To OTC Journal Members: 

It's a little boring and exciting at the same time out there right now. My focus pretty much exclusively on China remains intact. Over the coming years, it will prove to be the best place to have your growth capital. 

I've just returned from a week in NY- visiting brokerage firms, fund managers, and marketing executives in financial services. Pretty much universally industry participants still love China and believe the media's current portrayal of an "overheated" real estate market, a cooling economy, raging inflation and falling exports is completely blown out of proportion. Nevertheless, we must continue to hold our noses as the market finds its inevitable bottom and eventually gets momentum back in the other direction. 

There will be 20% to 30% easy money in these highly profitable low PE China stocks when the volume starts to come back in. I suspect the "green shoots" of returning volume will show up next month. These stocks are just too cheap right now. The headlines are diminishing in intensity. The market seems to have a grasp on the downside risk in Europe as the Euro finds some footing, North and South Korea have not fired at each other of late, and China exports are coming in at surprisingly high levels (48% surge over April, and 9.3% improvement over May of '09).

In the meantime, the BP oil spill in the Gulf of Mexico remains, and rightly so, high profile news. While the picture for the Gulf states is horrid, the bigger picture of where we are headed globally with deep water drilling is a major wild card for global oil supplies over the longer term. Deep water is the only place left with significant supplies, and getting to those supplies is certainly going to be constrained in the near term.

Mentioning the Gulf oil spill gives me the opportunity to pontificate on one of my favorite subjects- the barking hyenas in Congress. Today, the CEO's of all the major oil companies have trotted up to Capital Hill to face one of our Congressional Committees. Forget reality shows or the NBA finals. The is the most entertaining programming on TV. There's nothing like a member of Congress getting their mug in front of a nationally televised broadcast and taking full advantage of the opportunity to become a heroic defender of the American populous by vilifying these Darth Vader's of the resource world. It would be far more interesting learn how many of these stalwart Congressmen accepted campaign contributions from the exact companies they are currently burning at the stake. Now doubt, some useless bureaucratic legislation will come out of this mess making it even harder to do business in the US. For a classic example, see Sarbanes Oxley- The ultimate blight on the US securities industry.

On the technical market front, a lot is being made of the 200 day moving average. Here's the simple technical rule of thumb- trading above the 200 day moving average suggests long term bullishness. Trading below the 200 day moving average suggests long term bearsihness. We need the markets to get bullish again, and we need buy side volume to return. Volume's current truancy is keeping a lid on smaller stock prices.

When the volume does come back, it is more likely to pour into smaller stocks first. Here's the technical evidence. These are daily charts of the DOW and the S&P 500. The green line you see drawn in is the 200 day moving average. Above the line- GOOD. Below the line- BAD. Note the 200 day moving average for the both the DOW and S&P 500 are torturing the 200 day moving average, but can't quite get up the gumption to break through with any authority. Market participants are watching this closely right now, waiting for a breakout signal.
 

The picture is different for smaller stocks. Here's the NASDAQ composite alongside the Russell 2000- the Russell is considered the best indicator for smaller stocks. Note both of these indexes are trading well above their 200 day moving averages. There is far less pressure on these stocks, but the volumes are still not there to get them moving in the right direction. However, the relative states of these indexes helps forecast where the money will go when it comes back in.
 

The moral of today's story- if you're invested as I am, hold your nose and just wait it out. The majority of stocks I have suggested over the past 9 months are all China based, highly profitable companies. When the volume comes back in, there will be 30% easy money to be made. In the meantime, hang in there. If you have investable capital, go long your favorites on down days.

I continue to read volumes of information about growth of infrastructure companies in China. I'm digging into an absurdly undervalued situation into the downest and dirtiest idea I've ever had, and the company is of course making money hand over fist. Stand by for more on this one- possibly in the next week or so.
 

They Say Timing Is Everything: Check out SingleTouch (OTC BB: SITO)

They say timing is everything, and my timing was atrocious in the past. However, there's no time like the present to look at a story that's gelling now. 

Long term readers might remember San Diego based Singletouch Systems (OTC BB: SITO). Just over a year ago, I introduced SingleTouch to readers. I came to the party way too early, but it appears to be turning into a real doozer of a shin dig right now.

SingleTouch is in the business of providing ADC's to large retailers- Abbreviated Dialing Codes- for use on your cell phone. The code always starts with #, and then some acronym for what you want. For example, #Rx gets you the WalMart drugstore prescription line. #MTV gets you musical ring tones.

The company also provides outbound text messaging services, and has gotten in bed with WalMart to communicate with its customers. 

After a year of development and foot dragging, the rumor is WalMart has completely bought into the program, and is literally funneling millions of text messages through SingleTouch to its customer's cell phones. The rumors are believable if you take your cues from the stock's behavior. The stock has started to go ballistic out of nowhere.

As you can see from the chart, this stock has traded nearly 800,000 shares this week alone. Today, the stock hit a new multimonth high at $1.20. If there's a volume and price breakout story out there, this is it. If you'd like to read the original presentation on the company, simply click here. 

This just might turn into the super star I hoped it would be a year ago. 

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