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Chinese Stocks Delivering Strong Returns


While the indexes chewed around Tuesday, the real action was is in the Chinese stocks. These issues are on a tear and with big volume too! This just goes to show you, it's a market of stocks and not a stock market.

What do each of the following stocks have in common?

1. They are in confirmed uptrends

2. They trade off of trendlines

 

But most importantly, each of the following emerged from a common pattern -- Pullback Off Highs. In uptrending markets, it's the only pattern you need to know.

 

The Pullback Off Highs pattern is one of the most bullish and constructive long-side set-ups out there. Rather than go straight up, an index or stock will make a move higher, then spend some time consolidating those gains often down to an area of chart support such as its 50-day moving average, before making another move into new high ground.

When a stock clears these consolidation periods, it's your opportunity to buy them and take advantage of the next run -- and the bonus part is when you catch a stock at the beginning of a new uptrend, you'll often get to trade the stock and lock in profits over and over again. You are buying it at the point where it's just started a new move and is near support which minimizes your risk.

Let's look at some examples:

LIWA -- Lihua International



RINO -- Rino International



CGA -- China Green Agriculture



In the charts above are 3 things you ALWAYS want to be on the lookout for:

1. The stocks are in a clearly defined uptrend and above the 50 day average
2. The stocks pulled back to trendline/chart support which in each case happenned to coincide with the 50 day average
3. Full stohcastics were in oversold position at the ideal buy point.

Once you see those things there is only one thing you need to know after that. That is to draw a trendline (Pink) off the most recent highs as shown. That is what we commonly refer to as a Pullback Off Highs Line or POH for short. Then it's all about an upside crossover of that line. That crossover is your longside entry.


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Disclosure: Long CGA, RINO