Just a quick followup on my post from Saturday that I failed to to before the HSI did another rejection of 23 200 and 23 400 for HK$82 billion to end up down 1 point.
Industrial and Commercial Bank of China, 1398.HK
25 cents (roughly 4%) a layer, I’m picking up good convexity trades at HK$5.75 as we speak. I’ll try to be flat out before HK$6.25 and then go very heavy towards HK$6.75.
Yes, MACD is high, but our pivot point (HK$5.75) is crossed, and the next significant test is at the market sentiment trend (diagonal line) which is parallel to the line through the September ’11 lows and Q3 ’12 bottoms. Also, has anyone else been tracking the Chinese massive equity rally?
Hong Kong Exchanges and Clearing, 388.HK
Staying with financials here for a while.
Fundamentally, I do largely believe in this stock at the moment for several reasons, summed up as: 1) Hong Kong money inflows to fuel trading which 2) is not yet truly reflected in daily volumes, and 3) the purchase by HKEx of the LME at a time when metal prices are depressed globally, but 4) set to rise rapidly (guess what will happen to volumes!) under the Chinese increased demand when urbanizing further under Xi Jinping.
Can someone say “Layered Convexity Trade on the Shanghai Composite”? Well, by the time they are done I’ll probably be laughing all the way to the bank!
Technically, there is very little dynamics to go on – the market has simply rallied very far very fast – except for the MACD “rule of thumb” indicating that the sweet-spot is close. I have already built up a sizeable position here over a few months, and will look to take money off the table a dollar or two below HK$150 and readjusting into longer-term options to capture the next rally. If we follow the pivot line (’10 lows through ’12 highs) extention which is parallel to the trend line shown and running HK$25 higher, it would imply that the target could be around HK$175-180 for any crack above HK$150. Regular readers will notice why I drew the upper S/R line all the way back to the rally, and infer from that the importance of the HK$150, HK$160, and HK$170 lines for the future rallies. Clear HK$155, and we do have quite a lot of room to play.
Keep in mind, that is my conservative estimate. I have tried (and failed) to analyze this stock many times, and no, this time it’s not different. The implied convexity of the trade still makes it worth taking, because you can easily exit at HK$132 should hell bring the high waters.
If that is my conservative estimate, what is my aggressive take? And do we have the right to be aggressive at all?
Yes. The DMI+ has gone to levels indicating an initial move of around HK$20-25 – just backtrack on that little green line of hope to check for yourself – implying HK$152-158. Adjust for resistances, but assume to break them. In the longer term, if we use the three-wave pattern that HKEx has followed very well for a long time (two small plus one bigger) then look forwards to pushing HK$180-200, initially. The exhaustion peak could be higher, but we’re already on thin ice as it is. We’ll take discussion of that once EMH hell has frozen over.
Combine this with a minimum move length of 6-8 weeks, and things will look very rosy. There are a lot of cases for extending the time length of the move: debt ceiling debates in the US (lade February), Xi Jinping’s actual succession of Hu Jintao (early March), and the MACD profile of every move, with these legs up having taken longer time, been bigger, and also seen a longer-time but shallower second-wave correction. Both the normal chart waves correspond to crossing trend/resistance lines and got stopped on the next one, which would enforce the view that HK$150 is as far as we go for now. Looking at the MACD view however suggests that we are not yet truly in the next move up following the correction and that there is more to collect in the months ahead, and thus that forms the basis for my aggressive view.
It is, partially, nonsensical from a technical point of view – studies confirm price action, not the reverse. Though when I confirm with the fundamentals… the picture lines up perfectly! That’s why I bother telling you at all.
Tencent Holdings, 700.HK
Following up this good technical support level was today’s market action, which pulled the stock down to HK$252.20 (below 21/63 EMA) before returning it promptly to HK$255.60 by the market closing bell. There is a near-perfect MACD cross in this week (using my indicator, indicating a continuation rather than an entry) but be wary of any entry below the gap bottom and confirmed rejection of HK$257. The trade above that, possibly all the way up to HK$280 (8.95% trade) is very light on other data and should see good movement fairly quickly.
Bonus – Ping An, 2318.HK
Riding the Chinese insurance wave for all it’s worth, here we go!
Resistance broken today as well, any bets for HK$75-80? How about HK$90? It does surely seem like there is a lot of potential moves, especially with the recent liberalization of Chinese insurers and what sort of assets they can own, as well as the general Shanghai Composite levels. Still, targeting here is… slightly icky as it is so damn hard! You’re on your own here!