Market Milestones: China

May’s strong seasonality kicked into overdrive this week after the in-line April CPI reading on Wednesday. SPY, QQQ and DIA all hit new all-time highs while IWM and RSP continue to lag. The looming question at hand is whether or not June’s weak seasonality will show up in 2024. Expect at least a little weakness to show up soon and fill Wednesday’s gap. This retest will also provide dip buying opportunities for anyone looking to get some bullish exposure. 

Right now, the market is high, the highest it’s ever been in the history of mankind. This means it’s a perfect time to take gains with collars, trailing stops, partials or covered calls. When looking for bullish set ups, scan for stocks that looks a little different then the overall market. After all, if you follow the RLT Newsletter you are already invested in the overall market with the Prosperity Portfolio.

For something that looks entirely different than the overall market, let’s pop on over to the opposite side of the globe and take a look at China. Chinese stocks have been absolutely throttled over the last 3 years with even the biggest players dropping 80%. However, there are signs that a bottom could be in for the biggest names, leaving considerable upside if true. BIDU, BABA, TCEHY and JD are the big four names that we like to track when we are talking about Chinese stocks. Of course there are a lot more and many can be fun to trade like IQ, which just put in a massive red to green trapping candle on Thursday.

BIDU is an interesting name to watch because it has a fundamental story in AI, as well as a very pretty technical pattern setting up. BIDU recently teamed up with TSLA to map their self-driving cars and as AI initiatives ramp in China, BIDU will undoubtably be a big player. There are a few big risks when investing and trading Chinese companies. First, there is the trustworthiness of the fundamental data we are given. You don’t want to be holding the next Luckin Coffee when it drops 94% in 6 days. The second major issue, which is part and parcel to the first, is that the Chinese Communists Party controls every company operating in China and can make or break them as we saw in the tech crackdown late in 2020. All of this goes to say, we like some of these charts, but do not trust the fundamentals or the CCP, so would not invest in them long term.

As we said, BIDU has a beautiful technical set up brewing as it recently broke out of a large falling wedge. If first broke out of the wedge with a daily gap and go on April 29th which was also a weekly retest gap. Later that same week on May 2nd, it leapt over the 100DSMA with a bullish retest gap. Earnings were on Thursday and it gaped down, traded into the 100DSMA and bounced strongly, closing with a long day bullish candle with a lot of volume and pretty lower shadow.

Since BIDU has been in a downtrend for years, there will be a lot of overhead resistance for the bulls to break though. There are many moving averages overhead, but that is to be expected when you are buying a stock 68% off of its all-time highs. If BIDU dips back down into Thursday’s candle that would be a good spot to snag a share or two with stops and alerts either below the recent low at $94.00 or below Thursday’s candle, depending on how aggressive one was feeling. The first target on BIDU is around $123.00 with the 100WSMA and an ultimate target would be around $156.00 which is a strong resistance and the 100MSMA.

BABA, another Chinese internet giant is also looking like it is on the verge of a breakout. BABA came within 70 cents of a new all-time low back in October 2023. Since then it has been making lower highs and lower lows, forming a large triangle pattern. It has broken through and closed above its 100DSMA, 200DSMA and has broken through its 100WSMA for the first time since it broke down in 2021. If this break out holds, the first target would at the resistance around $100.00 which is 20% above Thursdays close. The second target would be at $120.00 giving 40% upside from the current price.

JD looks very similar to BABA, and the two are extraordinary correlated, so picking a favorite of the two seems like the best option. Then there is TCEHY, which let’s face it is the world’s worst ticker. It’s almost TECHY which would be cool, but it’s not, which makes it even more confusing. The company is called Tencent Holdings, so they just pulled random letters out of the name and threw a Y on the end as far as I can tell. That’s what communism will get you, a terrible ticker, among other dreadful things. Anyway, TCEHY is up over 100% from its 2022 low and is currently hitting its 200WSMA, which has been extraordinary as a support/resistance level in the past. If it is able to break through and close above the moving average, that would be very bullish for TCEHY. If it instead rejects at the 200WSMA, that could give bulls a buying opportunity who have missed the move so far. Check out the April 22nd weekly gap over the 100WSMA bearish high wave candle. That is a thing of beautify and started a strong wave three higher.