In the war of bulls versus bears, it’s still a market made up of stocks. And that eternal truth is as true for stateside equities as it is for large-cap tech Chinese stocks. Let me explain.
I’m referring to Wall Street lore that a rising market lifts all stocks. It’s a nice, simple idea, but it typically doesn’t match the reality of investing. The problem is it’s just not that easy, regardless if your focus is on Chinese stocks or elsewhere.
Chinese Stock Long #1: BABA Stock
It’s been a solid 2019 for BABA stock with shares adding about 38% since the start of the year. Still, relative to Invesco China Technology ETF (NYSEARCA:CQQQ) and iShares China Large-Cap ETF (NYSEARCA:FXI) with gains of 31% and 42%, BABA stock’s performance is less impressive.
But there’s reason to believe the friendly trend in this Chinese stock is not only far from over, but is also setting up for a period of out-performance on the price chart backed by solid fundamentals, market position and enviable growth.
Shares of this Chinese stock just triggered a heavier and above-average volume breakout from a well constructed and supported handle pattern this past week. With the handle situated in the upper-third of the right side of BABA stock’s “W” or cup-shaped base, the next logical move in Alibaba shares is a test of its all-time-high of $211.70 immediately preceding last year’s correction.
The recommendation is to buy BABA stock today with shares of less than 0.50% above the breakout pattern resistance. Regarding money management, a stop-loss of 5% looks good as it allows investors to minimize exposure while technically giving the handle breakout enough, but not too much room before calling it a day.
Chinese Stock Long #2: ATHM Stock
Unlike Alibaba, which many see as China’s Amazon.com (NASDAQ:AMZN), Autohome is a much less well-known Chinese stock. But with the lion share of this market, top-notch growth and similar, but even stronger technical performance and pattern on the price chart; ATHM stock is our second buy recommendation.
On the ATHM stock daily chart we can see shares have been demonstrating relative strength by trading even higher within the right side of the corrective base and in a very similar cup-shaped base. And on a percentage performance basis, this Chinese stock is up by a market-leading 75% since bottoming in November.
Unlike BABA stock, what hasn’t happened just yet is a handle breakout. There was a very powerful slightly ‘low’ handle which preceded a large volume upside reaction back in late March. But that entry is roughly 12% beneath current levels and whose risk is more than I’d prefer to rely on.
My recommendation for this Chinese stock is to buy shares using this past week’s pullback. ATHM stock is currently beneath Thursday’s high of $108.10. That level was breached Friday and acts as a price confirmation the small counter-trend is finished. However, with shares falling slightly below this trigger, I’d use Friday’s high of $108.85 as an entry to reaffirm its ‘game time’ for bulls once more.
For money management in ATHM stock, giving shares a $5.00 stop-loss and exiting below $103.85 minimizes risk to less than 5% and folding the position once the integrity of the pullback is disqualified technically.
Chinese Stock Short: BIDU Stock
Baidu is China’s unofficial answer to Alphabet (NASDSAQ:GOOGL). And as a hedge for our other long Chinese stocks, BIDU stock remains a technical dog within the group and one worthy of shorting in the coming days.
Off the chart and inspecting the fundamentals, there’s a lot to like about Baidu. I get it and in the past even maintained a long, hedged position reflecting that belief. But the price chart shows there are more risks than meets the eye.
On the weekly chart of BIDU stock it’s quite obvious this sprawling tech giant has been a disappointment for investors for quite some time now. Shares followed the markets lower in 2018, but this Chinese stock’s outsized losses have been largely kept intact despite 2019’s mostly broad-based rally.
Maybe worse for bulls, the relative weakness doesn’t appear to be finished in BIDU stock either — and looks ripe for entering into a profitable short position. A bearish-looking flag pattern backed by layers of technical resistance continues to point at lower prices in this Chinese stock.
My suggestion is to wait for an entry below the low of the two-week candlestick reversal pattern that’s formed within the bear flag. A short beneath $166.92 confirms that weakness, as well as lines itself up nicely with a break of angular flag support.
On the downside, a first target for taking profits would be near $133 where angular trendline support exists. And if conditions prove less promising after a short is triggered, I’d recommend initially using a move above $181.55.
This exit for buying back the BIDU stock short is the closing and opening price of the weekly chart, two candle reversal pattern. And with the stop also keeping position risk to less than 9%, it’s sufficient evidence on more than one level to pull the plug on this short.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.