QIFU Technology Inc. (QFIN) - November 11, 2024

Many SIA practitioners use a top-down strategy to first identify the best relative strength performers across various asset classes (currently, U.S. Equities) and then identify the best sector relative strength to determine ETF, mutual fund, or individual equity positions. While this methodology is highly effective at identifying outperforming assets, it’s striking how the SIA platform also detects early leadership from a bottom-up perspective. Let’s explore this phenomenon further in today’s Daily Stock Report. Consider what happens when a new sector or asset class begins to show early signs of leadership. From monitoring many sectors over the years, it’s clear that not all constituents of an index move in unison. You could liken it to a bag of microwave popcorn, where a few kernels (the leaders) pop first, followed by others. If the opportunity broadens, the entire bag begins to pop together—leaders and laggards alike. One example of this is the recent development in Chinese equities, which have been severely battered over the past four years, with many stocks losing more than 90% of their value. Even massive companies like Tencent and Alibaba were not immune to this destruction of wealth, casting a long shadow over the sector. However, during the summer of 2024, SIA practitioners noticed something intriguing: a select few stocks began to rise to the top of the matrix reports. For example, the SIA International ADR Index Report showed that as early as March 2024, a few leaders in the Chinese sector were starting to emerge in the SIA Favored (Green) Zone. One such stock was Qifu Technologies (QFIN), which saw a notable rally in relative strength in the spring of 2024, as seen in the attached SIA matrix chart. Qifu Technologies Inc. (QFIN) offers credit-driven services connecting borrowers with financial institutions for customer acquisition, credit screening, risk assessment, fund matching, and related services. Additionally, it provides platform services, including loan facilitation and post-facilitation support, through an intelligent credit engine and risk management software-as-a-service.

Qifu Technologies stood out, as Chinese equities had been absent from the SIA Favored zone for many years. Since then, more Chinese stocks have joined this list, and the sector has provided strong gains for early investors. However, it’s important to note that the broader Chinese sector, even now, is still generally unfavored on many SIA ETF and mutual fund reports. That said, the aggregate Chinese sector is showing signs of improvement in relative strength. In the attached clipping from the SIA International ADR Index Report, we highlight the top 25 positions, where Chinese stocks now represent 8 of the top 25—about one-third of the list. While this is a strong performance on an individual basis, sector ETFs and mutual funds are still marked as Unfavored or, at best, Neutral in the SIA reports. It’s also worth noting that the initial moves seen in the SIA International ADR Index Report preceded the major rally in Chinese stocks that followed the large stimulus package announced by the Chinese government last month, as well as the fiscal package released late last week. For those who recognized the early relative strength of leaders like QFIN, the returns have been impressive, with a YTD gain of over 100% and quarterly returns exceeding 50% (see table attached). Will this equity group continue to perform well? Are these high SIA relative strength-ranked names a sign of more growth to come, or will this turn out to be another false start? Only time will tell. However, important datapoints to watch will be the movement of broad-based ETFs and mutual funds into the SIA Favored Zones, as well as further breakouts from overhead resistance levels. For those who own shares of QFIN, this resistance is real, with a couple of levels to consider: notably around $37.39 (dating from 2021) and additional resistance at $35.24 (recent highs), as shown on the point and figure chart. On the other hand, support is now visible at $28.34, $25.67, with a broader support zone between $21-$22. Shares of QFIN currently hold a perfect SMAX score of 10 out of 10, signaling that QFIN is still a better place to grow than other asset classes, including domestic/international equities, commodities, currencies, or even holding cash.