To OTC Journal Members: 
 

Clarification From Last Edition

I'm not real sure why the introduction in the last edition caused so much confusion, but it did, so let me provide some clarity.

Since about 600 of you said you wanted "crazy penny stock" ideas, I have provided two of them.

The first was Grid Petroleum (OTC BB: GRPR), introduced on June 30 when the stock was $.78. Since then, it has seen a high of $.95, and a momentary low of $.50. The stock is now trading very substantial volume, and well over 200,000 each day over the past week, but isn't making any upside progress on price. Currently $.74 x $.75, this has been a yawn so far in terms of profit or loss. I still believe there's a chance that company could trade into the $1.25 range between now and the end of August as the company moves into its first drilling phase.

My second idea is Bulova Technologies (OTC PK: BLVT). In this case, I have purchased 90,000 shares for my own account at prices ranging from $.12 up to $.21. The stock is trading rather poorly today as it appears someone wants out, but it's of little concern to me at this point. I'm hanging in there until I see the SEC filings and get a feel for their numbers. If they are as advertised, this could get very exciting. I advised everyone "not buy this stock" unless you have a real appetite for Vegas style risk- translation- you could lose all your money.

Now, that should be pretty clear. I'm working on a couple more ideas, and will give everyone a heads up when the time comes.
 

The Beginning of the End For the Correction

Earlier this week I read an interview with a guy who turned $5,000 into $1 million over 8 years of investing in the stock market. He shared an observation I thought was brilliant. He believes the financial media turns a simple correction into a cataclysmic disaster. 

I agree. I also understand we're all suffering from Post Traumatic Stock Syndrome- we're still suffering from the hangover associated with the 2008 routing across all asset classes. This was not a normal cyclical recession- this was a once in a century collapse which put our major financial institutions on the edge of a cliff and forced the government to become the investor of last resort.

BTW- as the investor of last resort, we did pretty well in some circumstances. I read the US Taxpayers made a net profit of $2 billion on our investment in Citigroup, and all the shares we owned have been liquidated. I'm not up to date on the whole picture, but some of those financial institution investments have paid of handsomely. Buying at the bottom can be rewarding.

In my view, this week signaled the beginning of the end for the corrective phase in China stocks. As I wrote last week, there were a few examples of some rather transparent efforts by short sellers to smear some pretty good companies in the China space. To me, this signals the beginning of the end as it shows the shorts probably understand this corrective phase has nearly run its course.

I published my Top 10 list in early June. This was a Christmas Shopping list of the top 10 best values you should be following if you have an interest in this sector. There are plenty to choose from, and once they start coming back, they will all come back. Click Here if you want to review. On that list there are at least 3 or 4 superstars. 

June was absolutely brutal as the media continued to exaggerate the depth of global challenges. I knew it would start to improve after the July 4th weekend as the market turned its attention from the macro global stuff to the Q2 earnings releases, and sure enough we had a 5% bounce in the first week of July.

I'm starting to see some "Green Shoots" of recovering stock prices in the China sector, and it's now worth looking at my top 2 picks.

The top two are must owns in my view, and they were both new to my China ideas in early June. Yesterday, idea #1 was out with blockbuster news pre open, and its a harbinger of things to come for many of these spectacular China growth companies. China Media Express (NASDAQ: CCME)- the company Vision Media (NASDAQ: VISN) hoped it could become, raised its profit forecast substantially for the year.

This company now says it can net $82 to $85 million this year, up from the initial guidance of $71 to $75 million- non GAAP of course, since GAAP accounting is now becoming meaningless to the investment world. There are convertible preferred shares, but I can't see how this new forecast puts the EPS for this company at any less than $2 per share. Q1 top line numbers were up a whopping 137%, so this is a superstar in the making. They also have lots of cash, so it's unlikely some stupid financing would derail this one. This company has thousands of flat panel displays on municipal buses, and advertisers just love the viewing time they have the captive audience.

This is one of the easiest charts for picking an entry level. As you can see, on its way down, there was a gap created between $11 and $9.95. On the way up, the gap happened between $8.65 and $11. That's two gaps at about the same levels in one week. 

Those gaps on the chart want to be filled as they are like a vacuum in nature. The stock is going to gravitate to fill the gap. Therefore, at $9.75 this stock simply has to be bought. I'll be looking for it to add to my position, which I own at $12.75. I am currently trying to buy 10 December $7.50 calls at $3.90- it's a GTC order.

As I said, this is just the beginning of the end of the correction in China stocks, so there will be lots of backing and filling before a raging bull returns.

Longwei Petroleum (OTC BB: LPIH), the second of my top two picks in the China space, hasn't been overly affected by the China correction. The stock was $2.15 in early June when I first wrote about it, only hit a low of $1.80, and is now trading at $2.23. This one is actually up a few cents from early June, so it just shows the strength and interest in this particular company.  It also trades average volume of about 200,000 shares a day, so it's got a pretty strong imbedded audience.

This is another one you want to own out in front of the next earnings release. Imagine buying a Chevron or Mobil back in 1960. I'm not talking about the Chevron or Mobil oil and gas exploration companies. I referring to the simple chains of gas stations where the refining, storage, and delivery of automobile fuel was required to get the product to the consumer.

Longwei has publicly stated it expects to deliver a full $1/2 billion in revenues in FY '11 which began on July 1st, and $.73 in EPS. Over the course of the next year, a $5 price target is in order for this one. It won't happen overnight, but I expect as we do some backing and filling over the course of the summer, we'll be setting up for a full blown run away in Q'4. 

Longwei is destined for an upgraded listing of some sort. I believe if it can make $3, it could get on AMEX. Perhaps the company is considering a 2 for 1 reverse to get the stock over $4 and head to NASDAQ. We will probably hear about a plan in conjunction with the next earnings release. If it spikes on some sort of upgraded listing, sell into it.

I believe these stocks will trade well this summer. Over 100 of them are presenting at the Global Hunter Conference in San Fransisco this week, and earnings will follow in short order. This will turn investor attention back to reality at least temporarily.

Here's one rule I want you to remember. Do not buy any of these stocks if their price runs up just before their Q2 earnings report. That's a big technical mistake. 

As these companies pre announce the dates of their earnings releases, I'll try to keep everyone up to date. They will really start coming in earnest about the end of July, and there will be a whole bunch of them that will hit on August 15th. Be invested in your favorites well ahead. In this environment, buy the dips.

My call- an upward bias over the summer. September is anybody's guess. From October on, the Raging Bull for these stocks will be back.

I'm long LPIH and CCME.

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