Let’s take a look at a high flying Chinese stock and see if there’s more gas in the tank. Bitaut..
Discussed in this article: Bitauto Holdings ( $BITA )
I want to look at Bitauto ( NYSE:BITA ). This is a stock that we’d been trading for a while in Stock Market Mentor and caught this squeeze, this expansion, and then you’ll notice that the other day it was really about as close to a bearish engulfing pattern as you can get without it really being one, where we’re looking at this pattern here.
So then the following day the stock gapped up to almost eclipse the entire previous candle, not quite. But it did ultimately move up above that level and then fell down and really kind of eclipsed the last two; and it occurred on heavy volume. That’s a big deal, that’s selling, that’s a big selling thing, and it pays to heed that. Because after this kind of move, when you see this high volume reversal, it indicates that the move is probably pretty much over.
So then yesterday, along with just about everything else in the world, it bounced a bit. This was actually a pretty impressive day, but it did bounce a bit. Today, like just about everything else in the world except the inverse ETF’s, this gapped up above the upper Bollinger Band. But then, unlike just about everything else in the world, this started to trade lower.
So what’s the conclusion here on Bitauto ( NYSE:BITA )? This is really easy; you’ve just got to walk yourself through it logically. This is now selling into strength. It used to be, all of this time, buying weakness, any pullback, buy, buy, buy. We get this big blow off here, now suddenly it’s selling into weakness. I’m not really into shorting this stock because it’s a random stock. You never really know what’s going to come of these things, but any kind of push higher on this I think you’re going to see more selling.
So if you’re looking to buy it I would just suggest looking elsewhere to buy something. If you’re long the stock, you’re hoping, just know that hope isn’t a method and so any kind of move higher, I think it’s going to see resistance and you want to be liquidating.
I hope this analysis helps, this isn’t just about Bitauto ( NYSE:BITA ), this is the kind of thing that you have to apply to any stock that’s made a good run, ultimately broken out of that channel in a steep move, and then is showing you that it’s potentially reversing. That’s when the real fun starts, because you’re looking at this saying, “Okay, am I going to get a consolidation or am I going to get it continued pull back?” Here we’re getting a continued consolidation, however, we’ve also developed a thesis where this is selling into strength. My bet is, this is not going to do that.