Chinese SmallCap Mania Returns

You know things are hot and heavy when the blast off of Chinese smallcap stocks returns. These names many times put on 30-50% daily moves in October 2007, as traders rotated from one name to another, driving them up - and then moving to the next name. This happened a few times in 2008 as well [Feb 4, 2008: China Small Cap Speculation is Back] ,and the names really never change. This same behavior is now repeating...


And many more in the 15-20%+ type of gain range.

Our old holding in A-Power Energy (APWR) which we waited month after month to move, finally is doing so. Of course, without us.


More and more lower quality fare is now exploding higher... without sounding like a granny clucking warnings, that generally is behavior we see nearer to end of moves. Combining this with shorts who are being blasted out of position after position, we have the potential to be setting up for a speculative intermediate top relatively soon.

But just as trying to go long a few days too early in late February and early March 2009 could cost you 10% in the blink of an eye, the same can be said now in the opposite direction. Since I don't like chasing stocks that are up 50% in 4 day, it is hard for me to find new positions to buy on the long side, even if I am predicting upside to S&P 870. Which, I can almost predict shall happen Tuesday AM with Government Sachs (GS) of course printing a better than expected number.

So to summarize:

1. Worst of breed financials (sub $5) or Chinese stocks with fundamentals most traders could care less about running like mad
2. Shorts running into walls aflame in pain
3. Goldman Sachs is going to take their AIG payoffs, FASB rule changes, on top of all their normal chicanery - and create singing CNBC anchors tomorrow morning

This is the point where you keep dancing but keep your eye on the chair, knowing the music stops at some point and you don't want to be the sucker holding the bag (stock). We are now at froth level Orange heading to code Red.

Comments

[Fenton Cho:]

MYST.OB is the best bang for the buck of any China stock regardless of exchange. Its growth, profit and partnerships are that strong.

Google China is using the MYST.OB cloud computing and B2B platform as the centerpiece of its massive E-commerce and cloud computing push in China.

The Chinese government is also funneling huge cash into the effort.

The MYST.OB/Google China E- commerce Platform has been reported in the Chinese press but has not received any attention by the Western media...........yet.

Information is money. Now you know something most other investors do not.

MYST.OB about to report solid profit, big top and bottom line growth.
This is a major company in the making.

Go here for some DD:

www.investorvillage.co...

Apr 14 09:28 AM

[Alphameister:]

"Quality" is in the eye of the beholder and is not determined by size as owners of C, GM and AIG can readily attest. Market averages (and especially attractive individual stocks) often blast off in the early stages of a bull move. I have no problem with the charts you chose to present above, but it would be more intellectually honest to present as well the long-term charts on which those "frothy" moves are barely a blip on the radar screen after huge declines. You failed to mention that APWR beat by 100% in its latest earnings report, trades at 8 times soaring earnings, and recently announced a joint venture with GE (does that still qualify as "quality"?) to produce wind-power turbines.

Apr 14 10:03 AM

[basehitz:]

"Alphameister" comments peaked my curiosity, so I ran some numbers. My focus is FY09 guidance.

FY09 net guidance = $29m/ 33.5m (shares outstanding) = $.86 EPS vs consensus = $0.95 EPS.
FY09 rev guidance = $290m vs consensus $385m. And y/y growth modest as Fy09 was $265m

Warned on both substantially lower for FY09 despite strong mrq.

Apr 14 02:26 PM

[Alphameister:]

Admittedly very confusing, basehitz. As I read the company's comments, the '09 estimates are based entirely on the existing backlog of orders and make no allowance for new orders and no contribution from the wind-turbine venture. This is the ultimate in conservative guidance and probably explains, to some extent, the 100% beat in the latest quarter!! I'm guessing that even the consensus estimates will prove too low.

On Apr 14 02:26 PM basehitz wrote:

> "Alphameister" comments peaked my curiosity, so I ran some numbers.
> My focus is FY09 guidance.
>
> FY09 net guidance = $29m/ 33.5m (shares outstanding) = $.86 EPS vs
> consensus = $0.95 EPS.
> FY09 rev guidance = $290m vs consensus $385m. And y/y growth modest
> as Fy09 was $265m
>
> Warned on both substantially lower for FY09 despite strong mrq.
>
>
>

Apr 14 04:26 PM

[Dr. O:]

Actually, the Goldman news was sold, and the combination of the Wells Fargo short squeeze last Thursday followed by the Goldman news yesterday may have been the blow off top for this intermediate move higher that began off the March lows.

The economic data both here and abroad has been miserable, and there will be more shoes to drop. Significantly, the folks who follow the corporate bond market haven't seen much improvement in spreads.

On the other hand, China and other more vibrant markets may trade better than the US, Europe or Japan. In fact, I'm currently trading around being long various emerging markets and being short the SP500 (SDS) and US financials (FAZ).

Apr 15 12:07 AM

[djn21:]

"...Chinese stocks with fundamentals most traders could care less about..." - I'm not sure which Chinese stocks you're looking at, but the ones I follow have phenomenal fundamentals. Many, even after rallying 50-100%, have trailing PE's of under 10 and growth north of 30. GNPH, for example, has a market cap of 65M at the moment, 76M in cash, earned 40M last year (trailing PE of 3) and should grow about 30% this year. CEUA, FEED, CNOA, CNEH, CHCG... and the list could go on and on... low debt, strong growth, ridiculous trailing PE's. They could be frauds (as many much larger American companies have proven to be), but don't scoff because of their fundamentals. Their fundamentals would make Benjamin Graham blush. The roarin' late-90's they ain't.

Apr 15 10:28 PM