For those who like roller coasters

 

Do you like roller coasters? If you do—are you more of the big climb, big fall type of rider—or do you like them a bit more mild in gravitational variance?

The reason I ask: if you like the big climb, big fall variety of roller coaster, the Shanghai stock exchange may be just the investment vehicle for you!

 

roller coaster

 

So step right up, folks, and consider a ride on the SSEC (Which I like to think stands for Super Sharp Escalations and Crashes!). Here’s a ride guide that may give you an idea of how your trip will feel:

 

Below is a weekly chart showing you the fun SSEC riders have had since 2014. As you’ll see, after a breakout in mid-2014, the SSEC performed its famous Super Sharp Escalation pattern. Excited and satisfied riders were thrilled to watch their money more than double in less than a year. Does it get any more exciting than that???

But wait- there’s more! Riders who didn’t step off the train onto the top platform (provided for your convenience, and safety) were shocked and amazed as they lost some 40% of their peak value.

Not being much of a thrills and chills kinda guy, I chose to exit on the platform as the train began to round over back in April. It was interesting seeing how many of the ride’s patrons stayed on board. A few may have experienced nausea on the way down – but that’s part of the thrill of being a “ride and hold” investor.

 

 

ssec

 

 

The train looks to be slowing right now as it approaches another enter and exit platform. As green-faced patrons who chose to stay on the train are exiting their cars, it looks like there are a few seats available for a possible ride up again.

sick roller coaster

 

To break from the roller-coaster parallel:  The China Optix (sentimentrader.com) is coming off of a sentiment low – which is a bullish sign. The Optimism Index (Optix) for countries is based on trading in the main ETF(s) available for individual countries, or aggregates like Emerging Markets.

This data includes:

  • Trading activity in put options versus call options
  • Future volatility expectations
  • Average discount of the fund to its NAV
  • Average daily fund flow
  • Price behavior

 

Below you can see the daily chart. The shorter termed indicators such as Stochastics and RSI (first two panes below the price chart) are overbought, and may present a case for some short termed downside. Thereafter, the longer termed indicators such as MACD (bottom pane) and – very importantly, the relative strength vs. the S&P500 (second pane from bottom) may be indicating a bullish case going forward. A break through 3600 will target 4100. From there, a break of that level would target anywhere around 5000.

ssec daily

However, the problem with those projections are the shrinking fundamentals in China (slowing growth) and the fact that the prior levels were reached in an environment of speculation. As such, my suggestion is to treat this trade as a trade, not as a trend. Further – I’d probably focus on an ETF that focuses on “A” shares such as the BMO ZCH or similar instrument, should you consider boarding the train.

 

Special BNN show with Keith Richards this Thursday 6:00pm

 

Despite the fact that I was just recently on BNN, I’ve been invited to participate in a special week of top BNN MarketCall guests this week. The entire week is featuring MarketCall’s most popular guests . I feel privileged to be participating in the event,  given the high quality of all of the guests that go on the show. My appearance is for this Thursday November 19th at 6:00pm. Be sure to mark this one in your calendar.

Call in with questions during the show’s live taping between 6:00 and 7:00 pm. The toll free number for questions is 1 855 326 6266. You can also email questions ahead of time to [email protected] – it’s important that you specify they are for me.

 

BNN studio3

9 Comments

  • Keith, after watching your appearance on BNN last night i have a question i was wondering if you could get some insight on. If a company is in an uptrend with higher highs and higher lows although it is below and has been below the 200 day moving average for a while (below support) would you still go in on that? Seems like with support gone uptrend could be weak ? Thanks and appreciate all the info and teachings you provide both on BNN and on this blog.

    Reply
    • Hi Carmine–typically if you buy a stock that is just coming off of a base and is in the process of just beginning a trend (ie its only made 1 or at most 2 new highs/higher lows) the stock will not yet be above its 200 day MA
      My thoughts are this–you can buy the stock even if it has not broken up through the MA–but the safer way is to also wait for the 200 day MA break. Obviously, you miss some upside, but you take less risk on the trade. I do buy stuff that has not broken out through the MA –my top pick CNK is an example. I took more risk on that trade–and will sell if it fails the Neckline of that head /shoulders formation I noted on the show. I would be safer to buy it on the MA break but would need the price to pop above $38. so, it depends on your risk tolerance as to when you enter.

      Reply
  • Hello Keith,

    Since I do love a good roller coaster, I was wondering what your thoughts on stock splits are. Never really read or heard anywhere what the technical’s say about a stock split (2-1).

    Thanks,
    CV

    Reply
    • Stock splits usually cause a momentary spike in volume and add a bit of temporary lift to the stock, but thereafter the stock will typically return to a trend–it in itself is not a reason to buy or sell a stock

      Reply
  • I like roller coasters and the “game of informed chance”. 4100 from 3600 now is a 14% growth so my interest is peaked.
    But as you state in your closing remarks, the last run was based on speculation of China growth coming about. So to me that is considered a “fundamental” characteristic. What is the fundamental characteristic this time? The sense from your blogs is we are in a period of stagnation. So there is no speculation factor to drive China, what will push it to 4100 first and then to even consider 5000. The last rise took 4 months (Feb to June) so we have 4 months before May 2016 seasonal weak period. So what fundamentaly would drive the China market this time?
    Thanks.

    Reply
    • Not sure what could drive it–as such, i view it as a speculative trade only.
      A roller coaster without being strapped in, so to speak.

      and yes, I view markets as being in a sideways period for a while, until a catalyst appears to drive it through old highs. That catalyst should be new leadership–none visible yet.

      Reply
  • Hi – enjoy your commentary and technical work, thanks.

    This is an older blog post so I dont know if you’ll see this, but hopefully you will.

    I own ZCH and despite wading through a fair bit of reading, I’m apparently still a bit confused. I thought I understood that as it held ADRs, it was holding shares similar to H shares. But above you mention ZCH as A shares — as I understand it the A shares are shares that trade direct on the mainland, and are much more volatile, less regulated, and not held to developed world accounting standards.

    What have I got wrong here? Thanks for any insight, Alex

    Reply
    • A shares are not ADR’s–they trade on the mainland–but they are better quality than the “B” shares–which tend to fill the mainland index. They are all volatile. But the “A” shares are the higher quality – relatively speaking.

      Reply

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