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China Stocks Stirring From Deep Sleep: CCME Pops

After 4 months of getting our collective brains beat out, the China stocks are starting to stir like Rip Van Winkle, who went to sleep for 20 years to avoid his nagging wife. In the case of these China stocks, the nagging wife is the profits. As long as these China companies continue to report growing and robust profits, it's pretty easy to sleep through the downturn and wake up when the stocks wake up.

The CCME chart now gets official recognition in the OTC Journal hall of fame as a great short term call. Here's today's chart, along with a recap of last week's call on it. In last week's edition I called CCME the stock that comes when called- just like a faithful dog. Actually, for anyone who follows charts, this was a pretty easy call. 

The Gaps were filled in last week's down market. Once the stock traded below around $9.75, it was bound to rebound after those gaps were filled. Sure enough, with a couple of up days in the market, we had a nice $1.50 move in the stock, and the trade proved fruitful.

It made a high of $11.15 today, and is now trading comfortably just sub $11. My entire list of China stocks is up anywhere from 2% to 10% today, making for the initial signs of some sort of recovery in the sector. Conspicuously absent, unfortunately, is significant volume. CCME had an early announcement today- the company added another 805 inner city buses to its distribution network- helping our cause.

Note the volume bars at the bottom of the chart. I'd like to see increasing volume as the stock moves up to be convinced this is the beginning of a real turn around, but that should come with time. 

It's worth noting 86% of companies that have reported Q2 earnings have beaten analyst's expectations, and companies that are considered good measures of the economy are delivering reasonably robust forecasts- i.e. UPS, FEDEX, etc.

In the Q2 rout of the markets, all the analysts downgraded earnings estimates, so it's no surprise companies are beating easily. The stated outlooks are far more important. It's also worth noting momentum really started to take hold last August for global stocks, so if there's a repeat of last year's pattern, we could make a lot of money between now and the end of the year.

China stocks will begin reporting in August, and I'll bet the interest starts to build as some of the companies report eye opening results on both the top and bottom line.

You Gotta Eat

Back on China- some monster success stories have come out of the fairly fickle China sector in the last five years- when it got hot. I'm looking at a number of new ideas to add to the growing list of wins. I know you guys like penny stocks, and it's much easier to own a penny stock with earnings and growth for the long term.

I've got my eye on a new one, and no one knows anything about it. Here's what I can tell you- even in China, YOU GOTTA EAT!!!!!!- You especially gotta eat to get fueled for your day at work. The Chinese like to eat healthy and organic, and I've found a company that feeds about 28,000 people a day at 231 different companies in one of China's most advanced hi tech industrial parks.

Their corporate customer base includes Kodak, Phillips, Bank of China, Dell, Lenovo, and WalMart. Revenues should be about $37 million this year- $5.7 million net after taxes (up from $11 million and $5 million net in 2009). 

I think this could be a very sweet spot for the coming bull market. The valuation is extraordinarily cheap. The growth is outstanding, the sector is booming, and it's the kind of penny stock you guys love. I'll probably bring it out over the next week or so, so stand by for more information.

Dislosure: Long CCME and CCME December $7.50 Calls.

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