Here’s how we make sense out of Fanhua (FANH). (May 22, 2018)
FANH
Fanhua ( NASDAQ: FANH ). This is a Chinese company; they reported earnings last night after the bell. You can see how this stock traded. It was pretty wild swings today; gapped down at the open and then continued to trade lower, like over 7 percent FROM the open. From where it had closed last night it was even a bigger dip, over 10 percent. Then the stock started to pick up steam. If you look at the volume you can see the trading volume was actually pretty low.
So what is the take away from this? It kind of looks like a big mess, right? It’s actually not. It is actually fairly orderly when you look at it. Because, here you have got all this selling pressure, all the volume here took place. A big sell-off right to $26.00 or so. A test of that level, well that was kind of scary, right? And then from that point on the stock has moved up nicely pretty much all day long.
I look at this as a shakeout. You see these big sell-offs down to this level; saw it here and then the stock rebounded. A smaller one here but that was before earnings. Then today there is a big, massive sell-off and then a move higher to close, actually right at the top of the day. Okay, this is a hammer; it is a long-tailed hammer pattern. This smacks of higher prices to come.
This is what I think you do: You buy the stock, period. Just buy the stock; give the stock maybe 2.5 percent. I literally would keep a stop on it that is that tight, about 2.5 percent. If the stock starts to fall down here, we’ll say it’s 27.60, maybe 27.50 but right up here. If the stock starts to fall down much at all, well then what does that tell us? It tells us that the stock is still in congestion and it is not the type of trade that we thought it was. So you don’t give it much room. You sell for a small loss if the stock moves against you and then you wait and reload.
On the other hand, if you are buying it and then it holds up, you have a small position, great! Then when the stock breaks out above 30.00 that is when you buy some more stock. Now suddenly, magically at $30.50 or $31.00, you have got a cost basis below $30.00 and it has been kind of a “no fuss, no muss” trade. That is how I would trade Fanhua ( NASDAQ: FANH ). I am sure we will be looking at this tomorrow.
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