For the past several years, China has been uninvestable.
Then we got one of the most epic rallies in China’s stock market history…
And then we were so extended that it still felt uninvestable. But for a very different reason.
Earlier this month on the morning show, Spencer asked: “how do you even buy these stocks here?”
I understood his frustration. Sometimes, the best trends are the hardest to get into.
If you took a shot and bought China earlier this month, you’re already in a significant drawdown.
If you have the right timeframe, I think you’ll be fine, but you never want to chase in these situations. After a momentum thrust, always expect a little backing and filling, or corrective action. And be prepared to pounce on it.
It is important that big gains are digested in a healthy way.
Once you understand this, it’s easier to let the setups come to you.
It won’t always work. You’ll miss out on some of the wildest trends. But you’ll also catch some good ones at optimal entry points.
The chart of Tencent Holdings is the perfect illustration of this right now.
At the end of September, TCEHY had one of its best weeks in history and broke out of a massive base in the process.
Then it cooled off and gave back over 15% since early last week. This is the digestion I’m referring to.
If you exercised the proper patience, now you can buy the biggest and baddest company in China just as it is completing a textbook trend reversal.
Rather than worry about the recent weakness, I would view this as a gift from the investing gods. This is how they teach chart patterns. A perfect retest at a multi-year base breakout zone. Notice the confirmation from the all-time high VWAP.
I want to bank on bulls flipping this former resistance into support. I’m long TCEHY above 52.
I’m looking for it to head back to those old all-time highs around 100, which is about a double from here.
Imagine buying Apple or Microsoft as soon as they completed a primary trend reversal following the dot-com bubble or financial crisis. They are both up 1,000s of percent since.
That’s what this setup in TCEHY looks like to me right now. We are coming off the washout of a generation for Chinese equities. No one wants these stocks anymore.
And the nation's top technology company is offering us a brand new uptrend with an asymmetric risk/reward.
