Paladin Money

PLEASE NOTE: PALADIN MONEY REVIEWS ARE FOR EXPERIMENTATION, EDUCATION, ILLUSTRATION AND DISCUSSION ONLY.  THEY DO NOT REPRESENT INVESTMENT SUGGESTIONS OR RECOMMENDATIONS AND ARE NOT A SOLICITATION TO PURCHASE SECURITIES.

Love them or hate them, there is money to be made or lost in Chinese Internet stocks.  I started placing some of these stocks into a watchlist when I decided that some of the larger issues were becoming a bit over-punished.  I placed most of these stocks into the watchlist on June 8th this year but some as late as July 7th.  The range of results is quite wide.

To the upside, Changyou.con, CYOU, is up over 30% since then.  What I refer to as my “Big 5″ — see later comments — all carry gains of greater than 14%.  The number two performer is Jiayuan.com DATE, with +29.21% since June 8th.  I have to say that it is a study in volatility and is not one of my preferred choices.

At the other end of the spectrum we have Shanda Games, GAME, which is down 13.15% and that is from a notional July 7th entry.

This is a list of my watchlist taken directly from TC2000, which is where I maintain it.  I have added the entry date for each stock so you can differentiate the results.  As always, click on the graphic to view full-size.

I have developed a preference for more established members of this watchlist and have actually pulled out what I call the Big 5.  They are:

As you can see, even after taking any sort of hit in the latest “correction” (which I model as starting on 4/29) these stocks have had an impressive performance for the year to date, however, as we can see from their performance from 4/29, some have taken an absolute beating and one has to wonder if there isn’t opportunity there.  For the record I am not long, short or optioned on any of these stocks but I did make a nice two-week profit in BIDU and SINA earlier this month.

I have an opinion on a couple of these stocks, which I will share.  I am showing both a weekly and a daily chart because I believe you can form a very erroneous impression just from the dailies.  Let’s start with SOHU:

I think SOHU has potential.  We can see from the weekly chart that it has set in a solid 5-week uptrend, and has continued after crossing its 40-week SMA.  On the daily chart we see an upside cross above its 200 and 50-day SMAs.  I also see a cup with handle.  SOHU has lagged its fellows and I think it may have some upside.  It doesn’t hurt that it was placed back into the IBD50 this weekend, although that is not why I picked it.  Noe let’s look at SINA.

SINA was kind to me a few weeks ago, I can’t complain.  It found support at its 200-day SMA and had cleared its 50-day SMA.  Weekly it has a solid five week run since finding support at its 40-week SMA.  Please note volume has been tailing off some in its recent rally.  I may take a position in SINA but if I do I will stop it pretty tightly.  My sense is it may be a bit extended.  Next is Changyou:

I think of CYOU as the surfer’s dream stock.  Look at all those waves — which the weekly chart doesn’t really smooth out.  If you are a person who likes to make money out of volatility, CYOU is for you!  Now, don’t lose the plot.  The general trend here is up from the turn of the year, and we do have a YTD gain of 57%.  What’s notable in its cycles is that CYOU’s rallies are pretty volcanic, BUT, MACD seems to catch them at the crossovers, preceded by the DPO.  Looks like we may be topping out but I’ll watch it.

I haven’t followed Netease as closely as the other four stocks.  Certainly less volatile but with volume to the downside this week.  Good portfolio component with decent upside returns but less propensity to the downside.  Bounced nicely off its 50-day SMA but may have stalled out just now.

You have to think of Baidu as the grandparent stock in this bunch.  You have to love the way it has tracked its moving averages until the latest correction where it suffered from the same scares surrounding Chinese stocks that shaved all the stocks we’re talking about today.  But it found support at the 200-day/40-week SMA and has resumed its uptrend.  I would make BIDU the foundation of any Chinese Internet portfolio.

In closing, a couple of points.  First, these stocks, even the “Big 5″ are not proxies for each other.  This week the Big 5 results vary from +3.8% (BIDU to -1.2% (NTES).

Timeframe will do a lot to frame your investing decisions here.  If you can handle the volatilty — looking at the weekly results a portfolio effect may help here — in the recent long term the rewards are high.  Looking at the younger stocks in the watchlist we see a preponderance of dating and gaming stocks.  Given the massive changes in Chinese society from rural to urban, this focus makes sense to me.  This does not mean I would buy all the stocks in this watchlist today, but I am going to keep watching them……..