Crackdowns on Chinese stocks in the U.S market, including IPOs, are impending.
Ongoing geopolitical tension between the U.S. and China, the impact of the coronavirus, and recent accounting scandals in Chinese companies on U.S. exchanges are currently bubbling over.
The trade war negotiations between the U.S. and China have made slow progress, even since the signing of the phase 1 deal that took over 18 months to reach.
The coronavirus disease originated in the Chinese city of Wuhan in late December and has since claimed over 106,000 lives in the United States.
Luckin Coffee (LK), the most high-profile U.S. listed Chinese stock, recently took a 80% nosedive after Muddy Waters revealed that the company faked their numbers by $314 million between Q2 and Q4 last year.
LK was just one among others accused of fraud, including video streaming site iQiyi (IQ) after Wolfpack Research determined that it exaggerated revenue by as much as $2 billion.
While China’s relatively quick recovery from the coronavirus would otherwise signal an upcoming influx of Chinese listings, these recent scandals especially have greatly damaged the reputation of Chinese issuers.
So today, I want to briefly delve into Nasdaq’s new IPO listing requirements, which could limit Chinese IPOs.
Then I want to discuss how all of this could affect the trading prospects of China’s Dada Nexus (DADA).
It’s a local on-demand retail and delivery platform set to IPO on the Nasdaq this week.
A couple weeks ago, new legislation passed by the senate will demand that Chinese companies more closely follow U.S. audits and regulations.
On top of that, new Nasdaq rules will make it more difficult for companies to get listed on this U.S. exchange.
That includes companies from China, as well as some other nations.
The new rules will state that these companies must meet one of two criteria:
This is the very first time that the Nasdaq has imposed such restrictions on the value size of any IPO.
It will put significant pressure on smaller Chinese companies especially, which up until this point have been fairly prevalent.
Since 2000, 155 Chinese companies have gone public through the Nasdaq exchange and 40 of them drummed up less than $25M in public debut.
Though the CEOs of these Chinese companies will continue to favor listing in the U.S. for access to its lucrative capital market, they will be forced to look elsewhere.
The most likely new listing locations will be Hong Kong and London.
Dada Nexus is a local on-demand retail and delivery platform that reminds me a lot of Postmates.
Source: Dada Nexus
Something that I like about the company at the moment is that I feel it could actually benefit favorably from the coronavirus.
Lockdowns have caused an increase in demand for delivery services in major cities throughout the world, including China.
The company could also follow the footsteps of recent Chinese IPO, Kingsoft Cloud Holdings (KC), which has benefited favorably from the current market conditions.
That said, Dada Nexus saw losses grow to 2.46 billion yuan ($344.97 million) last year from 2.39 billion yuan in 2018.
DADA plans to raise $264 million by offering 16.5 million American depositary shares (ADSs) at a price range of $15 to $17.
Assuming all goes according to plan, even the low end of the company’s target range will put it above Nasdaq’s new $25 million minimum requirement.
At the middle of it’s proposed range, Dada Nexus will boast a $3.5 billion market cap.
Not only that, some big U.S. names will have a stake in it.
JD.com and Walmart have plans to throw down a joint $90 million worth of ADSs in the offering.
BofA Securities, Goldman Sachs, and Jeffries will be the underwriters for this deal.
Whether or not I decide to trade DADA, either long or short, my premium IPO Payday subscribers will immediately find out.
If you’re not a subscriber and would like to learn how I’m potentially trading DADA or countless other exciting IPOs — like the GAN stock I banked 70% profits on last Friday — you can consider joining here.
You probably already know by now that dark pools offer powerful information.
Heck a few weeks ago, I mentioned to my subscribers how I kept noticing Caesars Entertainment Corp. (CZR) come up on the proprietary dark pool scanner I use.
Here’s what I sent out this morning…
This has been on the master watchlist and done well (30%+) Since bringing it to your attention a few weeks ago.
The reason why I’m keeping a close eye on CZR is that there’s a looming deal with Eldorado Resorts (ERI).
Today, I want to show you how dark pool activity allows me to come up with trade ideas and streamline my due diligence process.
A few weeks ago, I mentioned CZR came up on my dark pool activity scanner. Now, of course, to the untrained eye… this may have just looked like a sizable bet placed by the financial institutions to try to play the bounce in a casino stock.
However, behind the activity, there was actually a pending merger with Eldorado Resorts (ERI).
According to ERI, it believed its merger with CZR would close by June 30. At that point, if and when these companies merge… they may be in a position to start the re-opening of the properties.
Now, by looking at the dark pool activity and the details of the deal…
I came to the conclusion that CZR could continue higher and has room to the $13 area. Of course, that wasn’t the only way to play this dark pool activity trade.
For example, with a pending merger… ERI also stood a chance to rebound.
You see, these two casino companies actually had positive synergies, and if and when they join forces, they can start to take a large portion of the market share.
Of course, the dark pool activity isn’t all I need to do when I’m coming up with trade ideas… because as you can see above, I had to put the pieces of the puzzle together.
However, that actually gave rise to another trade idea in ERI.
Chart Courtesy Of StockCharts
Not only that, but there is another potential trade idea here with this pending merger.
VICI Properties Inc (VICI) is a real-estate investment company that’s a landlord to casino operators, which include CZR.
VICI actually collected 100% of rent in May, and it could support the deal.
Right now, there is still some upside potential in CZR… and some analysts believe it’s valued around $13… so I think there is still some room to run here in CZR. Although ERI may continue higher, I believe it would be considered chasing at these levels.
If you are an active trader, there is a good chance that you are overcomplicating your strategy.
However, it doesn’t have to be that way.
In fact, today I’m going to teach you about a method of analyzing stock charts…
Which will help you declutter and make you focus on what really matters…
It’s called an Inside Bar, and it is a simple but extremely powerful candlestick pattern.
Why is it so powerful?
An inside bar is a candle that is completely covered by the prior candle.
This pattern means that the markets are in a period of consolidation and low volatility.
Here’s an example of an Inside Day.
Now if you were to go short at the break of the lower bar, you can see the price action that followed.
You didn’t need a moving average to tell you it was going short after all.
So the Inside Bar comes in multiple formats.
What is a Short Range Inside Bar?
The Short Range Inside Bar is a type of Inside Bar where the current bar is much smaller, or more “narrow” than the prior bar.
What is the importance of this bar?
It tells traders that there is a lot of indecision and lower volatility in the markets.
As an example:
Another type of Inside Bar is the Large Range Inside Bar.
This bar is identified by a bar (wicks induced) that falls within the prior bar’s full price range.
Now, what happens when many bars all farm together?
Let’s take a look at exactly this condition and how to identify it.
As you know…volatility is always changing in the markets so it’s important to have a way to trade a consolidation when it comes to you.
This creates a pattern that resembles a triangle or wedge and signals to traders that an explosion of volatility is about to come.
This is why it’s very important to be able to identify and predict when these shifts in volatility are going to occur.
Here’s an example of this stock pattern.
In this example you can see there are 4 bars where price was continuing to contract
There are many ways to trade the Inside Bar with strategies for any market condition.
Here are the two trades that you should look out for.
Let’s take a look at each and the strategy that can be used to capitalize on an Inside Bar pattern.
Many traders love to trade Support and Resistance lines in the markets since they give some of the best risk-to-reward ratios available.
The price of the stock is approaching a Resistance level, which was set by the day priors high.
At this point, the stock sold lower and closed red on the day.
Now let’s take a look at how the same pattern can cause breakout trades on the stock.
Breakout trading can be a little tricker since there more than 1 moving part involved.
With the breakout strategy, it’s difficult to trade compared with the mean reversion.
This is a multipart setup that you would want to follow when trading breakouts.
And as you can see, that resulted in a huge single-day boost in the stock price from the breakout momentum.
The stock market moves from periods of low to high volatility, back and forth as it makes it way higher and lower.
The thing is if a trader focuses on inside bars they are interested in capturing the shift between low and high volatility.
And since volatility is going to expand quickly with the price movement, it’s highly likely that the trade will go in your favor quickly.
So no matter which pattern fits your trading style the best, it’s always great to have another trading system in your toolbox.
What I like about this strategy is how it fits multiple trading styles flawlessly and allows a trader to get into the markets at some of the most optimal levels.