July, 6, 2016
I recently had a conversation with a reader and friend who wanted to find out the best way to short the Chinese Yuan. I decided to post excerpts, since it could help some people as we delved into various subjects.
I’ll start with my reply to his first question about the Yuan:
First a couple of things, Long term I am extremely bullish on the Yuan. But I’m with you as to the intermediate TREND being down. So, I do expect a much weaker Yuan. But timing is everything in markets, as I’m trying to show people with the blog.
Look at the Yuan chart below. It’s a bit confusing, but it’s inverted. So as the price is going up on the chart that actually translates into the Yuan weakening vs. the $. Since Jan. 2014, the Yuan has fallen lots vs. $US. Currencies are relatively less volatile, so this is actually a substantial drop. And you know that I always sell short into strength at a resistance area. So translation here is that there is no way that I would short the Yuan currently. You can see where the dramatic drop in late 2010 ended at 6.7. That is now where you might see a pause in the Yuan downtrend.
Also, the equity products to short the Yuan directly suck. They do a lousy job of tracking the price movement. I have been short the Yuan myself for a while indirectly via — a) Long gold and b) Short stocks c) Long US$
So if you saw my post about my pre-Brexit positions: Long gold, long US$, short stocks. And I will continue to buy gold and dollars into weakness and short stocks ( especially in Europe, possibly via the ETF symbol FEZ) into strength. I am being patient right now waiting for a further rally to short stocks, but after the big rally the past week, I’m getting close to re-shorting. We’re not there yet though. Being short the Yuan itself is just enmeshed within my overall view of all the markets. And really , those positions over time should far outweigh any direct shorting of the Yuan.
Has this answered your question?
S
Next question was and my reply:
How can I short the Hang Seng? Is that the major index in China, similar to Dow?
OK, so that’s potentially a better strategy, shorting Chinese stocks. BTW, the Hang Seng is Hong Kong. The Chinese index is the Shanghai Composite.
So, remember – here are the steps to plan out your trade. If you believe that the TREND is down, then you want to look to short into rallies at the RESISTANCE areas. That’s how you cut the RISK way down and increase your PROBABILITIES greatly.
I included the charts for FXI and YXI. FXI is the largest regular China ETF. But YXI is an inverse unleveraged ETF. So you could either short FXI or buy YXI. That’s how to bet on a falling Shanghai.
So please study those charts. You want to short FXI at resistance or buy YXI at support.
Any questions about support and resistance, just ask.
Just curious bro — why the interest in finding ways to short China, Inc., so to speak?
The final question and reply:
thanks Scott…just reading plenty of “stuff” re: that they are potentially coming into a 2007-2008 U.S. Scenario
Lots of mal investments etc. Kyle Bass is waaay short the Yuan…billions…and he’s got a pretty
good track record…so..just playing with getting in there if China is for a jolt.
The reason that I’m doing this blog is that I want to encourage folks that they can do this and that they can be, at a bare minimum, moderately successful in markets, depending on how hard that they work.
And I’m trying to share my “secrets” so that folks can get started. But, I really want people to get to the point where they are relying only upon themselves.
And along with that, just make sure that the bets that you’re putting down are yours, so to speak. All of us make mistakes, no one is profitable on every trade/investment.
My view on China is that it has lots of problems, and all related to debt. But how are they different from the West. At least they have lots of assets, especially hard working citizens. Can we say the same about OURSELVES?
I’m bearish, for now, on all global stock markets. I am NOT discouraging you from shorting China. Trading is a game of RISK and PROBABILITIES.
The ONLY tool/method for success in all markets to master is understanding SUPPLY and DEMAND.
You might make a load of money on a China
But I’d rather be short Europe and parts of the US than Asia. I’m looking to buy Asia possibly this Fall or next Spring, if we get a big enough selloff in stocks.
But just remember that every trade/investment that you make is nothing more than a bet. It really sucked when I finally realized that, but it enormously helped my psyche and also my profitability.
And I don’t care what anyone else’s views are. And I say that with total humility, because I know that if I don’t 100% rely on my own work, then I’m guaranteed to lose over time.
And I want you to get to that point.
That’s my two cents.
S
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