It wasn’t that long ago investors were face-to-face with a menacing bear in the major U.S. markets. The tangle, of course, proved shorter-lived than a sand castle built in a tidal pool at high tide. But that doesn’t mean there aren’t stocks trending lower. For investors seeking diversification from the U.S. market’s raging bull, this trio of Chinese stocks is setting up nicely for short-sellers.
Going across-the-pond and shorting Chinese stocks makes strategic sense, especially considering many of the country’s leading names are still trading in bear markets.
Bottom line, it can be profitable to pick up others’ unwanted garbage at bargain prices.
However, as I’ll discuss below, the charts for Weibo (NASDAQ:WB), Sina (NASDAQ:SINA) and Baidu (NASDAQ:BIDU) strongly suggest otherwise. In fact, WB stock, SINA and BIDU are among the best short-selling opportunities in Chinese stocks:
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What can I say or more aptly, what can the chart of WB stock say other than the trend is your friend if you’re a bear. A couple of weeks ago Weibo, a social media and gaming platform, announced quarterly results which on the surface sounded quite bullish.
The Chinese stock beat Street earnings estimates by 5 cents with profits of 73 cents per share. Weibo also saw sales growth of 28% from a year prior that matched forecasts and issued in-line guidance for the company’s first quarter. Nevertheless, it’s been all downhill ever since for WB stock.
Technically, Weibo’s earnings report sent shares tumbling from a multi-day challenge of the 200-day simple moving average and firmly back into bear territory. Now, and a couple of weeks later, it’s time to put shares on the radar for a short.
Currently, this Chinese stock is toiling in a consolidation pattern wedged at the 62% retracement level from WB’s 2016 – 2018 bull cycle. I’d suggest shorting WB beneath the recent low of $59.35 as shares breakdown.
For money management, the recommendation is to use the three-day high for exiting. As of this writing that’s $62.52. But if conditions go according to plan, a short trigger should reaffirm Weibo’s bearish trend and put the 2019 low of $51.15 as a logical first target for profit-taking.
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SINA is another internet company which sounds a lot like the Yahoo portal, which offers users a vast and varied amount of content. And much like Yahoo, I have to wonder if anyone, other than my dad, goes there anymore to catch up on the news?
Apparently, some other folks do use the SINA platform.
SINA announced year-over-year sales growth of 13.8% earlier this month when it released its quarterly confessional. However, revenues were a tad weaker-than-forecast. Also, this Chinese stock’s earnings doled up a big-time profit miss of 41 cents per share on actual earnings of 22 cents vs. estimates of 63 cents.
Much like WB stock, earnings have taken their toll on SINA shareholders as the report resulted in this Chinese stock gapping lower out of a challenge of the 200-day simple moving average. But the trend looks even worse for bulls and stronger for bears on the provided weekly price chart.
On the larger timeframe, SINA’s downtrend has been firmly rooted in a consolidation period beneath the 62% retracement level. And with the earnings reaction helping break shares through angular support and a supportive-looking weekly stochastics set-up, SINA is in position for shorting.
My recommendation is to simply short SINA stock beneath the two-week doji closing low of $58.09. And to keep one’s exposure contained off and on the price chart, a blended stop above $60.20 looks approachable.
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Not that I’m saving the best for last, but as the detailed chart work might hint at, BIDU has garnered this strategist’s attention in the not-too-distant past. And on those many occasions, I’ve actually been a consistent supporter of buying this Chinese stock on weakness. But I recently changed my tune.
In late February I cautioned investors against owning BIDU and even to short the tech giant. The bearish lean followed an overall much healthier-than-expected earnings report, but one which failed to rally shares despite having been largely left out of 2019’s bullish run in the market.
Fast forward a couple of weeks and despite both U.S. and China’s benchmark averages rallying to fresh relative highs, BIDU stock has remained in the captivity of a bearish flag pattern beneath oodles of technical resistance.
For like-minded investors that wish to trade this Chinese stock’s friendly trend, for now, I’d put shares on the radar for shorting beneath the prior week’s opening low of $165.60. That would have the impact of breaking the flag’s angular support and a second attempt for BIDU reaffirming its bearish trend.
For money management and to reduce unnecessary exposure on the Baidu price chart and in one’s trading account, a blended stop above $173 looks about right in today’s market.
Similar to our last write-up, the 50% retracement level near $147 looks like a good spot to take initial profits. And if conditions become even more favorable, angular trend-line support near $135 would be a second area to lock in profitable gains.
Investment accounts under Christopher Tyler’s management do not currently own positions in any 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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
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