperform the CSI 300 Index by 200%. The ETF tracks several China-based ETFs, with Xtrackers Hvst CSI 300 China A-Shs ASHR making up 26.36% of its holdings.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle by experienced investors as opposed to a long-term investment. Leveraged ETFs should never be used by an investor with a buy-and-hold strategy or those who have low-risk appetites.

For traders wanting to play the gold mining index bearishly, Direxion offers Direxion Daily CSI 300 China A Shares Bear 1X Shares CHAD

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The CHAU Chart: CHAU has been trading in a strong uptrend since Oct. 31, making a consistent series of higher highs and higher lows. The ETF’s most recent higher high was formed on Friday at $21.84 and the most recent higher low was printed at the $20.81 mark on Monday.

  • On Wednesday, CHAU was forming an inside bar pattern on the daily chart, with all the price action taking place within Tuesday’s trading range. The pattern leans bullish in this case because the ETF was trading higher before forming the inside bar.
  • CHAU could also be settling into a bull flag pattern, with the pole formed between Nov. 28 and Dec. 9 and the flag forming over the trading days that have followed. If the pattern is recognized and CHAU breaks up from the flag on higher-than-average volume, the measured move is about 23%, which suggests the ETF could eventually soar up toward $25.
  • It should be stressed that leveraged ETFs are meant for short-term trades and should be held for longer than one day.
  • CHAU has resistance above at $21.77 and $23.43 and support below at $19.81 and $17.65.

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Photo: Aleksandra Gigowska via Shutterstock

Posted In: Long IdeasNewsShort IdeasTechnicalsGlobalTrading IdeasETFsChinaChina ETF
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