Stocks are flying this morning following good news from the G-20 summit in Argentina. President Donald Trump reached an agreement with Chinese President Xi Jinping to halt any further tariff increases for the next 90 days. While the decision marks a pause in the trade war and not a definitive end, investors aren’t quibbling over the details. They’re buying stocks — especially Chinese stocks, with both fists.
The Dow Jones Industrial Average opened over 300 points higher this morning. Investors are hoping that an end to all the tariff drama will spur global economic growth and provide further fuel for the aging expansion in the U.S.
Chinese stocks, in particular, are surging in early trading making them one of the most exciting areas to shop. Here are three tickers to consider for the week ahead.
3 Chinese Stocks to Buy on China-U.S. Trade Truce: iShares China ETF (FXI)
Rather than playing the often tricky game of picking winners from losers, you could buy China outright via an exchange-traded fund. The iShares China ETF (NYSEARCA:FXI) is the most liquid one available and holds a diversified basket of publicly traded companies with direct exposure to the Chinese economy.
Weighed down by trade war woes, FXI’s 2018 performance was turning out rather ugly. At the lows, FXI was down 30% from its January peak. Nonetheless, with last month’s recovery and this morning’s gap higher, the losses have been pared considerably.
In the short run, some profit-taking may be in order so don’t be surprised if FXI gives back some of the gains in the coming week. But, if you believe dips are now buyable then use the weakness to sell puts such as the Jan $40 strike which is currently offering 55 cents of premium.
3 Chinese Stocks to Buy on China-U.S. Trade Truce: Alibaba (BABA)
Today’s 3% jump is placing an exclamation point on Alibaba (NYSE:BABA), and its recent turnaround. Since bottoming at $130 late-October, BABA has risen 28%. More important than the percentage gain, however, has been the improvement in its price trend. Many resistance levels have given way during its ascent included the 50-day moving average and the descending trendline that defined its 5-month downtrend.
Volume patterns are bolstering bulls with a few accumulation days over the past month. Like FXI, BABA is overbought in the short run and running into potential resistance. Don’t be surprised if we see some backing and filling over the coming days. But with the trend now pointing higher, dips are likely buying opportunity.
Consider selling the Jan $150/$145 bull put spread for $1 or more.
3 Chinese Stocks to Buy on China-U.S. Trade Truce: Tencent (TCEHY)
If you’re looking for a higher-octane play to game the Chinese stock recovery, then consider Tencent (OTCMKTS:TCEHY). Its performance this year has been abysmal with it falling just shy of 50% from its $61 peak. But over the past six weeks, TCEHY has scored a turnaround lifting above the 50-day moving average and reversing its short-term trend higher.
The stock is quite overbought so I highly recommend waiting for a retracement toward $38 before piling in. It has no listed options so you’ll have to make a straight stock purchase.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.