Watching KWEB: Ratio Line Signals Weakness Ahead of Price

 

Above is a daily chart of KWEB, the China ETF, and in the lower pane, I’ve plotted the ratio line of KWEB versus SPY. This ratio line is one of my favorite tools for spotting relative strength or weakness in a stock or ETF compared to the broader market. At point A, you can see the ratio line broke down to a new low before the price did. That was a warning signal, when the relative strength line turns weaker ahead of price it often foreshadows a decline once support gives way, and that’s exactly what played out.

Fast forward to now, at point B, we’re seeing the same pattern repeat. The ratio line is again breaking down before KWEB’s price, signaling that KWEB is underperforming the broader market. This kind of relative weakness is important to track because it helps you anticipate potential price declines before they happen.

That said, just because the ratio line breaks lower ahead of price doesn’t mean you immediately jump into a short position. Confirmation is key, I typically wait for a price-level break of support to validate the signal. Watching how price reacts around key support areas gives me more confidence that the move has momentum behind it.

For now, I’m keeping KWEB on my radar as a potential short. The combination of relative weakness and approaching support levels makes this setup worth watching closely. I’ll be looking for a break of that support as my trigger point, while the ratio line continues to guide me on whether KWEB is truly underperforming the market.