Chinese ADR’s are back. In 2009, Chinese ADR’s roared ahead of the U.S. markets.
Today, ticker names like BIDU and NTES are as familiar to traders as AAPL and GOOG. However, by late 2009, Chinese markets as depicted by the Shanghai Se Composite Index (SSEC-X) below began to struggle so that by early 2010, the financial news airwaves began to whisper their suspicions that China was topping.
THE GREAT ROTATION
Last fall, early rumblings of the Great Rotation from bonds to stocks coincided with potential signs that China was also recovering. With the downward pressure in Asia earlier this year, the SSEC-X stalled at the 2012 high. Today, the market is again bullish for China as shown by the upward thrust through the 10/50 weekly moving average this week. It is a good time to look to at some ADR’s for base building and potential breakout if the optimism holds.
NTES
Netease.com Inc. (NTES) was a market leader in 2009, and introduced the trading world to China’s obsession with online gaming. The pennant is a continuation pattern that has formed over the last three weeks. Volume has been choppy during formation, but the Stochastics indicator appears to be in the early stages of turning up again. A new trend began in mid-August when the Stochastic oscillator first went to “overbought” levels, after NTES recovered its 10/50 day ma. NTES gained 20% in a matter of days, but volume quickly declined and momentum stalled shown by the oscillator turning down. Today a pennant has formed and NTES may once again be ready to continue what it started in August.
Fig 2
BIDU
Baidu Inc. (BIDU) broke out September 11, 2013. However, it is worth sharing the chart to compare why the flat base formed by BIDU appears more reliable when compared to the NTES chart. BIDU is an early mover this week; the Chinese internet giant did not wait long to make its move after the SSEC-X recovered its 10/50 weekly ma. BIDU is not only the first to breakout, but its volume declined substantially during formation of the flat base, and when compared to NTES has also been less choppy. Volume is a good indicator to gauge market support, and should decline during rest or consoliation periods. Note the rising red bars for NTES on red days compared to the red volume bars for BIDU that remained below the 50 day ma during formation of the flat base.
A FRESH NEW CYCLE AHEAD
China’s elusive bottom may be here, and a fresh new cycle is just getting underway.
Figure 3
Stock charts from FreeStockCharts.com
