China - Market Direction 01 (May 12 - Jul 15)

[winston]

China may appear cheap at 8.4x 2013 earnings, but keep in mind that the dominance of banks in the Shanghai Composite warps the figures.

These banks are on very lower earnings multiples as investors think they’re fudging non-performing loan numbers.

A more representative median price-to-earnings ratio puts the index on a much larger 17x on a 12-month forward basis.

Not so cheap. And bear in the mind that we’ve probably not seen anywhere near the worst of the credit bubble unwinding in China.


Source: Forbes

[winston]

This Trade Has Triple-Digit Upside Potential… And NOBODY Is Buying By Dr. Steve Sjuggerud

In less than two years, the biggest Chinese companies soared 250%.

And right now, I believe these stocks are set for another triple-digit winner.

We all know the negative stories. China is slowing. We've seen on TV that China has built "cities" of apartments and shopping centers – with no people in them! And Chinese companies are heavily leveraged.

But the most hated trades typically have the most upside potential.

I hope you can get over the "ugly" story and make this trade… The reward-versus-risk is incredible here.

Let me explain…

The main way for Americans to own Chinese stocks is to buy shares of the iShares China Large Cap Fund (FXI), which trades on the New York Stock Exchange.

In 2006, FXI was trading around $20 a share. By 2007, it had hit a high around $70 a share. Take a look:

The thing is, Chinese stocks can move down as fast as they can move up… From late 2007 to late 2008, this fund lost two-thirds of its value!

My point is, Chinese stocks can be volatile – you can make a lot of money or potentially lose a lot of money.

Fortunately, you can control your downside risk… Today, you can trade China with roughly 16% downside risk… and still have triple-digit upside potential. So why do I think it's possible to make triple-digit returns in Chinese stocks?

To me, it's simple… Chinese stocks have the three things I look for in an investment… They are 1) cheap, 2) hated, and 3) just starting an uptrend.

The top holdings in FXI are trading at an average 8.7 times earnings with a dividend yield of 4.3%. Take a look:

Market Cap* P/E Dividend Yield
China Mobile $223 10.5 4.0%
China Construction Bank $193 5.7 5.6%
Tencent Holdings $94 39.2 0.3%
Industrial & Commercial Bank of China $236 5.8 5.6%
Bank of China $129 5.2 6.3%
CNOOC $93 8.6 3.5%
China Overseas Land Trust $24 8.8 1.8%
China Shenhua Energy $59 8.8 4.6%
China Petroleum & Chemical $89 8.0 5.0%
China Life $70 26.3 0.9%
* in billions USD Medians: 8.7 4.3%

Judging by the headlines, China is hated. If you went to a cocktail party and told folks you were buying Chinese stocks, they'd look at you like you were crazy.

And the uptrend is clear today… FXI is up from a low around $32 in July to $38 as I write.

Here's one way you could trade it…

Buy FXI, and set a stop loss at $32. This gives you $6 of downside risk (about 16%). But leave your upside unlimited, looking for a triple-digit return.

Is this a speculation? Yes, absolutely… This is not a lifetime investment. Stay in the trade for two years or less.

It's hard to set up trades with risk-to-reward characteristics as good as we have here. This is an incredible opportunity for a trade on Chinese stocks… They're currently in the sweet spot of cheap, hated, and in an uptrend.

That's exactly what we look for in a trade.


Source: Daily Wealth

[winston]

DeMark Sees Shanghai Index Bottom Within Days After Rout By Lu Wang, Michael Patterson and Kana Nishizawa

China’s Shanghai Composite Index will probably bottom out within days and begin to rebound, said Tom DeMark, the developer of market-timing indicators who predicted the measure’s rally from a four-year low in June.

http://www.bloomberg.com/news/2014-01-2 ... -rout.html

[winston]

We recommend a trading buy of China equities, based on seasonality (NBS PMIs have typically been significantly higher in March and April than in the other 10 months over the past nine years) and all-time low valuations (12-month forward P/E of 8x).

We expect a 15-20% market rebound (implied 10x of P/E) in the coming weeks, once growth stabilizes and the market’s focus switches to structural reforms during
the “two sessions” (NPC and CPPCC) in March.

Source: JPM

[winston]

Getting Out of Chinese Stocks Now By Dr. Steve Sjuggerud

A few weeks ago, on stage in Miami, I called Chinese stocks The Trade of the Decade…

In front of hundreds of subscribers in person at the Fillmore Theater (and many more through a live webcast), I explained how local Chinese stocks are down by half in U.S. dollar terms since the end of 1993 – a colossal bust – and how they are incredibly cheap today.

I called Chinese stocks "The trade of the decade… I'm just not sure which decade."

If you're a subscriber of mine, you know that I have been a buyer of Chinese stocks in my True Wealth newsletter.

The brutal reality so far is, we have lost money…

When we entered our China trades, I explained to my subscribers that we could trade China with limited downside risk (through relatively tight stop losses), with incredible upside potential. Our upside potential is literally hundreds of percent, as Chinese stocks are so cheap.

I am sad to report that we must cut our small losses on our Chinese stocks, now. The trades are going against us. Our Chinese stocks have either passed their stop losses or are bumping up against them.

I hate to sell. But we have to. This is actually the way you make big money… You have to concede some battles to win the war.

Don't believe me?

Consider the case of my True Wealth Systems newsletter…

The latest issue came out last week. We have 13 positions on our recommended list. They are up, on average, 77%. The worst performer is UP 10% – and that was recommended last month, so it hasn't had time to catch up to the others yet. The oldest position is just over two years old, so I'm not cruising on past success.

We have no losers on our recommended list. That is not a misprint… We have no losers on our recommended list because we sold the few positions that went against us for small losses. So now we've ended up with a portfolio of winners.

As my friend Alex Green says, you need to think of your portfolio like a rose garden – trim your weeds and let your roses bloom to their fullest. In other words, get rid of what's not working, and do NOT be in a hurry to cut your winners early.

I don't want to sell my Chinese stocks. Chinese stocks will be the trade of the decade – someday. I just don't know when.

At the conference in Miami, one of our subscribers came up to me and said "Steve, I've got you figured out… You are good at what you do. You've taught me a lot. And you've found some really cool ideas. But I've learned that you're sometimes early with those ideas."

I can live with that. I am surprised by how long it takes for some ideas to catch on in the mainstream… like gold/collectibles a decade ago, or U.S. stocks and real estate in the Bernanke Asset Bubble a few years ago.

Getting back to China… it appears that I am early, as my subscriber accused.

I would rather cut my losses now, and wait for a new day – wait for the start of a legitimate uptrend – before I consider getting back in.

I have been wrong so far. It is time to minimize the pain of being wrong, and cut those losses now.

This trade will deliver hundreds-of-percent returns someday… But it's foolish to hang on and hope today.

I'm out… for now. I suggest you do the same… As our True Wealth Systems track record shows, cutting small losses and letting your winners ride works. It's time to cut those small losses in Chinese stocks today…

Source: Daily Wealth

[winston]

AN IMPORTANT REMINDER: A HOT ECONOMY DOESN'T MEAN BIG RETURNS

Today's chart teaches an important lesson... A good economy can be bad for stocks.

A year ago, we exposed one of the biggest myths in investing: that a "high growth" economy drives big gains. You hear it all the time from so-called "experts" in the financial media. It sounds sensible. But the truth is that a strong economy usually means an underperforming stock market.

As Steve explained last year, investors made the biggest gains by buying stocks when the economy was struggling. The reason is simple... great conditions get "priced in" to the stock market. That means stocks can go sideways (or down) even if the economy keeps humming along.

China is a perfect example of this idea. The country's economy has been booming for more than a decade. It's still growing by more than 7% a year. But China is struggling with many problems, including rampant corruption, pollution, and a weak legal system.

As you can see below, China's benchmark stock index – the Shanghai Composite – hasn't done much since 2001. The country's high-growth economy isn't helping investors. The Shanghai index is sitting just above a five-year low. It's an important lesson for investors: a hot economy often leads to low returns.

Source: Daily Wealth

[winston]

One of the Best-Looking Trade Setups in the World Right Now By Jeff Clark
Tuesday, March 18, 2014

It's almost time to buy Chinese stocks.

I wrote the word "almost" just to minimize the amount of eye-rolling that statement likely caused.

Almost nobody likes the idea of buying Chinese stocks right now – for good reason.

The Shanghai Stock Exchange Composite Index (the "SSEC") – the "Dow Industrials of China" – has been stuck in a bear market for almost five years.

But Chinese stocks are one of the best-looking trade setups right now.

Take a look at this chart of the SSEC…

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While the S&P 500 has gained 165% over the last five years, Chinese investors have lost 40%.

Remember, though… all markets eventually turn. Bulls turn into bears, and bears become bulls.

The bull has been running a long time in the United States. It's starting to look a little tired, and it may be time to hand the baton over to another market with fresher legs. After resting for five years, it's tough to find a "fresher" bull than China's.

If you can believe the financial statements, many Chinese stocks are trading at single-digit price-to-earnings ratios and at good discounts to book value. Their balance sheets are flush with cash. And it's easy to find Chinese stocks that pay dividends greater than 4%.

Chinese stocks are cheap. Fundamentally, you won't find a better setup anywhere else on the globe.

But from a technical perspective, China still needs a little more work. Here's another way to look at the SSEC…

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The Shanghai Stock Exchange is stuck in a falling-channel pattern – which is a series of lower highs and lower lows. In order to break out of this pattern and establish a new bull market, the SSEC needs to rally above last month's high of about 2,150. It also needs to break out above the down-trending resistance line, which is also at about 2,150 (and falling).

Traders should look to buy Chinese stocks aggressively once the SSEC breaks above the 2,150 level.

The setup looks good. After suffering through a bear market for nearly five years, Chinese stocks are getting ready to go on a bull run. A breakout above 2,150 on the Shanghai Stock Exchange Composite Index should be enough to get the race started.


Source: Growth Stock Wire

[winston]

The Last Time This Happened, These Stocks Soared 500% By Jeff Clark
Thursday, May 1, 2014

In March, I told you it was almost time to buy Chinese stocks.

Chinese stocks were one of the best-looking trade setups in the world… but from a technical perspective, China still needed a little more work.

The Shanghai Stock Exchange Composite Index (the "SSEC") – China's version of the Dow Jones Industrial Average – was stuck in a falling-channel pattern (a series of lower highs and lower lows). In order to break out of this pattern and establish a new bull market, I said the SSEC needed to rally above February's high of 2,150.

I suggested traders look to buy Chinese stocks once the SSEC broke above the 2,150 level.

Instead of breaking out, though, the SSEC ran into resistance and pulled back. It's now testing its support line.

But I'm still buying China right now. Let me explain…

The last time the Chinese stock market looked the way it does today, Chinese stocks rallied 500% in a year and a half.

For the past six years, the SSEC has been stuck in a brutal bear market. The index peaked above 6,000 in November 2007. Today, it trades at just over 2,000. That's a loss of 67%. And it's the main reason folks roll their eyes at me when I mention the idea of buying stocks in China.

Remember, though… all markets eventually turn. Bull markets turn into bears, and bears become bulls. After six bearish years, there are now bullish signs coming from China.

First off… Chinese stocks are super-cheap. The average Chinese blue-chip stock trades at about eight times earnings, about 1.1 times book value, and pays a dividend of about 2.5%. Compare that with the average stock in the S&P 500, which trades at 17 times earnings, 2.2 times book, and offers a yield of 1.8%.

China's stock market would basically have to double from here just to catch up to the valuations of U.S. stocks.

Next… consider investor sentiment – which is best used as a contrary indicator. Public sentiment toward China is pitiful. Mention Chinese stocks at a cocktail party, and you'll find yourself standing in a corner all alone.

My friend and colleague, Steve Sjuggerud – who writes the True Wealth and True Wealth Systems newsletters for Stansberry & Associates – talked about buying Chinese stocks at a seminar I attended last month. The audience groaned. It seems the public just isn't ready for this idea.

But the professionals are buying it.

Last month, Goldman Sachs, JPMorgan, and Morgan Stanley all published institutional-research reports praising the opportunities in China. The CEO of financial-services company Blackstone Group, Stephen Schwarzman, was on CNBC on Monday talking about China's bullish potential.

So while the public is staying away from China, the "smart money" is moving in.

Finally, there's the technical picture. Take a look at this long-term chart of the SSEC…

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China's previous bear market lasted five years. It ran from 2001 until 2006, and it hacked 60% off the value of the SSEC. But look at the explosive gains that happened once the bull market kicked off in 2006. The index rallied 500% in 18 months.

Today's bear market has lasted six years. It has hacked away 67% of the value from the peak in late 2007.

The chart now shows a long-term consolidating-triangle pattern. And we're approaching the apex of the triangle. So the pattern is ready to break – one way or another – sometime soon.

Given the ultra-cheap values, the dismal investor sentiment, and the bullish potential catalysts, I'm willing to bet the chart breaks out to the upside.

Still… I'd like to see the SSEC rally above 2,150 and breakout to the upside before getting super aggressive with Chinese stocks. But right now is a good time to start adding some Chinese stock exposure to your portfolio.


Source: www.growthstockwire.com

[winston]

This pattern says a big decline could be coming here by Chris Kimble

The Shanghai Index looks to be creating a multi-year descending triangle pattern.

A little over 50% of the time the asset that forms this pattern, ends up falling in price.

When support breaks, over 75% of the time a meaningful decline takes place. (For more details on this pattern, see here.)

The pattern suggests that if support breaks, the decline is the size of the high to low of the descending triangle. With this in mind, the pattern would suggest a 30%+ decline in this index if support is taken out. See target of the pattern in the chart below.

A breakdown has not taken place at this time, I just wanted to give you a heads up to this pattern that represents one sixth of the world’s population.

If the Shanghai Index would happen to fall 30%, do you feel it could spill over into other important stock markets around the world?

So far the poor performance of the Shanghai index has had little impact on the stock markets around the world, as many are at or near all-time highs.

It could pay to keep one eye on what the Shanghai Index does in the next few months, in case support should fail to hold!

Source: Kimble Charting Solutions

[winston]

Chinese stocks are working on a new uptrend… country fund FXI breaks out to a five-month high.