Playbook: Liquidity Rally Could Lift China-Based Stock

VIPS could be a bullish play if there's a liquidity rally

CMT, Senior Market Strategist
Mar 15, 2023 at 8:00 AM
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Below is an excerpt from this Monday's episode of Schaeffer's Playbook of the Week, featuring Schaeffer's Senior Market Strategist Matthew Timpane. Below, Matthew makes a bullish case for China-based Vipshop Holdings Ltd (NYSE:VIPS). In the first two trading days of the week, VIPS is up 3.5% already. 

I wouldn’t fault anyone for not taking this trade, just because of so much market uncertainty. There's nothing wrong with caution and being conservative in these times,

If you’re not a quick trader, you want to be more cautious. But if you are quick, there is ample opportunity, like this one below.


VIPS is a play on a possible liquidity rally. If we do get a dollar collapse, this would be extremely bullish for emerging markets, and the e-tailer from China is already holding up better than other China-based companies .

VIPS is in a bull flag pattern coming back into $14. It has reclaimed its 20-day moving average, and now we want to see a move back above the year-to-date VWAP level, as well as its 50-day trendline. The shares are sitting on a volume shelf, so a dollar collapse will be extremely bullish for a name like VIPS. The equity is also holding most of its short-term moving averages that are curling higher.

A lot of people are short this stock in the options sphere. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.68 sits higher than 82% of annual readings. These flows are not institutional, so its smaller retail traders betting bearishly.

Digging deeper, peak put open interest sits at $15 -- post March expiration -- so there's the expectations that market makers want to see VIPS climb back above that level in the coming weeks.

Options are looking extremely affordable, per VIPS' Schaeffer's Volatility Index (SVI) of 48% ranks in the 8th percentile of the last 12 months.

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