ISLAND REVERSAL IN CHINESE STOCKS IS A BULLISH PATTERN; IS THIS A BUYING OPPORTUNITY?

By Nigam Arora & Dr. Natasha Arora

In the Morning Capsule, we shared with you that several Chinese stocks were tracing an island reversal after a big drop.  From the emails we are receiving, there is significant interest among investors wanting to buy Chinese stocks to take advantage of the big drop.

Please click here for a chart of Hong Kong China Large-Cap ETF (FXI).  The chart shows an island reversal.

Here are the key points that will help answer your questions:

  • When taking risk into account, as well as valuations, for most investors the best opportunity is likely to be Chinese stocks traded in Hong Kong represented by ETF FXI.
  • India and Vietnam are likely to be big beneficiaries as more business shifts from China into these two countries.  India and Vietnam are covered in ZYX Emerging.  India and Vietnam are also in ZYX Allocation Model Portfolios.  However, they can be removed at any time from the  Model Portfolios in ZYX Allocation.  ZYX Emerging has continuously covered these countries for a very long time.  In addition, to buy zones, ZYX Emerging also provides ratings for the short-term, medium-term, and long-term.
  • If it was pre-2020, we could easily state with a 90% confidence level the following:
    • Island reversal is a powerful positive technical pattern.
    • When a major macro change happens like what is happening in China right now, bullish technical patterns turn out to be bull traps. In a bull trap, investors are sucked in based on positive indicators and then the stock or ETF drops to make a significantly lower low.
  • In the post-2020 environment,  analysis has to be different.
    • There are millions of new less knowledgeable investors.
    • Some of the new investors are very intelligent and putting in the effort to learn.
    • Unfortunately, a large number of new investors have been sucked in by pumpers and act irrationally.  The sheer number of such investors and their propensity to act collectively as they follow pumpers make them a force to be reckoned with.  Such investors are buying Chinese stocks aggressively and appear to believe that a ‘V’ bottom has been formed.
  •  Expect smart money to trim their Chinese positions into strength if Chinese stocks and ETF continue to go higher.
  • Please  read the posts dated July 26, 2021, on Alibaba (BABA), JD.com (JD), China Internet ETF (KWEB), China A-shares ETF (ASHR), and FXI.
  • KWEB, ASHR, and FXI are covered in ZYX Emerging.
  • BABA and JD are covered in ZYX Buy.
  • KWEB is also in ZYX Allocation Model Portfolios.
  • Those with a serious interest in China and still do not have a subscription to ZYX Emerging should consider a subscription to ZYX Emerging.

What To Do Now

If you are aggressive and want to buy here, consider scaling in using small tranches.  Please see Trade Management Guidelines to learn about scaling in.

For most investors, it is important to focus not only on potential rewards but also the risk. Due to high risks, for most investors, buy zones on Chinese stocks and ETFs continue to be suspended.  It is preferable to buy even at a higher price if there is more policy clarity from China and the risk is lower.

Stay tuned to the Real Time Feeds for signals.

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

This post was just published on ZYX Buy Change Alert.

 

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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