Chinese stocks are making a comeback this month.
The FXI China large-cap ETF has outperformed the S&P 500 in September alongside major companies such as Alibaba, Baidu and Pinduoduo. However, the group is still well off 52-week highs as worries over Beijing’s regulatory clampdown persist.
One name could defy gravity and continue its rally, though, according to Danielle Shay, director of options at Simpler Trading. In an interview with CNBC’s “Trading Nation” on Friday, she pointed to e-commerce company JD.com as her favorite. Taking a look at the technicals, she highlighted how the stock is breaking through a key level of resistance, which may signal a trend change.
“If JD can show some relative strength and break out to the upside, perhaps Alibaba, Bili, the rest of the KWEB [Chinese internet ETF stocks] will follow, but right now they’re all under key resistance except JD,” she said.
In the same interview, Craig Johnson, chief market technician at Piper Sandler, explained why he is bearish on the space.
“Once bitten, twice shy when it comes to these Chinese stocks with their regulatory background and the discussions that are taking place,” he said. “If you just take a look at the chart, you can see that these stocks peaked in February and have been making a pretty consistent series of lower lows and lower highs.”
Tracking the MCHI China ETF, for example, he points out that it remains below its 50-day and 200-day moving averages.
“Until we get back above that declining price channel of about $77, I’m not going to touch these stocks,” he said.
The MCHI ETF closed Friday below $72. It would need to rally 7% to reach Johnson’s target.
