The Magnificent Seven of China

I’ve been pounding the table on China since that historic momentum thrust last year. 

While little progress has been made at the index level, the big picture keeps coming together for this battleground emerging market country.

We’re witnessing a textbook trend reversal. Classic accumulation.

The path of least resistance is slowly but surely turning higher for Chinese stocks.

And sentiment couldn’t be worse. We’re coming from “this country is uninvestable” territory.

As for risk appetite— around the world, it couldn’t be better. Breadth keeps expanding internationally.

And as for China, the early leaders are big tech and speculative tech. Companies like Xiaomi… or Kingsoft. It’s the kind of risk-on behavior you want to see accompany a new uptrend.

Last year, I outlined a basket of stocks and dubbed them the Magnificent Seven of China.

These are mega-cap growth companies that dominate out there in the same way Google and Apple do here. The ideal blue-chip names for building an emerging market portfolio. Stocks like Alibaba, Tencent, and Build Your Dreams—the Amazon, Meta, and Tesla of China.

And Wall Street is finally warming up to the idea. Recently, Barron's introduced a similar concept– the “Terrific Ten,” and Roundhill even launched an ETF comprising these stocks.

Is the world ready to buy China again?

I definitely am. We call our basket of top stocks the Fanghai Composite Index:

This is a classic primary trend reversal, but it’s been slow and sloppy to launch out of its base.

Most of the components have been dormant for the past three months, but I think that’s about to change.

Here’s the universe at a glance:

We’ve been outlining trades in these stocks since last year. Some have worked, others are yet to.

But the indexes are showing all indications that this trend reversal is about to be in the books, so it’s a good time to revisit the important levels.  ;

First is Alibaba Group $BABA.

This is the Amazon of China, with a heavy footprint in e-commerce and digital services. This is one of my favorite bases out there.

BABA has been in the process of completing a massive bearish-to-bullish reversal for several years. With price back at the VWAP anchored to the all-time highs, this is the right time to buy into this fresh uptrend.

Above 123, and I think you have to own BABA. Our first target is 220, but I think it goes back to those old highs over longer timeframes.

Our next setup is the largest company in China, Tencent Holdings $TCEHY. They are a global leader in social media, gaming, and digital payments.

This is basically the Meta of China, and we’ve been long.

TCEHY is on the cusp of completing a massive base as it presses against a key retracement level. 

I’m adding to my position on a breakout above 71, targeting 100. 

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