Market Overview
The Chinese stock market is down again, on even lower volume than yesterday's already-low volume. Again, small stocks are doing better than the large-cap stocks by going down less on a down day. This is a showoff of their internal strength. We call this kind of out-performing "relative strength". The best strategy now is to wait and see. See which stocks refuse to go down with the general market. Eight times out of ten, these stocks with high relative strength during index correction are the next big market leaders that can double, triple, or more in then ensuing market uptrend.
It is our view that the Chinese indices are still in a trading range, so choppy actions like yesterday&# 39;s and today's are totally normal and expected. For the position initiated long ago, there is no hurry to lock in the profit yet. But for recently entered positions, make sure cutting losses quick! Right now it is not a good environment to initiate new long positions.
The US stock indices also seem to be trapped in their respective ranges. Compared with the nice trend that the Chinese indices demonstrated in the past half a year, the US indices are very messy. Below is the daily chart of the S&P 500 e-mini futures chart, it looks pathetic:
We expect that the S&P will either breakdown from there and start a downtrend or rebound from here and goes to the upper boundry of this range. At this moment, it is not clear, at least it is not clear to me. So I will mostly stay clear of it.
Despite all the hype, Alibaba missed its earnings and the stock is down about 10% right now from its yesterday&# 39;s close. Alibaba might be a great company, and it has certainly created a lot of wealth. But do not fall in love with stocks. Any of them, let me repeat and state this clearly: each and every one of any stock in any country, can do anything at any time. That means they can go up, and they can go down, sometimes a lot, somes in totality! So, ALWAYS CONTROL RISK. All stocks are bad, unless they go up immediately after you have bought! We select the best candidates to buy, at the right time, and if they go up, we keep them. But if they go down, and start to lose us money, we say good-bye to them immediately.
A lot of people think that $阿里巴巴(BABA)$ can only go up. Well, today, they are forced into a rude awaking - BABA has been going down, and oops, it is down 10% in a day. Remember: Anything can happen at anytime to any stock - there are no exceptions.
Well, we get another surprise (the market is full of surprises). This time on the upside. As I am writing this, CEMP is breaking out and moving to new high ground. It has increased 100% from our original buy point just below 14 dollars. I "predicted" in a previous article that I had suspected that it would consolidate for another 2 to 4 weeks. Well, it doesn't conform to my expectation/prediction, and today its moving higher is happening in front our eyes. Although I really hoped that it would consolidate a little more so that the base is longer and stronger, and we planned to add a lot more shares when it competes its 5-week or 7-week base. But we do not have control over it and now we get a somewhat weaker 3-week consolidation. I don&# 39;t know if my writing has changed the natural course of it (some of my rich readers in the United States could be buying? Some of my readers are fund managers and they want to front-run us? I don't know). But a 3-week base is more failure prone, and thus associated with more risk. Therefore, the reality has changed, and our plan has to change accordingly. Our changed plan is: we will hold onto our winning position for now, but we won&# 39;t add any new shares as we originally planned. With CEMP's short rest. Its impatient moving up in earnest has a dark side: it is more likely than usual to fail and re-setup. Therefore, we don&# 39;t want to add more shares, what a pity!
$Cempra(CEMP)$ , an almost-perfect stock that never gave us any trouble. This is exactly what we are looking for in the market. We only wish that this stock would have consolidated at this level for a few more weeks. This 3-week consolidation could still work, but it is more likely to fail than a typical 5-week or 7-week consolidation. We are not doing anything, just sitting tight on it for now. We have a postion in it, up 100%+ already so far. How far it can go, who knows?! Let's see...
