To OTC Journal Members: 
 

China Recycling (OTC BB: CREG): My Best Short Term Call In a While

CREG turned out to be my best technical call in the last couple of months. It's also the only technical break out call I've made as well with the market choosing to grind sideways on lighter volume.

It's been a fantastic week for the stock- Closing last Friday at $4.10, and now $5.00 and looking strong. Technically, this stock still looks just great, and I am now quite certain it is destined for $6 to $8.

The stock is sending you and I a message, and you would do well to pay attention. Most stocks that break out in that manner will subsequently deliver some sort of pull back as profit takers pounce on higher prices.

CREG has not given any ground at all since Monday's 17% one day surge, and that's important. To me, it suggests there is something happening here which is going to lead to another big surge-I can't say exactly when, but I believe soon.

I've seen patterns like this in the past. There will be one of two resolutions. Either there will be some event in the near future, and the stock surges again. Conversely, if nothing major happens in the next week or two, the stock will enter a corrective phase and look for support at lower levels.

Buying today after the recent surge takes some courage, but could pay off in the short term. If you buy, be prepared to be patient during a pull back. At least, I would suggest holding if you own this stock. It's shouting "higher levels ahead" by its behavior, and you don't want to miss the next move. I'm not adding to my rather substantial position, but I am holding.
 

A Shift In Stimulus

I've gone over this many times, but it never gets old. China- think of the US in the late 50's and early 60's as Tom Brokaw's "Greatest Generation" dusted itself off from World War II, got busy raising the children who became the Baby Boomers, and participated in the greatest US growth spurt since the Industrial Revolution. Gobs of money was made by investing in that growth through the stock market.

Now, imagine 27 times the population, the majority of whom have little or nothing, massive growth and industrialization, global investment, and a pro growth and non bureaucratic government that's loaded with surplus cash. You have the investing opportunity of a life time.

In 2009 China stunned the world by announcing a 4 year $600 billion stimulus package in its economy. The move has paid off handsomely as China's GDP growth dwarfs the other major industrialized nations- China is expected to deliver 8% GDP growth this year, with the US, Japan, and the UK coming in at less than 2%.

In 2009 China spent most of the stimulus money on infrastructure- roads, bridges, power (See NFEC, another huge win for the OTC Journal), and factories.

Recent reports I've been reading suggest the focus for 2010 will change from infrastructure to health care and education. In the infrastructure area, the OTC Journal is 2 for 3- CREG and NFEC have both been huge wins- my first and only pre crash China idea CGYV has been a big loser. 2 for 3 ain't bad, especially when one considers stocks can only go to zero, but can go up infinitely (in theory).

The move to health care and education makes a lot of sense on two fronts. The Chinese are famous for their high savings rate- 40% of income goes into savings in China. While admirable, the money comes out of the economy. Money moving around equals prosperity- it's called the "Multiplier Effect". When you buy a new car, the manufacturer has to build another, the dealer makes a profit he can reinvest, and the salesman makes a commission he can spend to better his life. He then might be able to afford new furniture or a new apartment, and it goes on and on.

China would like to get some of the money locked up in the 40% savings moving around, but there's a challenge- health care. One key reason for the high savings rate is the need to save for illness or injury. Most Chinese do not have health insurance, and they save for the future expenses.

The advent of a national heath care system should help unlock a lot of pent up domestic demand in China, and further stimulate the economy. Education is also in the cross hairs for stimulus money this year, as the government recognizes an educated population is essential to further modernization.

To that end, I am starting the process of taking a hard look at some new ideas in health care, education, and consumer oriented companies. China Education Alliance (NYSE: CEU) still remains my favorite in the education space, and offers a lot of upside from its current $6.15 level. I believe the company will demonstrate in short order it can deliver $1 in EPS over the next four quarters.

I'm going to introduce a new idea sometime next week in the Pharmaceutical space. I'll show you how to buy $.60 in EPS and a 50% growth rate for about $3.50- this one will be a $6 to $8 hands down in my view. Finishing the research early next week. Stand by.
 

Legend Media (OTC BB: LEGE): Getting Close

I've written a couple of features lately on penny stock Legend Media (LEGE)- while certainly riskier than my other profitable China plays, the company seems to be in the midst of a turn for the better, and I believe higher levels could be developing over the next 3 to 6 months.

This idea has it's growth potential in the growing China consumer class. Radio is the most cost effective way to get to affluent consumers- along with LEGE's advertising space in airline magazines, consumers driving cars and listening to the radio are most likely to have money.

In my recent coverage I've suggested an entry level of no more than $.25- this is a fairly thinly traded stock right now, so you want to be smart if you're a buyer.

As I look today, the stock is $.22 bid, $.28 offer, so it's getting close. Be smart if you like this idea, and accumulate when it's cheap and on one is paying attention. That's how you make money in this kind of stock.

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