My game plan to play the Chinese stocks

I have posted some pretty harsh words on the Chinese market and has been expecting a severe crash for almost 2 years. Till now, I’m still just a crying wolf and have been largely wrong. So what can I do in terms of riding the super bull run of the Chinese stocks but without enduring much risk? As I said clearly before, I was very bullish about the Chinese stock market long term and thinking100-500% gains were possible. Since my initial talk a year ago, the Shanghai composite index (SHI) has already moved up about 100%. Has this bull run been over? I definitely don’t think so. But I’m really worried about the extremely euphoria presented in the Chinese market at the moment. To me it is almost like a huge bubble already blown up, which is on the verge of bursting up at any moment. I firmly believe that without a severe correction to kill the crazy euphoria first, it is very difficult for the Chinese stocks to go up further.

Having said that, I have no crystal ball to know exactly when this severe correction will happen. After all, I have expected this for 2 months but failed so far. In addition, the Chinese investors or traders are probably the ones who can mostly easily be influenced and manipulated in the world. You see, almost anyone in China can influence the Chinese retail stock buyers, including the government which can simply voice some bullish view to excite the general people to jump in, stock analysts, so-called insiders, or among investors and traders themselves. In other words, if the government wants this bull trend to simply run without a breath, they may be able to do that since the general Chinese people will likely simply follow the lead. So if I simply stay sidelines, I may totally miss the ongoing gigantic run from here. But on the other hand, it is a great risk to just buy Chinese market at this level and it may crash any moment. I have been looking for an opportunity to get in without much risk. Well I have just got it! I few days ago, the Shanghai index got dumped by 6.5% in one day. As I said, a bouncing back was likely to form a double tops before SHI resuming its downtrend again. With this thinking in mind, I bought ASHR calls expecting for a quick bounce up. It did. SHI has been moved up strongly for 2 days and has recouped all its 6.5% loss. On its chart, we are clearly seeing a double tops pattern now.

Technically speaking, this is very bearish and should lead to a more severe decline. But it is difficult to say for the Chinese market given how much manipulation can be done to simply keep it floating. So I’m now adding my second leg for a combo position. The beauty of this combo setup  is that I’m now totally risk-free in playing long the Chinese market: If SHI simply falls off the cliff and starts a severe correction which is what I’m expecting, my downside hedge will recoup all my investment cost and a bit more for a small profit. On the contrary, if SHI just keeps going up from here, which is also possible, I will then enjoy the bull run for much greater return. I feel really great now about the Chinese market as I can safely stay in the game for as long as possible without any risk! Either a bursting bubble in the short term or a gigantic ever-growing bubble will be fine to me!!