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June 22, 2011 – Comments (2) | RELATED TICKERS: CSHZ , DEER , CGA

I enjoy volatile plays here on CAPS.  My cup runneth over the last day or so as the fallout from the selloff of China small caps, especially RTO’s  (Reverse Take Over, or Reverse Mergers) drags in bargain hunters. I'm glad I closed some of my losing positions the last few weeks and took the hit so I'd have some space.  I couldn't bear to close SIFY and REDF when they hit my negative 100 point threshhold, but I've gotten over 170 of that 200 points back so far.  It's nice sometimes to admit defeat and move on, even with the CAPS accuracy factor weighing down closing losers.

There is too much to keep up with the last week.  I'll focus on the China Stocks that entered my radar the last few days, a few I had thought I was "done" with long ago. 

The rapid rise of several was fueled by short covering.  Some of these company’s may have another one or two day “step” to climb as shorts cover, speculators jump in, computer trading cuts in and day traders jump in. The bulk of this will be over Friday about 2:30 PM. 

Some will strengthen an artificial trading base, some will retreat quickly. The tide lifted the “good” and the “bad”, not that I’m qualified to differentiate.

Because I think some may take a few days to settle, my poor thumb is aching.  I also think there were a few bargains to be had and some opportunity to play some up, although the seven day rule will whack you if you’re wrong.  I initiated up thumbs on three plays.  Here are some of my down thumbs, two actively down (CGA and DEER) and two “pending  (SHZ and CHGS). 

I don’t care to debate the merits of various short attacks. My down thumbs are all based on technical’s or what I perceive as reasonable valuations.  

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Investment fallacies.  Because a company once traded at $X.XX share price, now that it’s 50% Less it’s a real bargain. 

Did anything happen in the time period in between to change the value of the stock?

Was the stock priced correctly in the first place? 

Some of these I’ve already called, some I may avoid here on CAPS, and some I may wait for a better entry the next day or so, or not at all. 

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  CGA  :  China Green Agriculture, Inc. C(NYSE: CGA ) 

China Green has been under a hard short attack for over year. It was actually one of the first to be questioned.   The SEC flagged them for investigation. 

China Green traded between $6.50 and $7.50 most of the last three months. They bottomed at $3.43 Tuesday morning and at peak today they were at $5.23.  They closed at $4.50.  There was no news.   CGA is added to my active down thumbs even though they are well off their past trading range.   High short interest with covering in two waves. No more likely upside this cycle.  Down thumb activated around $5.15 on second wave decaying.  I’m not factoring in the reason that Shorts are against this one…I think $$4.00 or so is fair value even if the SHORTS are wrong.

  China Shen Zhou Mining & Resources, Inc. (SHZ). 

China Shen Zhou goes for a sharp uptick whenever REE’s are mentioned as being in favor, (rationed by China).  The “Funny” thing is that China Shen Zhou has NO rare metals. They have copper,  a little zinc, and a lot of “fluorite”.  While there aren’t many fluorite mines that I can find in the world, there apparently doesn’t need to be.  Production cycles up and down and there have been no revenue gains the last few years.  Still the spike from $0.75 July 2010 to $10.24 January 5th, 2011 caught many red thumbs.  You would have thought they were picking up large nuggets of gold or large diamonds instead of losing money on a fluorite mine.  Perhaps $0.75 was too low, but the spike to $10.24 was pure speculating insanity from traders who didn’t even know what China Shen Zhou produced.    Back to $2.43 on June 20th.  Spiked to $3.33 today or about 38%, apparently on rumors of REE and speculation it was oversold from the RTO beatings.

I’m not sure what to do with this one.  I think it  could hit $4.00.  I don’t want to miss the downward trend , but the volume and base formed  from $0.75 to $10.24 has a lot of folks wanting out who will take the opportunity and a lot feeling stubborn or vindicated with the 38% rise today. 

 China GengSheng Minerals, Inc. (AMEX: CHGS ) 

Very similar story to SHZ.  Somehow linked to REE’s, but has none.  Actually, not even a miner!   Makes mineral-based heat-resistant products and fracture proppant used in oil and natural gas.  CHGS hit my “radar” back in Dec 2010 when it spiked from $1.75 to $5.15 in two days. It dropped to $2.00 by May 19th and then spiked another 60% in a few days before settling back to $1.70 before it started it’s 37% spike to $2.10 today.  I don’t think this one is “done” either.  Volume was not high enough for all shorts to exit, although not all will.  Might hit $2.60 - $2.70.  Waiting for retrace confirmation.

 Deer Consumer Products, Inc.(NasdaqGS: DEER ) 

Deer is definitely under a serious short attack.  It’s gone through a few waves fending it off.  From an RTO it’s success story in the small appliance industry, (sales growth, margins, etc) seems too good.   Staying out of the short story, however, I played Deer down a few times, but it took awhile to cave last week.  I held reinitiating my down thumb as it repeated it’s assurance that its books were real and not “cooked” on one of it’s successfully selling appliances.  It also announced a dividend.  DEER bottomed at $4.94 this past Friday.  It’s been climbing for three days and seems wobbly around $6.50.  If one assumes all is well, the growth is good, the cash on hand is good and the dividend is stable then this one could have a little more upside. Overall, however, I believe it’s reasonably valued around $6.50, (again assuming all is well), but investors will not be loyal and will drift away for greener pastures.  Down thumb initiated.  May drift up to $6.80, I don’t see much more here, but it had $11.00 for a long time this past year.  Looking to close my down thumb around $5.70.

 
DISCLAIMER:   I hold NO Short positions in real life.  I can not be responsible for your own entry or exit from these dangerous volatile CAPS plays. IF I knew what I was doing, I’d be on my own syndicated television show and not here! 

 

2 Comments – Post Your Own

#1) On June 22, 2011 at 9:57 PM, Option1307 (29.72) wrote:

Good thoughts, thanks for sharing!

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#2) On June 23, 2011 at 12:41 PM, TSIF (99.96) wrote:

I got "caught" by the market selloff this morning and lowered my SHZ start limit....

A reminder NOT to chase equities UP and not to chase them DOWN!

A 10% drop first thing this morning followed by an 18% climb from the $3.00 mark.....There goes a few decent quick points!! ;)

At least I held my ammon on CHGS that did the same thing.

I got sucked into a few other bad plays this morning as well, but at least I got my silver miners cheaper!!! 

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