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Trade of the Day: Qihoo 360 Technology (QIHU)

The volatility of Chinese tech stocks coupled with strong tecnicals could be an option trader's dream


In Tuesday’s session, Qihoo 360 Technology Co. Ltd. (QIHU) jumped nearly 4% after receiving some analyst attention, but the Chinese Internet stock is working hard to become the top player in its market. And the charts show it’s ready to keep charging and move to the head of the pack this summer.

Profit Scanner powered by Recognia identified a bullish Symmetrical Continuation Triangle that could take QIHU 30% higher in a matter of months.

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QIHU closed Wednesday’s session at $92.70, but the Symmetrical Continuation Triangle puts a target of $121.00 to $127.00 for the stock within 60 trading days, or roughly by the end of September.

What’s more is that the Symmetrical Continuation Triangle pattern emerged on significant volume of more than 2.3 million shares traded in the session, adding validity to the pattern. While speculative traders could certainly buy QIHU shares to hold, a cheaper way to play the possibility is to buy bullish call options, which offer you a way to profit if QIHU moves up but typically for a fraction of the cost.

If you were to buy 100 shares of QIHU at current prices, it would set you back about $9,300. But if you looked at the QIHU Sept $100 Calls, for example, which closed Wednesday at $5.64 per contract, you would pay only $564 per contract (the price of each option contract is multiplied by 100 to get the real-dollar cost because each contract controls 100 shares of QIHU stock).

Most options traders simply an trade option for its inherent value, however. So, if one were to buy the QIHU Sept $100 Calls at $5.64, the closer QIHU common stock gets to the $100 strike price, the more the value of the call option itself will increase. If QIHU hits the low $121 target by September, it’s likely that the owners of the QIHU Sept $100 Calls could double, triple or even quadruple their investment depending on how early QIHU stock hits that target.

Now, if that sounds too good to be true, remember that none of this is guaranteed. Not only are Chinese tech stocks wildly volatile, technical analysis provided by Profit Scanner will identify patterns, but those same patterns can also be invalidated by subsequent pricing action.

The simplest way to protect yourself is to use a stop-loss. Profit Scanner sets a tight stop loss at $86.32, which means if QIHU closes below that level, that’s your cue to exit any bullish positions (long stock or call options). If you have a higher tolerance for volatility, Profit Scanner puts a medium stop-loss at a close below $80.97.

But the picture for QIHU has been ‘green for go’ with several bullish events appearing on its chart in recent weeks, including:

  • June 24: A short-term bullish ‘Know Sure Thing’ (KST) Indicator
  • June 24: QIHU’s price crossed the 21-day moving average
  • June 23: QIHU stock saw a triple moving average crossover of the 14-day, 9-day and 18-day moving average
  • June 20: a short-term bullish momentum indicator
  • June 17: a short-term bullish Williams Percent Return indicator
  • June 17: a short-term bullish MACD indicator

Before taking any position, be sure to do your research and ensure the trade aligns with your risk profile and investing goals but for those who follow the technicals, QIHU is painting a very bullish picture.

Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.

Article printed from InvestorPlace Media,

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