Netease.com (NTES) and the Chinese Gaming Sector

The recent IPO in the sector, Shanda (SNDA) spin off Shanda Games (GAME), has not been all that well received. Indeed with a number of the stocks in the sector blowing up of late [SNDA itself and Sohu.com (SOHU) spin off Changyou.com (CYOU)] we are left to wonder if we are not better off moving on rather than considering the stocks in the sector that continue to hold up.

Those would be Perfect World (PWRD) and Netease.com (NTES). Clearly PWRD has been the outperformer in the group, but it seems to have put in an intermediate term top after a tremendous run. NTES, however, recently broke out of a cup or cup with handle base (depending upon your interpretation) and has been beaten back on mixed volume.

Given the loose trading in NTES we would normally avoid it. But we see a low risk entry in a stock that has been a big winner and, in spite of some erratic trading, has held up.

Yesterday price undercut the 50 MA on a bump in volume. But today not only has there been no follow through, price has move over yesterday’s high. While volume is light we’re willing to trust the price action here and would recommend a long at the market (stock trades around $44.30 as of this posting) with a stop under today’s low.


The idea, of course, is to get an entry that might be an easier hold in what has been a difficult stock to take, and keep, entry.