This "uninvestable" sector roars back to life

Suddenly, a sector becomes re-investable

Maybe the long nightmare has finally ended for Chinese tech...

The shift in mood among investors and the media is pronounced. Not that long ago, the stocks were believed to be uninvestable (the same thing they said about energy two years ago). These are all mainstream media headlines from mid-March to early April:

Now, it's starting to thaw as the media focus on policy changes and rising stock prices. More and more, we see impressive buying interest in these stocks. There have been other false starts over the past six months, but none came from such a spectacular crash as we looked at in mid-March.

For the first time in what seems like forever, "more than zero" stocks have climbed above their 200-day moving averages. That's a little hyperbolic since every stock hasn't been pinned below its long-term average. But it's been close.

This is the first time in?nearly a year?that even 15% of the stocks in the CSI China Overseas Internet Index have climbed above their averages, far beyond any of the other crashes these stocks have suffered.

There isn't a lot of history here, only about 15 years. So, the sample size for pretty much any extreme will be tiny, and this is no exception. All three of the others preceded double-digit gains over the next couple of months.

What the research tells us

• For the first time in almost a year, more than 15% of Chinese tech stocks are above their 200-day moving averages.
• A record surge of days with overwhelming buying interest over the past 3 months has fueled the recovery.
• Similar behavior preceded gains for Chinese tech stocks over the next couple of months.
• At some point within the next three years, the stocks at least doubled each time.

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The SentimenTrader Macro Index Model combines 11 diverse economic indicators to determine the state of the U.S. economy. The Index plunged by the 2nd most significant amount in history in May.?After similar contractions, the S&P 500 showed flat to slightly negative returns, but sector and industry group returns and consistency look more unfavorable.?Commodities look constructive, especially compared to stocks.

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