Since the last update , CXSE encountered a major risk on event when CCP decided to continue their regulatory exercise by introducing sweeping measures, including barring curriculum-based tutoring institutions from raising money through stock market listings, in a bid to correct disorderly competition in the industry and ease the burden on Chinese students and their families.
Foreign capital is also not allowed to control or participate in the private education sector through methods such as mergers and acquisitions, entrusted operations, or franchise chains, said the document issued by the General Office of the Communist Party of China (CPC) Central Committee and the General Office of the State Council, the cabinet, on Saturday.
The stock market encountered a knee jerk reaction and investors engaged in a bout of panic selling.
This caused CXSE to plummet from its previous price level of 60 to a low of 56.65 during pre market. 56.65 is near the strong support level at its Monthly 20 EMA which is exactly at the Fibonacci level of 50%. There is real risk that the stock may decline between 17 to another 35% over the mid to long term period ( 2 to 5 years )
In view of the latest development , it seems to me that China’s priorities are only on her citizen’s well being and the economy is secondary. I have concerns that this regulatory exercise will be a mid to long term event for China. More importantly, the regulatory events have started to interfere and changed the business fundamentals of its private institutions – as seen by what had happened to the private tutoring institutions. This is the true reason why investors decided to dump china shares. For the above two reasons, i have sold off all my CXSE shares. In return, i also sold off my Microsoft shares to cover the realized loss. As a result, my portfolio suffered minimal losses as the gains from my Microsoft shares were able to cover the losses from my CXSE shares. Will update my portfolio performance at the end of July.
I will stay on the sidelines and monitor this ETF in view of the current climate until China has officially declared the regulatory exercise as complete
Since my last update, CXSE has been continuing its ranging pattern.
Below is the daily chart of CXSE
I have added another popular indicator – the Parabolic SAR to guide in the TA during times when its not clear who is winning – Bulls or Bears. In this instance it appears we WERE in a downtrend the last few days. I will let the price action play out over the next few days to determine if its a start of an uptrend or continuation of the downtrend
If you look at the holdings of CXSE below
Tencent $TCEHY $700HK is the largest holding by far at 12.25% weightage. This means it has significant influence over how the ETF will play out in terms of price action as well.
If you look at the weekly chart of Tencent,
- it is currently at the 100 EMA level which is the same support as the COVID 19 crash of March 2020 !
- The next earnings call for Tencent is on 16 August 2021. I am expecting another great earnings result for Tencent despite the government interventions as the fundamentals of the business have not been affected.
In view of this, i am still bullish for CXSE over the mid to long term!
Please refer to my post on why CXSE is a great ETF to hold for geographical and sector rotational play.
For this week’s post, i have decided to do a comprehensive review of Palantir and with consideration of the overall climate.
With focus on the weekly view of the stock ,
As you can see –
1. The stock has just completed 3 black soldiers which is a sign of extreme bearishness since the last trading day on Friday.
2. The stock is nearing the strong support level of 21.11 . Historically when you compare the last reversal back in May 2021 at 17.10 . The stock price action tested all the way to the Fibonacci level of 78.6%. i am not discounting the probability that the stock may test the same Fibonacci level this time round – which would be 19.97
3. The price action has turn bearish . Note the lower highs and lower lows.
4. The overall macro climate is bearish for growth stocks 1) in general towards the end of July 2) with the bond asset tapering timeline playing out. Do refer to my post here and here for the bearish climate analysis.
For the reasons above, i have taken profit from Palantir and rebalance the stock from 25% to 2% of my entire portfolio. This is in line with my strategy of rebalancing of growth stocks and preparing a war chest for the upcoming market correction.
Since the last posting here, CXSE had completed its inverted head and shoulder pattern at 67.99 and is now ranging.
On 2nd July , before trading opened in New York, the Cyberspace Administration of China (CAC) announced it had launched an investigation into Didi on suspicion the company had violated data privacy and national security laws. It ordered the company to stop registering new users. On Sunday, the CAC instructed all Chinese app stores to remove Didi’s app. On Monday, the agency said it had broadened its investigation to include two more U.S.-listed Chinese companies. This caused Didi’s shares to drop 5% on 2nd July, then a further 25% when trading reopened on 6th July.
The sudden investigation by the CAC on Didi had a ripple effect on majority of china shares, causing CXSE to plunge 11% to the strong support level of 60! However, Didi is not a holding stock in CXSE ETF.
I had taken profit off CXSE at near 66 as i saw an evening star followed by a bearish engulfing candle, a clear sign of bearish reversal.
Now, as the ETF has rebounded at the strong support of 60, and climbing back up. I have bought the ETF at 62.87 after seeing a confirmation of its bullish reversal after the bullish engulfing candle at 63.06.
Now as the ETF is slowly rebounding back, I’m seeing that
The bear case is that the ETF may rebound off the strong resistance level of 64.78.
The bull case is that it can continue to climb up and do a dead cat bounce before continuing its upward trajectory.
I understand some of you may be worried by CAC’s sudden investigation and whether this will happen again. You must however understand that whatever CAC is doing now is only interim. At some point , the stock market is a weighing machine and will priced the China/Hongkong companies at their true intrinsic value! Currently most of the China/Hong Kong stocks are really undervalued right now!
For me, i will repeat what i have done which is
- Take profit by selling the ETF should the incident reoccur
- Buying back the ETF once bullish reversal is confirmed.
However executing the above is not easy
Alternatively, just hold the shares and buy at its strong support level which is near 60.
Time in market is better than out of the market
Since my last post here, Microsoft has been ranging ever since it hit 278. Its current price is 277.94
in the short term (leading up to it’s earnings call on 22nd July) , I’m seeing
the bear case of the stock price dipping to 268.62 or even as low as 262.79.
the bull case of the stock price hitting 280.69 but rebounding off the strong resistance again
The bear case is stronger than the bull case because of three reasons
- The RSI is at overbought territory
- Cancellation of the JEDI contract previously awarded to Microsoft
- Evening Star appearing in the weekly chart
Mid to Long term wise, I have absolute confidence in the stock and holding it for sure.
Since my last post here, $PLTR actually went down and rebounded from my second Fibonacci support level of 22.32 which is the 50% level. From here on, there is a bear case and bull case moving forward.
The bear case is that the stock price may continue to dip down to 21.11 which is the third Fibonacci support level of 21.11 at the 38.2% level.
The bull case is it continues to climb until it hits the next resistance level at 24.26.
The bear case seems stronger at this point due to the overall fundamental analysis regarding the upcoming volatility and also its RSI has not hit bottom yet. However do not discount the bull case as well if there are institutional investors who come in and buy the stock at its current price.
For me, i am still holding and will continue to do so as i have strong conviction in this stock.
should the bear case turn true, just buy put option at strike price of 21 to protect your holdings.
It is also a great price to buy more $PLTR at price of 21.11 .
Microsoft last ATH was at 278 before the 4th July weekend.
As of current, I am seeing for the bull case that it will continue on its upward trend to its new ATH (All Time High). Microsoft is still undervalued even at 278!
The bear case is there is a minor sell off towards 268.52. However I am trending more towards the bull case as overall, the trends are all showing signs of upward trending with 20,50,100,200 EMA all above each other. I am looking forward to seeing where is the new ATH (All Time High) price point of Microsoft priced by Mr Market 🙂
Take note of the earnings call on 22 July 2021 and the dividend ex date which is 18 Aug 2021. I would foresee that any sell off will be on the ex date itself or slightly afterwards.
Do refer to my post here for the portfolio spotlight on Microsoft if you wish to know why it is such a great stock to hold for capital preservation/appreciation
Do also take note that NASDAQ is still upward trending with 20,50,100,200 EMA all above each other. This strengthens the bull case for Microsoft further.