5 China Stocks Ready to Pounce

by: China OTC Player

By Platinum Tiger

With the new Year of the Tiger roaring to a start on Tuesday, this seems a good time to take stock and plan for the weeks and months ahead. I'd like to take a look at recent stock market results, and then focus on a few picks to consider.

After three straight weekly declines in January during which it shed 13 percent of its value, our C.O.P index last week bucked the broader market trend and ticked up by 1.7 percent, reversing direction and possibly setting up for its next rally. With a year-to-date gain of 5.2 percent, our index has so far handily beaten the S&P 500 (-4.4%), the Russell 2000 (-5.2%) and most significantly, the downtrodden Shanghai Composite Index (-10.3%). Breadth for the week was favorable, with index gainers outnumbering losers by a 4 to 3 margin.

Although the broader markets are still in a downward trend, I've noticed several Chinese small cap stocks that have held up nicely and that look primed to move when the bulls take charge. I've provided below brief technical highlights of five of these stocks (China OTC Player wrote up two of these companies--CAHS-OLD and LLEN--in his January 28th column):

China HGS Real Estate ((OTC:CAHS-OLD)), a residential property developer in central China, has defied the market correction and developed a solid 3-week base. With management reporting higher selling prices in January for the company's homes, and guidance of an expected $0.39 to $0.40 per share for the fiscal year, CAHS may well be a crouching tiger readying to pounce.

China Carbon Graphite Group (OTCPK:CHGI), appears to have found a bottom, with strong support in the $1.25 to $1.40 range. Though it's well below its recent high, the stock is still on a P&F buy signal and has much more upside potential than downside at this level.

Guanwei Recycling Corp. (OTC:GURC), a manufacturer of recyclable plastics, has been basing for two weeks with support at $4.20. Volume has dried up and it could drift along for a while at this level, but I'm watching for it to pop when the market tide turns.

Home System Group (OTC:HSYT), a Guangdong based manufacturer of home appliances, has been one of the few big gainers in our index over the past few weeks, rising 30 percent so far this year even despite management's January 21st announcement lowering its earnings guidance for fiscal 2009. Now the stock is about 12 percent above its recent base; I'll be looking to buy on a pullback at about $3.35 to $3.40.

L&L Energy ((NASDAQ:LLEN)), a diversified coal supplier, bounced off a double bottom at $5.75 last Friday on above-average volume. The stock is still in an up trend and I'm looking for it to double from here.

As always, it's best not to bet against the market direction. Wait until the trend is going your way before placing any big bets. I usually like to see the market I'm following--in this case, our C.O.P. Index--close higher for at least two weeks in a row, preferably three, as confirmation of a trend. Until then, be prepared by knowing which stocks are ready to move. All five of the little tigers mentioned above are sending the right signals.

My position: None.