By Chris Igou, analyst, True Wealth
You wouldn’t know it from watching the mainstream media… but Chinese stocks are taking off.
China’s market went from slowly grinding higher to breaking out earlier this month. And it hit a new 52-week high in the process.
The Chinese market is now in positive territory for the year in spite of the COVID-19 crisis. Again, this isn’t something you’d see in the mainstream media. But it’s what’s happening right now.
We don’t see that as a bad sign, either. The major rally we just saw doesn’t signal that China’s market is peaking. Instead, investors can expect more gains ahead.
Let me explain…
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Today’s topic is a tricky one for most investors. It goes against what might be the most well-known adage of investing… buy low and sell high.
Instead, I’m telling you to buy high… after a major breakout, with the expectation that you’ll be able to sell even higher in the future.
I might sound like a fool for saying that. But what I’m really saying is this…
The trend is your friend. And right now, in Chinese stocks, the trend is UP.
History shows that following the trend is a winning idea. I’ve crunched the numbers time after time – including today. And history shows that buying assets that are going up is a smart bet.
Today’s situation is another example of just how powerful the trend really is. Again, China’s market recently hit a new 52-week high. We can see it in the chart below…
After grinding higher from March through late June, Chinese stocks broke out heading into July. They hit a new high as a result. And while they’ve fallen a bit since then, this idea is still fully in force.
You see, since 2000, similar 52-week high extremes have only meant one thing… outperformance in the coming months. Take a look at the table below…
Chinese stocks haven’t been a home-run performer over the past 20 years. They’ve returned just 2% over a typical six-month period. But that doesn’t mean you should ignore this market altogether…
Buying after a breakout like today’s has often been a smart move. Similar instances have led to 4% gains in one month, 5% gains in three months, and a solid 10% gain over a typical six-month period. That crushes investors who simply bought and held over that period.
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Chinese stocks are near new highs today. But don’t let that scare you. It’s a fantastic sign for investors going forward.
We’ve only seen breakouts like this a handful of times since 2000. And history tells us this market’s rally can continue to even higher highs.