Looking At Market Structure Sentiment In Chinese Stocks: What Investors Need To Know

Benzinga

Tim Quast, Founder/CEO of ModernIR and Market Structure EDGE joined Benzinga's Premarket Prep team to discuss what he is seeing on his platform, which studies market structure, in Chinese stocks like Baidu and Alibaba.

Transcript

00:00I'd love to see what market structure looks like for China. Do you cover like Baba, Baidu?

00:06This is China. Let's see. And as you would expect, you know, so what this data tells you is

00:16at options expirations in September, whoever behind the scenes knows more than all of us

00:22about maybe not you, Dennis, about what the Chinese government is going to do

00:29had already made their bets because this is kind of there's a dip here. So supply is only 40

00:34percent. Contrast that with the S&P 500, 48 percent. And it's been at 50. So people made

00:42long bets right there. And now it's 10. Supply has risen well up into the 60s, but that is

00:49filling by orders. There is a shoe that drops. There isn't enough supply in the market to meet

00:55what the money needs. And so market makers create stock. They're exempt under Reagan MS

01:01from having to locate shares to short because they maintain an automated market so that the

01:06prices flow freely and you can trade any play. If you've got a marketable trade,

01:10it's going to get filled if it's one hundred shares, thousand shares, different deal.

01:15But that is going to have a consequence ahead. Where is it? But as you would expect, Dennis,

01:20huge surge in demand. How sustainable is it? I don't know.

01:24That's the question. It's hard. So things can stay at 10 a long time, though, sometimes.

01:28They can. Oh, absolutely. NVIDIA could go a month, month and a half at 10. It's not doing it now.

01:36It's not doing it now.

01:38What about BIDU? Does it look the same, B-I-D-U?

01:41Let's have a look.

01:42I'm picking on my stocks, but.

01:44Yes, you should. You know, you would expect it's very similar. Yeah, look at that. I mean,

01:50BIDU is even bigger. Massive covering of shorts right into September. Options expirations,

01:5718th, 19th, 20th were all options expiration dates. Then what would that be? 23rd, new options

02:04traded. Everybody squared the books on the 24th. So look at this massive surge in demand that

02:11preceded the move in price. That's why it's helpful to you traders. What you want is something

02:15that will tell you what's coming. And so if you have a massive, this is what we call a divergence,

02:21rising demand, falling supply, they're moving inversely to each other. And that's what caused

02:27the big surge in price. You can use that all the time to your advantage and then take the gains.

02:33I mean, if I'm looking at this, is it over? No, it's not over. But I'd be if I were trading this,

02:39I'd be looking at what happens into October. Expirations could be the end of it. I don't know.

02:44You know, we'll find out. It depends on how much belief people have in the capacity of a devalued

02:50currency to restore prosperity. And I'm telling you, it is zero. But we do it all over the planet.

02:57And you can and you could take advantage of that and trade risk assets profitably because of it.

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