Monday, April 13, 2009

Speculation Returns to Chinese Small Caps

You know things are hot and heavy when the blast off of Chinese small cap stocks returns. These name many times put on 30-50% daily moves in October 2007, as traders rotated from one name to another, driving them up - and them 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 days 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 tomorrow 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.

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