Jan 27 2020 - Looking To Trade China with 2 lists

Cash is still king. Make lists. Research ideas. Then wait for the right moment. Look before you leap.

We may have a double whammy developing. First China and then the big cap techs that may roll over.

You may have other ideas about what stocks that are out there that have nothing to do with China, and what's affected by China. Make sure you know.

Some sectors are so isolated from the "China effect" that they could be a source of funds for traders once there's an "all clear" signal.

Why make lists? The China trades are obvious, as are the non-China trades

Readers that are habitual readers of my content have probably caught on by now that my first approach is to create a list. I believe that if you want to be a serious trader or investor you should want to take a methodological approach to stock trading and speculating. If you lurch from one idea to another, or one tip to another, you are doing it wrong, in my opinion. At the end of the day, if you lose when you trade and wonder why, think about how you source trading ideas. Is it just reading an article about a particular stock, and then you run to trade it? How long has this idea been floating around? Maybe all the smart money is in it. Maybe 10,000 other people have read it before you and already are in the stock. Better to get an understanding of a sector and understand the issues, and when a circumstance changes in your favor you pounce. I'm always hearing about stock tips and I want to make an argument that unless you really know the source, and understand what you are jumping on, tips are a great way to lose money.

Always Have a Methodology

My final point is - have a methodology, that way if you take a standard approach and it doesn’t work you can analyze what you are doing and improve. Trading is not gambling like betting on the ponies, the odds are not stacked against you. Your biggest adversary is you. Your habits, your emotions, your commitment to research and keeping on top of the news.

Being rigorous in investing is equally important

This also is true for investing. Have rules, have a set of standards for investing. My first filter is dividends. So what I will look at, is this company growing dividends, does it offer a good current dividend? Is it using debt to fund dividends and not profits? How secure is its revenue and profit growth? Is the growth based on demographics? Is there a competitive moat? These are the questions I ask about investments and longer-term trades, what I call speculations. Ask yourself, what are the steps I take before I make an investment? If you draw a blank and don’t want to put in the time to change that, please just buy some ETFs. If you invest in an ETF like the SPY or QQQ on a regular basis, like putting a few hundred or a ,000 or two every month, you will do just fine. There are ETFs that chop up the S&P 500 based on dividends, like SPYD and NOBL, maybe use them. My final point is whatever your savings discipline, make it automatic. I would say that even if you do take your time and invest in individual stocks, building a base of ETF investment like the SPYD is a great practice as well. Even if you put away 0 a month it’s worth it. Then when you get a sell-off like the one that's developing right now, bump it up, invest double, triple. The more automatic you make the act of saving the better. There always are distractions in life, but if you know that you are putting away a bit every month it’s reassuring, and it's also a reminder to be an investor.

China-related stocks: Make this list, then put it away for now

I'm most interested in the China-related names for now. It all depends on the Chinese getting the epidemic under control. If they do, all of these names should improve dramatically.

Cruise Lines: Royal Caribbean (RCL) Carnival Cruise Lines (CCL)

Resorts and hotels: Marriott (MAR), Wynn Resorts (WYNN), Melco (MLC), Las Vegas Sands (LVS)

Transportation: Delta (DAL), United Airlines (UAL) American Airlines (AAL)

Mostly Domestic Alaska (ALK) Jet Blue (JBLU) Spirit Air (SAVE)

Restaurants: Starbucks (SBUX) Luckin Coffee (LK), Yum China (YUMC)

Chinese ETFs KWEB and ASHR

Alibaba (BABA)

I suspect that we should be winding down the China epidemic by the end of the week. We can analyze the timeliness of getting in by then. We need to be patient. Pick a few names from different categories for a trade. Don’t be random, know why you picked them. Or if you don't like mine pick your own.

The other list contains names that have nothing to do with China but have sold off hard.

This is a huge category and you may think of areas that I haven’t. I would look at names that have been unduly punished, mostly because it was an excuse to take profits anyway. When your portfolio is down and you need to make cash available, many people will sell off the names that have the most profits in them. The ones that I'm thinking of are the software tech/cloud names. This is my go-to sector, and perhaps you have others. I would avoid stocks that are reporting in the next two weeks. Software and cloud services companies are not allowed to be in China more or less, so this is a category that has nothing to do with Wuhan Fever and everything to do with spurious profit-taking.

Here are some ideas…

Alteryx (AYX) earnings report on Feb. 13. Stock is hardly down today, but it's 10 points from the all-time high.

Anaplan (PLAN): No earnings date published yet. It's hardly down at all. Hopefully, by the end of the week it will be down more and it would make sense.

Elastic (ESTC): Earnings date not published, stock was 72 last week. It’s now 65, it was once 100.

Splunk (SPLK) earnings date Feb. 26. Hardly down yet. Perhaps by the end of the week. I like this one if we can get some more downside.

Crowdstrike (CRWD): Earnings date not published yet. CRWD was once a 0 stock. It had good momentum until all this happened. It's trading at 58.

Okta Inc. (OKTA): Date not published yet. I like OKTA, it's 16 points below the high. This one could work.

Twilio (NYSE:TWLO): Earnings date Feb. 6, I feel that it's too close. Unless TWLO really falls hard I would look at others.

Hubspot (HUBS): Earning Date Feb. 12, that should be just enough time. It's 20 points below the high. This is interesting

The Trade Desk (TTD) Feb. 19 earnings date. It sold off more than 6 points today. It's 20 points below the high. This is really interesting if in the next day or two there's more pressure, this one might get my rose.

Adobe (ADBE) earnings report on March 6. So far it hardly fell. If the selling pressure takes the price lower then maybe.

Same with Salesforce.com (CRM): It reports on March 2. I don’t see a lot of downside movement to create alpha. Let’s wait on these and see if they fall.

Again, all of the above names have nothing to do with China. Pick the ones that appeal to you. To me a name like Zoom Video (ZM) (no earnings date yet) is very appealing. You don’t want to get on a plane because “germs”, great, do a “Zoom” instead. How about Atlassian (TEAM)? It already reported earnings and it smashed them. It's down a fast 7 points from that report just last week. How about Match (MTCH)? It's about 10% below the high and it’s about finding love, and again, nothing to do with China. Always ask yourself, what does this stock have to do with China? Here's a tricky one - Costco (COST), you might say, it’s a US retailer. That's mostly true but it just started opening stores in China, so no. Identify a sector that has nothing to do with China. You may have noticed that chips are down hard. I would avoid this area for now. It has gone straight up, and China is very much part of the logistics of electronic assembly. If you have quarantines then you don’t have hands to assemble smartphones. I'm just trying to give you an insight into my thinking. You may have a different process. Chips are a no-no for me right now.

How about housing? It’s a great sector, for investing. I don’t think it’s relevant to trading right now.

Another area is housing, that has nothing to do with China. However, they all are fully priced. The idea here is to try to trade the turn in market sentiment. The perfect maneuver is to get into position just before sentiment turns. Of course, that never happens, so you need to have conviction. In other words, you have to make sure everything lines up to wade into this trade. The biggest alpha, in my opinion, will be with the truly China-related names. If you can pick the bottom of a YUM China, a Luckin Coffee, or an Alibaba (BABA) that will generate some great returns. I suspect that housing may actually sell off a bit as traders will sell the safe housing names to generate cash to buy BABA.

Just to make things even more tricky, the big boys in tech are reporting this week and next.

The most concerning event is that the biggest tech stocks are reporting this week and next. Unless these names fall enough going into their earnings, then I suspect they will act as the financial names, and rolling over after they report. We really need to be patient and wait for the selling to bottom out. I want to wait for the indexes to at least fall to 5% in order to look for a buyable dip in tech. So let’s watch and wait. I wrote yesterday that you may not end up trading this week. So be it. Apple (AAPL) reports tomorrow after the market closes, let’s hold off on trading techs at least until we see what AAPL has to say.

I will be watching the epidemic news very closely. If the number of deaths level off, or more importantly if they stop closing down transportation in new cities, that may be a tell that they have a handle on things.

My Trades: If you followed me into Moderna (MRNA) you should probably look to close it out. I closed it out already. I also closed out the VIX as well. Hold cash for now instead of trading.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.