Beloved, Cheap Yet Expensive PetroChina

2007/11/5 15:52:07

What the market did today is actually irrelevant. Whatever news came out today is also largely irrelevant. Because with PetroChina, everything else becomes irrelevant. Why? Look at PetroChina's market cap—it exceeds that of Sinopec plus ICBC plus Bank of China combined. Going forward, the index will be enormously correlated with PetroChina's movement. From an index standpoint, to own PetroChina is to own total control.

PetroChina—now the world's number one stock by market cap—is indeed expensive compared to its global peers. But in China's closed market, especially with the anticipated launch of index futures and similar products, this price is actually cheap. It's like when China Life listed months ago and this ID said that at 40-something, it wasn't expensive at all—100 would definitely be seen eventually, and if it dropped to 30, you could hold forever. At this level, it's not that PetroChina can't possibly go lower, but any decline would just be an opportunity for a better entry—just like when China Life went from 40-something down to 30.

Looking at the short term, today's move from above 48 down to 41.7 was a standard line segment, followed by a new upward line segment. Whether or not this segment can extend above 45, 41.7 to 43.7 becomes closely related to the 1-minute hub that eventually forms. For short-term operations, today the play was obviously to wait for the descending line segment to end before entering. Tomorrow is critical—what matters is the 1-minute hub position that forms after the rally-pullback-consolidation, so it shouldn't be hard to trade.

In terms of operational steps, the more aggressive approach is to enter once you see the 41.7 line segment ending, but this can't guarantee there won't be a downward line segment tomorrow that breaks through that level—after all, this is T+1 trading, and line segments are too short. The more prudent approach is to enter a partial position when today's segment ends, and then after a 1-minute hub forms, add to the position at the corresponding level. This way, at least you can use T+0 hedging to ensure position safety.

Note: the above is just a casual discussion about how to trade new listings. For stocks that open high and sell off, your first entry absolutely must wait for the first line segment to end—this is the most basic requirement, and today's chart perfectly demonstrates this point. But that's still not enough—from a safety standpoint, you must enter in batches, because line segments at this level are too short to guarantee absolute T+1 safety.

Additionally, today's deferral of the through-train policy at least provides some response to this ID's earlier opposition to it. It also shows that policy rollouts now involve more complex mechanisms, which is also very good news for efforts to block index futures manipulation.

Today, thematic stocks started moving—perfectly normal. If futures are deferred, this movement will become even more pronounced, and many stocks finding bottoms at year-end are doing so just to soar next year. The current issue is that futures don't have a final answer yet, so the back-and-forth of the 19-91 type is unavoidable. Two wings—China-prefix stocks and thematic stocks—have remained valid since this ID explicitly stated this when catching the falling knife at 3600 points.

I was writing this while getting constant phone calls, which is why it's late. There are more things to attend to. Signing off first. My apologies.