Profit From These 4 Speculative China Trades

The China stock market has been volatile over the last 10 years, with parabolic periods and serious declines. A check of the weekly chart of the Shanghai Stock Exchange Composite Index and the iShares China Large-Cap ETF   (FXI) shows markets that have spent most of the charted period trending lower rather than higher.

 

They have been in another declining period for the last 52 weeks, but more recently, individual names in the indices have been attempting to find support. These stocks are speculative in nature, but several are offering compelling trading opportunities.

Keep in mind that the China stock market is volatile and subject to influences beyond the conventional dynamic of supply and demand. Trading these individual names is not for every trader and requires disciplined entries and exits. Profit is secondary to the primary objective of preserving capital.


The daily chart of Alibaba (BABA) shows the stock spending most of this year consolidating in an inverse head and shoulders pattern below horizontal neckline resistance in the $74 area. This is one of the more reliable bullish reversal formations. The stock has recaptured its 50-day moving average and is entrenched in the resistance zone directly below the 200-day moving average.

Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and is tracking higher and above its centerline on both timeframes. This suggests positive price momentum and short term trend direction. Chaikin money flow moved back above its 21-period signal average after the head of the pattern formed, and now it is crossing above its centerline, reflecting renewed buying interest in the stock.

Alibaba is a long candidate after an upper candle close above the neckline, using a tight and disciplined trailing stop.

China Mobil (CHL) has been and continues to be in a primary downtrend. This year, however, the stock made a series of higher highs and higher lows and is approaching the intersection of a horizontal resistance line and the long-term downtrend line in the $56 area.

The dual moving average convergence/divergence indicators have been tracking upward along with the stock price and are above their respective centerlines. This momentum and trend improvement is confirmed by the positive green-over-red crossover in the aroon indicator. Overall volume remains under the 50-day moving average of volume, but the accumulation/distribution line has positively diverted from its signal line, and it is indicating buying pressure behind the recent advance in the stock price.

Online media company Sina  (SINA) has been trading in a wide but narrowing price range for the last year, forming a symmetrical triangle pattern in the process. It has been consolidating further over the last two months below a horizontal resistance line at the $44 level and above the triangle uptrend line.

The stock rallied up through interior resistance last week and closed just below the triangle downtrend line. This spike in positive momentum has taken the rising relative strength index above its centerline, and the vortex indicator, used to identify early reversals in trend, has made a positive crossover. The money flow index, a volume-weighted relative strength measure, is above both its signal and center lines.

The stock is a long candidate after an upper candle close that breaks triangle resistance, using a close trailing stop.

China Life Insurance (LFC) lost half its value in the last year, and like all China stocks, it is a highly speculative trading vehicle. That said, it has been attempting to base in a triangle pattern for the last two months. The triangle top at $12 is being reinforced by the declining 50-day moving average, and the stock is currently testing that intersection of resistance. The direction of the multiple-timeframe moving average convergence/divergence indications and the positive aroon crossover suggest a bullish pattern breakout, and the sharp increase in overall volume and the Chaikin money flow accumulation reading supports the thesis.

China Life is a buy after a strong upper candle close above horizontal resistance, using a close trailing stop.

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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