So much for the rally. If you’re talking about China’s stock market, the case is building for bears amid a growing health scare. But in a market made up of stocks, standout investments for both bears and bulls still exist. Let’s look at three Chinese stocks that should be on investors’ radars for buying and selling regardless of tomorrow’s headlines.
Just as the green light appeared to buy Chinese stocks following Beijing’s recent phase one trade deal with the U.S., up comes the rug from under investors. On Monday, the iShares China Large-Cap ETF (NYSEARCA:FXI) tumbled 4.7%. It’s the largest drop in more than three years. It also throws the index’s rally into technical jeopardy after having climbed roughly 20% as of Friday’s close over the past five months.
The driver behind the market sell-off is a growing and fiercer-than-anticipated viral outbreak in front of the country’s Lunar New Year. A handful of lives have been taken and there’s obvious concern the situation could become far worse. That goes for large-cap Chinese stocks to the country’s smallest companies. Then again, maybe it won’t.
Bottom-line, it would be wrong to be dismissive of China’s coronavirus as fake news. It’s not. But chasing fear-driven headlines rarely pans out as opportunistic when it comes to investment decisions. As much, it’s time to look at the big picture and the longer-term price charts of three Chinese stocks making meaningful inroads of their own in an always-uncertain world.
JD.com (JD)
Source: Charts by TradingView
JD.com (NASDAQ:JD) is the first of our Chinese stocks to trade. China’s ‘other’ Amazon (NASDAQ:AMZN), alongside Alibaba (NYSE:BABA), is technically on fire. Shares had been the domicile of bears for much of 2018 and 2019 as a large monthly chart head-and-shoulders formation developed a right shoulder. But the ominous pattern wasn’t meant to be. And now JD stock is a buy.
Bottom-line, charts are fluid and pattern failures can be powerful signals in their own right. This is the situation in JD stock after shares cleared November’s bearish topping candle and the 50% Fibonacci retracement level within the right shoulder.
Shares of this Chinese stock are somewhat overbought. But I also expect this enthusiastic behavior will beget more of the same in the weeks and months ahead given the size of the failed pattern.
My price target for JD.com is $65. I’ve calculated it using the approximate $30 distance from the neckline to head and projected the amount from the shoulder’s failure near $35 a share. To guard against downside exposure, a stop-loss of $34 in JD stock looks like smart business off and on the price chart.
Weibo (WB)
Source: Charts by TradingView
Weibo (NASDAQ:WB) is the next of our Chinese stocks to trade. Unlike JD.com, this social media outfit has been given the cold shoulder by investors. And technically conditions are looking even chillier as we near the end of January.
Currently, WB stock is approaching a challenge of angular support within a bear flag pattern. With the price action developing around the 76% retracement level and stochastics beginning to bearishly roll over, a breakdown should carry this Chinese stock towards $9 and its lifetime lows.
Put shares on the radar for shorting on a price move through $39, which breaks both pattern and Fibonacci support. Weibo is volatile and I wouldn’t be too quick to take profits. My advice of an initial price target of $25 looks reasonable for reducing risk. Likewise, after entering into a short and to contain upside risk, an exit above $45 looks appropriate in more than one way.
Nio (NIO)
Source: Charts by TradingView
Nio (NYSE:NIO) is the last of our Chinese stocks to trade. China’s answer to Tesla (NASDAQ:TSLA), the upscale EV manufacturer has been on a tear the past couple days on rumored reports the company is close to securing much-needed funding of $1 billion.
Technically, the driven price action has improved an emerging uptrend in NIO stock fueled in large part by late December’s surprisingly strong earnings report. However, the latest catalyst sets shares up for a ‘buy the rumor, sell the news’ reaction. This appears more likely given this Chinese stock’s overbought extension into intersecting price resistance.
On the weekly chart stochastics are overbought and price action is outside the upper Bollinger Band for the fourth straight week. And looking at the provided monthly time frame of NIO, we can clearly see the former lows and a longstanding downtrend line have come into play. The 38% retracement level at $6 is also a nearby threat.
The evidence on the NIO chart is enough for bears to fade the rally on this Chinese stock. But I’d warn those investors to respect $6 as the line in the sand.
For bullish investors eyeing NIO stock’s budding uptrend, my advice is to wait for a meaningful pullback towards $3.75 – $4. This approach allows a purchase the luxury of being closer to support rather than up against staunch resistance and avoiding likely profit-taking in an overbought stock.
Bottom-line, the expectation is a second challenge of zone resistance could be a game changer for bulls. But for the time being, bullish optimism needs to be curbed in favor of behaving smartly.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the 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
