At the beginning of January, I suggested the Chinese Large-Cap ETF (FXI) would move higher if it broke above $40. It’s currently trading about 5% higher.
Especially if FXI maintains its strength, this Chinese retail is poised to break out of a nice looking base.
With all the uncertainty around earnings here in the U.S., here’s a Chinese stock that doesn’t report until March 1, and it has a well formed base.
JD.com (JD) has been basing out since October 2018. This should give any breakout over the high of the base the fuel it needs to rally up to the $30 level or higher.
The high of the base is $24.14 so I’d look for a break of $24.25 to enter on a breakout.
Once it breaks out, it should not trade under $22.50 so that’s where I’d put my stop.
There is also another potential trade in the JD chart while we wait for the breakout. The $21.50 level has been a very pivotal area since October 2018 and recently it has provided strong support.
As a result, this $21.50 level can be used for a stop on any pull back toward it. Since I see good support at $22.50, the second trade in JD would be to be a buyer around $22.60 with a stop under $21.40.
Buying inside a base like this doesn’t give you the confirmation that the momentum has turned up like you have when you buy a breakout, but it does enable you to potentially get in before the breakout.
Of course, you can also take both trades. One strategy would be to buy half a position on the pull back if you get a chance, then add the other half on the breakout.
Rick Nartarian, Chief Investment Officer
Darwin Wealth Creation