Volatility Spikes and China Virus Spreads

Power Trading and Markets – Feburary 02, 2020

Volatility Spikes and China Virus Spreads

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The market has been volatile, and sold of precipitously on Friday on the above average volume.  Rise in $VIX above 20 and above average volume is a sign of last phase of the sell off and I believe the worse part of the sell off is behind us. I expect market volatility to persist as Coronavirus headlines fuel algorithm-related selling and buying. As long as the US Dollar and Treasury prices continue to go higher, equity markets will unable to make new highs.

The market outlook for the next four weeks remains the same. I expect an additional 1-2% correction in the next two weeks and the bull trend to resume by the end of February early March. However, the market has not reached oversold levels yet. I remain bullish on the pullbacks, as long as the market is above/near 50 days MA on SPY. I expect SPY to be range-bound between $320 and $332 for the next 2-4 weeks and the bull market to resume toward the end of February. Please watch $317-320 support levels using SPY.  


 Certainly, the most debatable sector to consider for trades involves China. After a solid rally leading up to and following the signing of the Phase 1 deal, Chinese stocks have undergone a sharp sell-off that has the iShares China Large-Cap ETF (FXI) trading back down to the test its October low of $39.50.

The 52-week low was set at $37.66 back in mid-August when the trade rhetoric was at peak levels. From the 2-year chart below there is clear support at $39 and then below at $38 where FXI has successfully absorbed the selling pressure and rallied off of.

The top 10 holdings are representative of a diversified list of large-cap companies with a heavy emphasis on financials.

China’s GDP was forecast to grow by around 6% for 2020, but the virus outbreak is sure to cut into that growth rate in the first quarter and possibly into the second quarter depending on how fast the Coronavirus can be contained. However, history is on the side of those that buy key markets when there is panic on the streets, and right now there is real fear in China that has that market and the leading ETF on sale.

With that said, my AI indicators are starting to flash buy signals for FXI this week, right into the teeth of the sell-off. This is a compelling trade proposition, the timing of which is key given the fluidity of the situation.

I’m a bull on China for 2020 and believe there is a bullish trade in the making. Stock market history shows that these types of scenarios almost always end in a selling climax followed by a strong rebound in underlying market indexes led by the most influential stocks, one of which is in the spotlight this week.

The best part of the 5G investment theme is that the buildout of 5G networks and the transition of connected devices to 5G is in the early stages. There is a lot of runway for this sector to make traders tremendous profits for the next couple of years.


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Based on the performance of certain China-related stocks prior to the spread of Coronavirus, shares of Alibaba Group Holding Ltd. ADR (BABA) were trading best in class of all large-cap stocks. Considered the Amazon.com of China, the company is the go-to e-commerce online shopping mall for businesses and consumers.

Internet retail is sweeping over China and is 1.3 billion shoppers. The company operates in five segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives. It operates Taobao Marketplace, a mobile commerce destination; Tmall, a third-party platform; Alibaba Health pharmaceutical e-commerce and consumer healthcare platforms; Alimama, a monetization platform; 1688.com, an online wholesale marketplace; Alibaba.com, an online wholesale marketplace; AliExpress, a retail marketplace; Lazada, an e-commerce platform; and Tmall Global, an import e-commerce platform. 

Growth at BABA is exceptional. For 2020, the company is forecast to generate 31% revenue growth to $73.3 billion and grow earnings by 28.3% to $7.16 per share. The company has beaten earnings forecasts for the past four quarters, the most recent third quarter of 2019 coming in at $1.85 per share, well above the $1.50 estimate.

From a technical standpoint, shares of BABA are coming right into the buy zone following a powerful post-trade deal rally that took the stock up to an all-time high of $231.14. As of Friday, the stock was testing

From the 2-year chart below, there is strong support for the stock at $200, just below where the stock currently trades. There is a chance this level will be revisited this week in a capitulation sell-off, presenting a highly attractive entry point.

What’s most important is to sign on as a new member of our Aggressive Power Trader service to know when and how best to trade BABA. I have the tools to execute these kinds of trades in highly uncertain trading landscapes by utilizing my custom algorithms to pinpoint optimal buy and sell points.

In our new service Aggressive Power Trader, I walk our subscribers through the “trade decision-making process” with the mindset of being in and out of trades within 24-48 hours with the objective of booking 30%-60% gains against the amount of capital at risk on each and every trade with 75% accuracy.

The beauty of this service is that it provides tomorrow’s featured trades the night before so traders can analyze and work on how they might best want to participate. You get to examine stock candidates well ahead of when I’m going to execute my best ideas the next day. It’s my TOP STOCK watch list of trading candidates with the various parameters that I use to trade each trade with defined risk levels, entry points and projected exit prices.

Each day at 8:00 PM and 8:30 AM CST, we provide our Top Bullish and Bearish Stocks, each with an Entry Point and projected exit price. Our signals are meant to last 1-2 days. Below are actual recommendations with parameters found on our Aggressive Power Trader Watch List.

We get there 1% at a time and do it on average every three out of four days. I posted last Thursday night that we would be buyers of Danaher Corp. (DHR) on Friday and the stock gained 1.0% in the early hours of Friday’s session. I’m only showing a few stocks and ETFs that made up our Thursday night Watch List, so there are plenty of trading opportunities in stocks, and ETFs to put to work on a daily basis.

I also post details of our trading activity and updates on the Watch List at the bottom section of our daily blog. So, make sure to stay tuned in that service as well.

Vlad’s Notes: consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our live trading room. I usually hold a position for 1-2 days and allocate no more than 5% of trading capital to any single trade.

I allocate less than 5% of my portfolio if I hold a position overnight. On average, less than 1% of the portfolio should be at risk if you hold a position less than one day. I personally enter a position at predicted LOW (BUY) price or yesterday's close price.  My stop loss is 1% and my target gain is 1% of a stock price. I target 75% accuracy using these signals.

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Within our Aggressive Power Trader trading list, trades are recommended in our Tradespoon Live Trading Room as well as having access to my Watch List.

YellowTunnel is purposed to deliver high-visibility sector strength where a cluster of leading stocks are identified, coinciding with what we call a “10-day prediction momentum trade”. When we recommend a stock, ETF, or related option strategy, our time horizon is same-day in-and-out and up to five days max, at which time in the majority of trades, would be closed out.

When looking to execute recommended trades, consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our Live Trading Room, I usually hold a position for 1-2 days and I usually allocate less than 5% of the portfolio if I hold a position overnight. On average, less than 1% of the portfolio should be allocated if you hold a position less than 1 day.

For the best results, I personally enter a position at the predicted LOW (BUY) price or yesterday's close price. My stop loss is 1% and my target gain is 1% of the stock price. I target 75% accuracy using these signals.