First things first: shoutout to the closed-minded.
The stubborn and dogmatic among us. The trend fighters.
They make it easier for the rest of us who think clearly to make money in the market.
And JC would tell me, “Don’t worry about them. Forget ‘em.”
And he’s probably wiser than me for that, but I just can’t— because I used to be one of them...
I had all the answers. I was always right and the market was always wrong.
I knew everything, but I kept losing.
I was lucky, though. I found Technical Analysis, and now I let the charts do most of the hard thinking for me… I’ve found markets to be much easier this way.
So in that spirit, here is my last-effort appeal to the “Never China” crowd…
“China is uninvestable.”
“Those are communist stocks.”
“They are going to get delisted.”
If you find yourself thinking or saying these kinds of things, I implore you to join me in this thought experiment.
Here’s the truth about China right now…
These are the most-hated stocks in the market… But they are also the global leaders.
While China’s short interest is near record highs, the country is sitting at the top of the charts in our global relative strength rankings.
And that leadership is occurring in the context of a major trend reversal — signaling a brand-new bull market is underway for Chinese stocks.
Here’s a look at the country’s Magnificent Seven, or what we call the FANGhai Composite– completing a rounding bottom.
This basket includes stocks such as Tencent, Alibaba, Baidu, and others. The trend has shifted, and the path of least resistance is finally higher for these international tech giants.
This combination of price action, sentiment, and depressed valuations is the perfect recipe for a big move. It’s the kind of fat pitch that doesn’t come around too often.
And these charts resemble so many that we’ve bought before them, with the same textbook reversal patterns and breakouts.
So, what’s the problem? Why are they so hated?
Are Chinese stocks really that different from the rest?
I don’t think so.
As far as I’m concerned, they look the same, so we should treat them the same.
Here are some charts that have me thinking this way.
First, this is US online retail and Chinese online retail:
US-based online retailers and the Amazon of China have topped together, bottomed together, and are now both resolving long-term bases together.
I don’t think it is a coincidence that Alibaba $BABA looks just like the Amplify Online Retail ETF $IBUY.
It’s the same story with speculative tech.
The Ark Innovation ETF $ARKK and Invesco China Technology ETF $CQQQ have been through the same volatile cycle — one fraught with wild runs and painful drawdowns. After basing for several years, they’re both reversing trends.
If I pulled the tickers off these charts, most people couldn’t tell the difference.
And this phenomenon isn't isolated to just the technology and growth groups…
Chinese banks, as state-owned as they may be, look just like banks in other parts of the world… even developed and democratic nations like those in Europe:
Here’s a look at European financials $EUFN resolving higher from a multi-year base.
And guess what?
The big Chinese banks are attempting the exact same breakout. Once again, these trends are in sync and have been for a long time.
They base together, they top together… and now they’re about to break out together.
How about China vs US EVs?
Build Your Dreams $BYDDY has been trending just as well, if not better, than Tesla $TSLA this cycle.
Let’s try something different. Here are the two largest travel booking platforms in the two countries:
Trip.com $TCOM has actually outperformed Expedia $EXPE for the past few years. It’s been the better stock, at least for this cycle.
The point I’m trying to make is… maybe we’re not so different— us and them.
Not to mention, Chinese stocks represent some of the best growth stories from around the world. This is the only country with tech stocks comparable to those in the US.
It’s a bull market, and global participation is expanding.
Investors are moving out on the risk spectrum and trying new things.
I think they’re going to have to reconsider China.
I think a whole lot of “Never China” folks will be “Always China” folks by the time this bull run is over… After all, nothing changes sentiment like price– or better yet, alpha.
And as all those bears capitulate, we’re left with an army of potential buyers on the sidelines.
When I think of it in that light, I don’t think these China charts will look so much like these US charts in the future… I think they’ll look a lot better.
Maybe I’m crazy, and I’ll be wrong about Chinese stocks.
I’m definitely open-minded to it.
Are you?
P.S. So far, the feedback from the market has been nothing but positive. We’ve been buying calls in FANGhai composite names all summer long.
We’ve already taken some profits in our BABA calls, and the remaining position is currently up over 230%.
As for BIDU, we doubled down on our position in late August and own both September and October calls. We’ve sold the double in each of them, and today the remaining calls traded as high as +325% and +840%, respectively.
