Posts Tagged ‘China’

NetEase.com (NTES): Could it Reverse Higher?

Wednesday, June 16th, 2010

Great wall of ChinaEarlier this week, Standpoint Research upped its rating on NetEase.com (NASDAQ:NTES) to a “buy” from a “hold,” maintaining its 12-month price target of $42. The Beijing-based NTES operates an online community and e-commerce services throughout mainland China. An analyst with the firm noted that “At 10x estimates for next year, the concerns regarding margins, regulations and competition are already priced in.”

From a technical perspective, NTES hasn’t behaved very bullishly of late.  Since its late-September peak, the stock has backpedaled 36% and is below multiple simple moving averages, including the 50-day trendline. NTES recently rebounded off its 50-month trendline, however, so it is possible that selling has abated as Standpoint projects.

For investors who are looking to add option strategies to their trading arsenals, two hypothetical strategies on NTES – one bullish, one bearish – are described below.  Remember these serve as examples, not recommendations.  Consider your own risk/reward parameters and personal trading goals before executing any new trades.

Want to learn more about different options strategies or the OptionsHouse trading platform?  Stop by our events page to review our schedule of free weekly webinars and sign up for one that interests you. Next week’s strategy webinar is a look at the risks and rewards of long puts. (more…)

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Is Chinese Confidence Crumbling?

Monday, August 17th, 2009
Photo by Keith Marshall

Photo by Keith Marshall

The most interesting part of Alan Abelson’s column in Barron’s this week (subscription required for full article) came at the end. He talked with an economist from the American Enterprise Institute, John Makin, who threw a lot of cold water on the idea that China’s growth is sustainable, and even real. He claims a lot of their recently “good” numbers were due to fancy accounting, which allows the stimulus money to be counted in GDP even if they had not yet spent it, as well as some outright dubious production. “John cites reports of washing machines dumped on consumers who couldn’t use them because they lacked running water or electricity,” the article notes. “But those ‘sales’ were dutifully included in GDP growth.”

I am by no means a China expert, so I will not wade into whether Mr. Makin is on the mark or not. With its markets rallying 75% from their lows, China, however, appears to have been the rock in this recovery over the last six months. If investors lose faith in China’s ability to grow without huge exports, the global indices could give up a lot of their recent rally.

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Hold On! Is this What the VIX was Predicting?

Monday, August 17th, 2009
Photo by J Aaron Farr

Photo by J Aaron Farr

The market in the E-mini S&P futures greeted traders this morning with a 2.25% decline, signaling trouble for the U.S. equity markets on the open today. The catalyst many analysts are pointing to is the consumer numbers from Friday but this is a delayed reaction for those in the U.S. market.

I think this underscores how interconnected our market is to Asia, specifically China, as the Shanghai Index was down more than 6%. Commodity prices are imploding, taking many material names in China down a limit of 10%. European stocks are down as well, approaching a 3% decline. The CBOE SPX Volatility Index (VIX) has remained forward sloping, meaning the VIX futures expiring in September are 12% higher (3.1 volatility points); this suggests a concern about the market heading into the September-October period. August premium levels have been lower than the further-out months, however, which hedges in August may lessen the impact of today’s selloff in the U.S.

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Four Observations From This Morning’s Options Trading Activities

Friday, August 14th, 2009

Here’s what is going on in mid-morning activity this Friday…

  1. China Shanghai Index down 3% … this hurts the commodity bid and throws a wrench in the global recovery theory.
  2. Commodities are in free fall, sending the materials sector is down more than 3%. The dollar index is higher and other fly-to-safety instruments are bid.
  3. University of Michigan survey hits 63.2 vs. expected 69. Consumer sentiment is surprisingly(?) BAD!
  4. Market is lower by 1.5% … S&P 500 Index (SPX) slips back under 1,000.

The CBOE SPX Volatility Index (VIX) is back approaching 26% volatility; shorts have been burned badly recently and there do not appear to be many existing shorts to provide a bid for shares when they actually do fall. New buyers, therefore,would be required to stop a falling market.

Also, with the poor Retail Sales figures from yesterday and the continued loss (albeit slowing loss) of jobs, did analysts actually expect consumer sentiment to improve? Only off the back of a rally in the equity market? That confidence can be especially fragile.

This afternoon – heading into the weekend – will be especially interesting to see if fear or greed wins the day.

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If China Thinks Inflation is a Concern, Should You?

Wednesday, August 5th, 2009

The Wall Street Journal reports this morning that the Treasury Department will likely increase sales of it inflation-protected bonds, or TIPS.

Part of the reason for this seems to be that China has requested this to be a bigger part of the auction mix.

Obviously, since China is the biggest buyer of U.S. bonds, it seems that the U.S. government probably has to respond. The problem with this for the U.S. is that instead of locking in historically low rates, these bonds will pay out higher yields if inflation starts to pick up. Many people think a higher inflation scenario is likely as the economy rebounds since the U.S. government is a) greatly expanding its deficit and b) printing a lot of money. Both of these things are not good for the dollar longer term. If the dollar sells off, then the chance for inflation is much greater.

Considering how much debt the U.S. is issuing, there is plenty of room for all types of securities. By September, the government will have issued $1.8 trillion in debt for the previous 12 months. That is a record amount. As we continue to run up the U.S. government’s “corporate card,” investors may want to think how this plays out over the next few years.

Photo by upton

–George Ruhana

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Europe Up, China Down

Wednesday, July 29th, 2009

So which do we follow? In China, the Shanghai Index dropped more than 5% today after rallying 7% the last week. Europe generally stands 1% higher today.

It appears we should look toward China as our international guide, as concerns over credit growth slowing and valuations ( the market trades at a 35 multiple ) were given as reasons for profit taking.

Our catalysts this morning include:

  • A durable goods release this morning showing that ex-transports surprisingly rose 1.1 percent.

  • A 76% drop in earnings at Conoco Phillips, which is weighing on the energy space.

  • Freeport McMoran (FCX), which is leading the materials sector lower, possibly due to concerns about slowing demand for copper from China.

Once again the CBOE SPX Volatility Index (VIX) is higher with the market not down considerably. Possibly this indicates a growing wariness for how long we can hold these market levels. If the market is not going down, but not advancing, concern likely grows, making traders seek out option hedges.

–Steve Claussen

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