Earlier this month, my friend Harrison Schwartz wrote an eye opening article exposing the disaster that is in store for Chinese Real Estate investors (seekingalpha.com/article/4186890-42-trillion-bubble). The article analyzes the unthinkable situation China is in, and what is most likely going to happen. After reading it, my first thought was how can I make money off of this inevitable crash? That brought me to TAO, an ETF that tracks Chinese Real Estate. Fundamentally, this ETF could drop 80% over the next year or two. Technically, the signs are there as well. It is the most logical trade I have ever made.
Looking at the chart, there is a clear head and shoulders pattern that has formed over the past 10 months. A death cross has recently occurred, marked by the 50 day moving average crossing below the 200 day moving average, a very bearish signal. There has been a recent bounce after bullish divergence on the RSI which could lead more short term gains. However, if TAO reaches the low $29's, it will most likely get stopped out by resistance in the 200 day moving average and resume its plummet, where I will be looking to enter a highly leveraged short position. Lastly, the weekly chart for TAO confirms the long term bear trend that it has entered, as RSI is pointing down hard, validating the recent bull trap.
@pstowe I recently posted a similar idea for a short-term correction on this. I just read a comment where you mentioned it could "go to zero eventually". Out of curiosity, how would you see that happening? Meaning, how could about 150 alpha shares of publicly traded companies in China real estate all end up being pretty much worthless or bankrupt?
pstowe
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@Alex-Pimodan, did you read the article I linked in the description?
Alix-Pimodan
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@pstowe, I did. I still don't think it justifies the 100+ top real estate companies all going bankrupt. If you look at property indexes in the US, even after a 70% drop, the indexes simply picked back up as the market came back up and all the players were still alive and 'well' besides a massive loss during x-number of years. Even in the case of a crash being more significant and longer, I can't imagine the owners, the investors and even the state letting those companies be valued 0 and everyone suddenly losing faith in the Asia-Pac real estate. The US coming back from the earlier crash (mainly led by real estate, by the way) is a proof of that.
justindanethan_
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Hey, thanks for this chart and the detailed feedback. Very insightful and clear.
What's your target price on the downside? Or is this something you're looking to short long-term?
pstowe
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@justinmischief, These ETF's tend to move more slowly than traditional stocks, so I predict it will be a slow steady decline for the next 1-2 years. I believe China will cause the next global financial crisis, and this ETF could definitley go to zero eventually. That being said, it could fall 50% more by the end of 2018. Either way, will very likely fall at least 50% by mid-2019. Check out my friend Harrison Schwartz article for fundamentals on the situation in China: seekingalpha.com/article/4186890-42-trillion-bubble