China's financial markets are expanding as transparency grows. Even without a trade deal, China's equity markets are set to expand. The Russell 2000 is poised for a breakout. We will play them both.
New positions are only added on Wednesday and Saturday except in special circumstances.
NEW DIRECTIONAL CALL PLAYS
ASHR - CSI China 300 ETF - ETF Profile
The investment seeks investment results that correspond generally to the performance, before fees and expenses, of the CSI 300 Index. The fund will normally invest at least 80% of its total assets in securities of issuers that comprise the underlying index. The underlying index is designed to reflect the price fluctuation and performance of the China A-Share market and is composed of the 300 largest and most liquid stocks in the China A-Share market. The underlying index includes small-cap, mid-cap, and large-cap stocks. Company description from FinViz.com.
The Chinese equity markets have been rising on anticipation of a completed trade deal. Chinese focused ETFs have been rising sharply.
However, a move by MCSI last week is going to lift them even higher. MCSI, the global index provider, announced they were raising the weighting of the Chinese mainland A-Shares from the current 5% weighting to 20% for a number of their global indexes. The weighting will rise to 10% in May, 15% in August and 20% in November.
In 2018 MCSI added 236 China listed large cap stocks to its emerging market index. Most importantly, Chinese A-shares were included in the Emerging Markets Index for the first time.
The increase in weighting will trigger more than $80 billion into Chinese equities. JP Morgan believes it could draw $85 billion and Goldman Sachs expects more than $70 billion in inflows to A-shares.
In addition FTSE Russell and S&P Dow Jones are going to begin adding yuan-denominated Chinese shares to their global benchmark indexes.
The ASHRs ETF holds a basket of 303 large cap Chinese stocks that will benefit from the index additions mentioned above. At the beginning of 2018, before all the trade issues erupted, the ASHR was trading at $35 and rising. Since the dispute shares fell to $24. With multiple index companies adding the large cap Chinese stocks to their indexes for the first time, there should be a solid ramp back to $35 or even higher. A successful Chinese trade deal will give it even more momentum.
The ETF is jerky because it is based on the overnight activity in China's market. It will normally gap open as trade begins in the US.
Buy July $29.71 call, currently $1.46, stop loss $25.85.
IWM - Russell 200 ETF - ETF Profile
The investment seeks to track the investment results of the Russell 2000 Index, which measures the performance of the small-capitalization sector of the U.S. equity market. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index, but which the advisor believes will help the fund track the underlying index. Company description from FinViz.com.
This is a short-term trading position based on expectations for a Chinese trade deal to be completed in March. I expect the markets to struggle higher into that president's meeting in Florida and then roll over.
The 30-min chart on the Russell shows a potential breakout ahead over the 1,600 level. The IWM has already closed over the 200-day, which has been holding the index back. It is entirely possible the Russell could run to 1,700 over the next three weeks if the China headlines continue to be positive.
However, this is a high risk position. The slightest headline about a glitch in the negotiations could tank the market. I do believe the prior highs are going to act like a tractor beam for the indexes as long as we do not suffer a headline disaster.
The end of February weakness was right on schedule and now we are poised for a directional move. Given 10-weeks of gains, that could be in either direction.
Buy April $162 call, currently $1.48, stop loss $155.65.
NEW DIRECTIONAL PUT PLAYS
No New Bearish Plays