This Market Crashed... Now It's Ready for a Big Short-Term Jump

It has been two years since we've seen this setup. But it's happening again right now...

Hong Kong stocks have been falling for months. The negative headlines surrounding China recently took a toll on Hong Kong stocks as well... And the downturn picked up speed last month.

The iShares MSCI Hong Kong Fund (EWH) dropped 9% in the course of a week. And the fund hit a rare setup in the process.

Again, this hasn't happened in years. But as I'll share today, it's setting up a trading opportunity that could lead to major outperformance in the short term.

Here are the details...

It's almost always smarter to buy into strong trends. Stocks moving higher tend to keep moving higher. But every once in a while, you can catch a beaten-down market and safely make short-term gains.

That's what's possible today in Hong Kong stocks. And it's happening because the recent fall in EWH moved the Hong Kong stocks into oversold territory.

We can see this through the relative strength index ("RSI"). It's a simple measure that alerts us when a market falls too far, too fast.

When that happens, the RSI will decline. And if it falls below a level of 30, we consider it oversold. That typically means that a snap back in the opposite direction is likely.

Today's case is even crazier, though. EWH didn't just fall below an RSI of 30. It fell to an RSI of 17 last month. That's the lowest reading since August 2019. Take a look..

EWH didn't even drop below an RSI of 20 during the depths of the COVID-19 pandemic. And it has only fallen below that mark five other times outside of today.

Importantly, when EWH falls below and rises back above an RSI of 20, a short-term rally usually follows. Check it out...

Since 2000, EWH has returned less than 1% in a typical three-month period. But buying once it rises back above an RSI of 20 leads to better results...

Setups like this have led to 4% gains in one month and 7% gains in three months. That's an impressive return in a short window.

Importantly, EWH's RSI is already on the rise. It jumped above 20 last month and has kept moving higher. Shares haven't taken off yet, though. And that means you still have a chance to jump on this trade.

Again, remember, this is a short-term trade setup... It isn't a reason to buy and hold Hong Kong stocks for years. But if you're looking to make a trade outside the U.S., shares of EWH are worth considering today.

Good investing,

Chris Igou

Further Reading

Investors aren't as euphoric today as they have been. Instead, they're afraid to buy back into the market. But that doesn't mean the Melt Up is over yet. In fact, U.S. stocks could still have a lot more room to run... Read more here: What to Know About the September Sell-Off.

"When the entire crowd is making the same bet, it's smart to do the opposite," Chris says. Right now, investors are ignoring this commodity. But history says that might be the wrong move today... Get the full story here: This Beaten-Down Commodity Is About to Soar.

Market Notes
FOLKS ARE STILL OBSESSED WITH THESE SWEETS OVER 100 YEARS LATER

Today’s chart highlights a maker of “addictive” sugary snacks…

Longtime readers know the profit potential of companies that can keep its customers coming back for more. From fast food to alcohol, folks can’t get enough of these habit-forming products. Today’s company sells the iconic sweets that people have been eating for more than a century…

Hostess Brands (TWNK) is a $2 billion maker of sweet cakes. Everyone knows it best for its famous brands such as Twinkies, Donettes, and Ding Dongs. And it’s finding more ways to tempt consumers with sugary treats. In June, the company launched three more handheld breakfast pastries for folks on the go. It’s no wonder Hostess reported net revenue of $291.5 million in the second quarter… up 13.8% year over year, and a 21% increase from the same period in 2019.

As you can see, shares of TWNK are up roughly 90% from their March 2020 lows. And they recently hit an all-time high. As long as folks turn to this company for their sugar cravings, that trend should continue…