Chinese ADR and the Chinese Yuan Currency

It's been a while since I have posted on here.  In the last month of February - we saw more pullback occurring in the market and during the first half of February.  Eventually, we began to see a gradual uptick in the latter half of the month.

So here we are in March, the 3rd month of this 2010 year (funny how time flies eh?) and the Dow has recovered most if not all (during some of the intradays) of the losses it chalked up during the first two months.  A new jobs bill was signed early last week (to the tune of $140B!!! WOW).  TOYOTA as well as other car manufacturers (well...actually really just Toyota) are under the microscope of many opportunists and interests (it is a shame that they did not fix it right away or at least address the problem while it was still in-house.  In contrast - I have heard about this problem while I was still in the car business back in early 2008!).  Healthcare Reform has reared its ugly head again (ugly? because the market really do not like it as it seems to trade off every time it is mentioned in the mainstream media..so unless you are short on the market- then yes, its ugly).  Unemployment remain high, even though it managed to shed a few tenths of a percentage of that staggering 10% (Personally, maybe we have set the bad news so high for this data to make sure we do not get further depressed).  And of particular relevance - the pressure of the United States Senate on China to realign its currency the Yuan Renmibi (CYN).

Let me try and be as objective as I can in analyzing why this is a BIG ISSUE (as long as it is in the headlines) when it comes to investing in Chinese ADR and any other equities or investments revolving around the CYD.  First, realigning the Yuan would more than likely reveal the Chinese currency to be higher in value that it currently is being traded in the FOREX market.  As of today (March 16th 2010), 1 CYD trades for 0.146499 USD.  So a realignment of the Chinese currency as hinted by the U.S. Senate push to influence the U.S. Dept. of Treasury SHOULD probably be worth more in the World Market.  This is NOT GOOD if you are investing in Chinese ADR's (like I am) since essentially the local currency these companies are using would essentially lose value.

On the other hand - China for the most part has been able to deflect most of the criticisms from the world and the USA.  For example - the widespread belief earlier this year (and some still very much believe) that China was headed for a housing (lending) bubble that we experienced here domestically in the last 10 yrs.  So, the government in China raised its "reserve" limits on its lending institutions to help avoid a similar crisis in their own country.  Some are saying now that it can only soften the blow for what appears to be inevitable.  Similarly - now they are faced with the potential of the attention of the US Senate in calling out their currency as manipulated and undervalued. 

This criticism has actually been around for a while...it just happens that we are now seeing it more often on the mainstream media.  Some would argue that this is because it is election year and the Dems in Congress are really trying to move the public's attention on the existing historical high unemployment and lack of jobs and the financial trouble that many are still experiencing on a day-in, day-out basis.  Or the huge trade deficit we have with China.  Or possibly the HUGE amount of debt we have TO CHINA.  In all cases, China has responded with saying that it does not manipulate its currency and USA should deal with their own problems instead of trying to push the blame on to other countries.  "The country's managed floating exchange rate system, in place since July 2005, is market-based, said Chinese Commerce Ministry spokesman Yao Jian" last Tuesday. 

At this point - it is all just steam as the push to the Obama Administration from the US Senate has just started (in the tune of 130 US Senators).  Whether or not Obama will give the Senate a willing dance partner - public opinions will tell down the road.  There are probably already Gallup Polls being conducted to determine whether or not this issue is a deal-maker or breaker in the eyes of the voting general public.  If it is found that it is something that can affect the American Voting Psyche - then I would be very wary of investing in Chinese stocks for the long-term (Shorts, you hear this?) 

During the late 1970's and early 80's - there was a huge backlash on some foreign made products (remember the stigma attached to "Made in Taiwan" or even the criticisms of Japan made vehicles?).  There were movies and sitcoms and songs that became generational hits from this time infusing this sentiment.  Similarly, many US Based companies flourished during this same period.

Could this be something similar unfolding now with the CYD?  I don't know myself but would be very interested to find out as I have been focusing on investing in China-based stocks.


BD

 

Double Bottom?

Before we recap the first week of February - lots of flashbacks of what I read and heard last year start to become very evident.  We are going to have a double bottom in the market.  Well...the optimist in me this week was shaken even more, even though the first two days of the month was actually very good and against the grain when it comes to how February generally performs in regards to the stock market.

Then...the last three days happened.  Levels of support being tested and broken.  Cash is king at this point and if you are still holding on to anything...I wish you all well.  Shorts are running the market now even though we may see some gains when earnings come out - only to be lost in the overall direction of the market.

One thing is for sure - raise cash to increase leverage when the bear decides to go back to hibernation.  This last Bull that we saw (from March to early January) has left the building and is nowhere in sight.

Is there blood on the streets yet? I do not think we are quite there yet...but one thing is for sure...there are many that have made money from the last bull market who are pulling their money out of the market and moving to the dollar (strengthening the dollar).  Value investors and swing traders are sitting on the sidelines and well...this is where you have "dumb" money coming in as the "smart" money slowly move out. If you were invested from the last bull market - you SHOULD HAVE made a handsome profit.

I wish I can say that I am "smart" money - but as a novice investor, this has been a very expensive lesson to learn.  So for those that read this - RAISE CASH and SIT ON THE SIDELINES and wait for the dust to settle.

Here is something to consider - When January is a bad month for the market - 64% of the time, so is the rest of the year.  

As the old saying goes - "BUY WHEN THERE IS BLOOD ON THE STREETS...even when its your own." 

Stay tuned.....

BD

Dangerous Territory in the Market - More Doom and Gloom..oh GREAT!

As we wrapped up another week of HEAVY distribution in the markets, there are many things we need to consider as we tread forward into February.

Historically, when the markets do not perform well during January - 64% of the time in the past, that usually sets up a very weak remainder of the year when it comes to accumulation and gains in the market.  In addition, February is GENERALLY NOT A GOOD MONTH FOR the stock market.  Also, the indexes broke below their 50 day moving averages (essentially shedding any gains it has made in the last two months in a matter of TWO WEEKS!). 

At this point - I hope you all have cleared to cash.  It is so much better to sit on the sidelines as the stock market tumbles and allows this much needed pullback considering it has gained so much in so little time (from last March to mid-January).  As you can see, even when "bellweather" companies (these are companies that generally affect either positively/negatively the general market depending on their release of their earnings) are reporting PROFIT, the general market STILL REACTED NEGATIVELY.  Some examples this week are AMAZON, APPLE, FORD.  Also, one more thing to be aware of are some of the Political Events that can dramatically affect policy.  We saw some of that in the last couple of weeks with China tightening on lending (although I think this is more smoke than fire since the lending was to address the HOUSING BUBBLE they are currently going through...similar to what we experienced in the US Housing market around 3 yrs ago) as well as President Obama's State of the Union and earlier response to the BIG BANKS.  Other big events are the confirmation of Bernanke as well as the Geithner hearings.

The tumble has begun that even POSITIVE NEWS cannot change the direction we are heading.  So the next question to ask is - what to do now at this point?  Well...if you are an avid investor - you will want to go back to researching and studying the market and making sure that you are aware of what is going on EVERYDAY to get a sentiment of when this bear market begins to show signs of its end. 

Many who have been in the market since last year's Bull Market (March 12th, 2009) are now locking in profits and going back to cash.  During this time - "smart money" is moving out as "dumb money" move in late to the party.  I hope you are not in the latter...since that last Bull party is over. 

Much of my information indicate that most stocks are going to test their 100 day moving average (and will probably break below it...then its on to test their respective 200 day moving average).  It is very difficult to ascertain just how far the markets need to correct in order for investor confidence to realize the values that exist in the market. 

One thing is for sure - just because you are not holding any positions does not mean that YOU SHOULD JUST SIT IDLY BY.  Continue doing your homework.  Continue doing research - study where INSTITUTIONS ARE TAKING THEIR MONEY.  An example is by studying the different indexes.  On Friday, the AMEX Biotech index (BTK) was up slightly when the rest of the market experienced losses.  

A word of caution - GROWTH STOCKS generally suffer more from a bear market correction more than the general market.  Now is not the time to risk your hard-earned capital.  Instead - keep a close eye on your watch lists to see if they are establishing new bases and resistance.

Overall, trying to time the market's bottom will only make you a very unhappy investor.  Even going back to paper trading (simulating purchasing stocks with imaginary money) to make sure your skills stay sharp would probably be the better strategy. 

I do not like to sound like I am saying the sky is falling.  In fact, this correction can and will only help set up our next bull market.  One stock I am watching very very closely is BYD Auto (BYDDF/BYDDY).  This stock is an OTC Pink Sheet.  Warren Buffet's Berkshire Hathaway has a 10% stake in this company.  Again...not a recommendation to buy - do your own DD. ^^

Just remember - Pigs get fat while HOGS...well....they get SLAUGHTERED.

BD

Volume and the Investor

One of the rules I follow (most of the time) are to only pick stocks that consistently trade over 300k/day.  Beyond looking at the daily average of a stock - it is important to look at the Historical Price of a stock.

One stock I am currently following is HEAT:
http://finance.yahoo.com/q/hp?s=HEAT

If you scroll through HEAT's prices in the last two months - it has not traded below a volume of 300k/day.  The last time it traded below 300k volume was on November 13, 2009.  Volume is important because it allows a stock's price to move.  That movement will be either an up in the price per share - which is what we want in a bull market.  Also, when I qualify a stock - volume is a great indicator of INCREASING/DECREASING INSTUTIONAL OWNERSHIP.

When scanning historical prices - to identify Institutional Presence in a stock, you want to find those numbers that just don't look like it belongs in the series of numbers you are looking at.  Once you identify those - compare it to the previous day's price and that day's price.  Generally, when the stock's price has gone down and volume has increased DRAMATICALLY - it is a tell tale sign that an institution is slowly clearing out a stock.  In other words - the big boys are dumping this stock.  Still being at the party when everyone has already left is never a good thing.  It only leaves you having to clean up the mess and you pay for it with your OWN MONEY. 

On the other hand, when we identify those outliers in the historical price data and we see a nice uptrend in price per share - it means there are institutions that are taking a position in a stock. 

As a small investor - it is very important to follow the institutions because of its ability to take a very large position on a stock.  Their access to capital allow them to dramatically affect the value of a stock.  A Company's Market Cap is based of price per share times the number of shares outstanding.

In the bigger scheme of things - even though our 100 shares of HEAT may be a lot to you and I, to the institutional - it is practically non-existent.  The key is to follow what attracts the institutional and go there. 


BD

Haiti's Calamity and the Market

Originally when I intended on creating this post as we wrapped up a week of light distribution in the market as the indexes were testing it's current support value - I did not really have an idea on how to explain what I really felt about the overall market as a whole and its direction.

Then...the world was awakened with the horrible news that Haiti had just gone through a 7.0 registered earthquake.  Soon after, the outflow of horrible tragedy and loss was all over the news...

Initially, I thought the market would surely react negatively to the news of this NATURAL DISASTER once the market reopens for business on Tuesday, January 19, 2010.  And in a way it did...we ended the week in distribution and the BRIC stocks ended the week down as the indexes also shed some weight.

As I sit here and type this - I have the audio of the news playing in the background...and beyond the grief and pain that is being reported on the news...I also hear from that same awful news, the generosity of the American People and the IMMEDIATE outflow of support coming from around the world.  The immediate reaction of the public to the need of the island nation is something to really be in awe of when trying to understand the human condition and the compassion that we can have for one another. 

Regardless of which side of the fence we may live when it comes to politics, among other things - one thing is for sure...those people need our help and IT IS THE RIGHT THING TO DO.

Now...what does this all have to do with trying to make money in in the market, you ask?  I am still not so sure...but one thing is for sure - I am reminded of the GENEROUS GOODWILL of the most prosperous and GENEROUS nation, the United States of America, and its people in their much needed aid to the country and people of Haiti.

My outlook tell me that this calamity can only become a starting point for many opportunities to occur if the players are willing to make it happen.  Can it lend a hand in helping other markets related to addressing the needs currently needed in Haiti?  Only time will tell.  For the meantime - expect to get on the bull this week.
 

BD

Market Capitalization

UNDERSTANDING THE IMPORTANCE OF MARKET CAPITALIZATION
BY: WILLIAM HOLLER

For many novice investors the jargon of the investment world can become overwhelming. Our goal at “Drop in the Bucket” is to provide useful insight to our readers, sharing our experiences and knowledge in such a way that our readers can use the information we provide to enrich their understanding of the market so that they may grow as a person and an investor.
Within the investment world, an undying principal serves as the foundation for any legitimate investment strategy. This not so secret principal is the lifelong search for knowledge. “Knowing is not enough but knowing what you know and don’t know.” (Patton On Leadership, Alan Axelrod pg. 98) With this end in mind, I will work to share with our readers this treasured nugget of knowledge as I continue to travel through this wonderful world of investing.
As our trek, begins I will attempt to provide a basic understanding of Market Capitalization and its importance in the decision making process of finding your next winner. At its core, market capitalization is defined as “total market value of company, calculated by multiplying shares outstanding by the stock price.” (investors.com, financial dictionary, 2010) Based on this information a company’s value can be established at any given time. In theory if you were going to purchase a company that is publically traded, the market cap would be the monetary amount that would be paid for the company. When you look at investing in the same way, it can be said that I am purchasing a portion of the company when I buy a stock for that particular organization Therefore, the higher the market cap the stronger a company is in the open market.
There are many other factors the go into choosing the right stock understanding market capitalization gives you one more tool to add to your knowledge base, “No decision is difficult to make if you have all the facts.” (Patton On Leadership, Alan Axelrod pg. 89) Understanding Market Cap is one more drop in your bucket of knowledge. May your fortunes be great and your knowledge continue to grow and provide you shelter from the economic storms we all face in the past, past present, and future.

Market Update 01/14/2010

Intel beat earnings after hours but the futures market isn't reacting. We will wait to see if we can get above 1150 on the S and P. If we do, look out for the next leg up to 1170! AAPL, RIMM, DELL, CSCO, MSFT are all going to pop if we do!

A Quick Buck or Just Pure Luck? SORL vs ONP

Here's one for you all - SORL is for that person that felt like they missed the boat on CAAS.  And well...ONP...what can I say about ONP?

ONP:
- low volume (not quite that 300k MINIMUM  volume i like)
- earnings announced near end of this month
- within a very nice reach of new 52 week high
- ringing the CLOSING bell this THURSDAY January 14, 2010 (not that it matters, or does it?)


BD

CAAS - A Pricey Front Runner

But....to every 1st Place - there is a 2nd runner up and that is SORL.

Easily to break 12 by this week with this pick up in volume at what appears like MORE INSTITUTIONALS ARE BUYING IN which in my opinion is ALWAYS good for Price Per Share.

What is the ceiling on these kinds of stocks?  We can only speculate...but its current trend definitely show that there is room for growth and return.

These Chinese Small-Cap stocks just looks so good from the outside looking in.

What's your take?

BD

2010 - The Year of the "1000 Bagger"

CRTX ONTY EXAS ITC NEP YUJI GFRE

and my favorite out of the 7 - CHOP

source:  http://www.fool.com/investing/general/2010/01/06/7-stocks-attracting-top-investors.aspx

Ring in the New Year!

What is "a drop in the bucket?"  Just that....one drop in the bucket. 

May your experience here bring you closer to filling YOUR bucket!

To a PLENTIFUL 2010!!!

BD