It's still been difficult to short strength here, so why not look for weakness? Buying dips and chasing winners have been working, although it feels like maybe we're finally wearing a bit thin on that idea if we exclude biotechs.
Trends can work both ways. A push lower can become a larger push lower. For instance, Chinese economic data disappointed last night and we're seeing a continuation of a breakdown in the iShares FTSE China 25 Index Fund (FXI). While associated with the Chinese markets, this is in no way a diverse fund, heavy in financials and two tech names. Still, it is a heavily traded ETF, so trend can grab hold and stick.
FXI began the month by losing the support of the bullish channel that contained price since the bounce off the October bottom. Now, we are also losing support from the February bottom and this looks like we are headed for sub-$40 without a close back above $42 by tomorrow.
While it is difficult to chase the third day of a drop, FXI does look like a name that can be shorted on any bounce back toward $43 with a stop just over $44. If able to short in that area, a trader would be looking at a risk of $1 to $1.50 on the upside with a targeted reward of $2 to $4. Given the bearish crossover in the vortex indicator and bearish setup in the RSI, this looks like an attractive setup for those wanting a short position or maybe looking for some short exposure to offset current longs.
Not everything in China looks bad, though. Alibaba (BABA) is trying to work its way off a bottom, and Weibo (WB) looks to be breaking out today. This company reports on Tuesday, so that is a big consideration when looking at a long here. The company is expected to post a profit this quarter, finally getting out of the red, which should be a big boost to psychology. WB isn't cheap trading, at a 2015 P/E of 53, but it is debt-free with a cash position equal to almost 20% of the current share price. Net of cash, it is not an unreasonable valuation, especially when compared to Twitter (TWTR).
I have a $16.70 upside targeted here taking a long position, although I believe going into earnings setting up a collar long the March $13 puts and short the April $16 calls would be a proper protection technique.
I will wait until Monday, at least on the call side, but will look to add the stock and the puts this afternoon.
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