Hammer and I both use stock charts to make investment and trading decisions. The reasons are pretty simple…
For one, charts are a useful shortcut because they show you what buyers and sellers are doing. Like the old adage “where there’s smoke there’s fire…” If you see that trading volume for a stock is expanding and the price is going up, it means investors and traders are buying. And if you dig a little bit, you might find there are pretty good reasons…
Sometimes those reasons are gamechangers (like a new product or strategy, or a shift in the market economy) and mean a complete transformation for the company’s prospects and valuation.
At Outsider Club, we’ve alerted you to a whole bunch of these types of transformation shifts over the last couple of years.
Hammer introduced you to AST Spacemobile (ASTS) after he saw a huge volume surge and a share price spike to $8 a share. Turns out, AST was the only real competitor to Elon Musk’s Starlink satellite internet system. So, yeah, investors were absolutely re-evaluating the company’s prospects and valuation. AST Spacemobile hit $60 back in July and currently sits at $40.
I discovered NuScale (SMR) the same way – a big spike in volume and price up over $5.50. Turns out, NuScale was leading the charge on small modular nuclear reactors, capable of supplying the surging electricity demand from data centers. NuScale peaked over $50 a share…
MP Materials (MP) was around $20 when we wrote about how it was starting to use its Mountain Pass rare-earth mine for feedstock for its own rare-earth magnet factory. If you haven’t heard, rare-earth magnets are a major bone of contention between China and the U.S. So much so that the Department of Defense invested $400 million in MP to help it expand production, and Apple followed that with a $500 million investment. The stock hit $80 a month ago…
A massive spike in volume and a 25% jump in the share price to $1 prompted Hammer to tell you to buy Avino Silver (ASM). It hit $4.70 last week…
Heck, just two weeks ago, Hammer told you to buy American Eagle (AEO) at $11.74 a share based on a new ad campaign featuring Sidney Sweeney! The stock closed at $18.79 last Thursday!
But finding powerful breakout opportunities for trading purposes isn’t the only reason charts are a critical tool for any investor or trader. Charts are also great for gaining a little perspective, especially for longer-term investors …
A Matter of Perspective
When I say “perspective,” I’m talking about time frames, investment horizons, that kind of thing. Long-term investors will often shy away from stocks that have just made sizable 10%-15% moves because such moves can look like momentum plays, instead of longer-term, steady growth plays…
Like if I showed this 6-month chart for Baidu (BIDU):
You might think “holy crap! It’s run 15% in a week! How much more can it really run over the next year?”
Or how about this chart for Alibaba (BABA):
I can hear it now: “35% since July! Y’all must be crazy to recommend a stock up that much.”
It’s true, both Baidu and Alibaba have made some pretty strong moves recently. Plus, they’re Chinese stocks. For many, investors, that’s two strikes against them right off the bat.
Now let’s bring in some perspective and check out the long-term chart for each. Here’s Baidu, going back 15 years:
Alibaba has only been public since 2015, so here’s the 10-year chart:
How’s that for some perspective? The reality is that both of these companies have only just begun to advance off multi-year lows. Of course, there are no guarantees they will just roll back up to their old highs. But at the same time, the risk/reward ratio is pretty heavily skewed to the upside…
After all, the forward Price-to-earnings (P/E) ratio for Alibaba is reasonable 17, and the forward P/E for Baidu is fairly ridiculous at 9.
Now, so far as the risk of owning Chinese stocks goes, I will agree that it’s not zero. As the U.S.-China trade war heats up, if it actually does, sentiment toward Chinese stocks could get worse. However, I will point out that it’s exactly because these two are Chinese that they are as cheap as they are. That should excite the contrarian in you…
China’s Sentiment Shift
You may not remember when Alibaba founder and CEO Jack Ma disappeared in November 2020. He didn’t resurface until January 2021, and the scuttlebutt was that the Chinese government had “disappeared” him for “re-training.”
I don’t know if that’s what really happened, but the Chinese government — AKA Xi Jinping — made a lot of moves to restrict or dominate domestic Chinese companies around that time…
But these days, with the trade war, and more importantly, the technology race (especially with regard to AI), the Chinese government seems a lot more supportive of its tech sector. EVs, AI, chips, robots — government support for tech is a key aspect of China’s economic plans.
And don’t ignore the improving relationship between China and India, either.
I know – it’s not easy to get a handle on just what China’s plans are, or predict where the trade war will end up and how that will affect investment decisions. But if you stick to the charts, they say Alibaba and Baidu are buys…
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Take Care,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter:https://twitter.com/BritonRyle
