To OTC Journal Members: 
 

Goldman Sachs (GS) News Roils Markets

The market has been looking for a catalyst to sell off, and the SEC provided it Friday by announcing it was filing a civil law suit against Goldman Sachs for misconduct in its marketing of the toxic derivatives associated with the sub prime mess of the last decade.

It comes as no surprise the SEC is finally showing its teeth by going after Wall Street's biggest symbol of greed, power, and avarice.  The SEC has richly deserved the public drubbing it has received after the revelations associated with their failures on Madoff, sub prime, etc. The big question is not where this is all going, but rather - was this the beginning of a major change in character for the market?

I don't think so. The last rampant fraud I can recall takes us back to the Enron/World Com era when companies were cooking their books with help from the likes of now defunct accounting firm Arthur Andersen. Here's why I don't believe this is going to have the same effect on the markets.

The Enron/Worldcom accounting fraud era went directly to the core of the financial performance of the related companies. Investors owned those shares based on fraudulent numbers. In this case, the misconduct has nothing to do with the financial performance of thousands of public companies. It might go directly to the future financial performance of some financial companies- Goldman Sachs (GS) for example, which was given a haircut of 23.57% on the news.

More likely this news will give Capital Hill the leverage it needs to push through financial reform, and the market won't like the uncertainty associated with not knowing what reforms will come along. It's likely the timing of this announcement was managed to give Congress some horsepower to move forward.

The key here- this news has absolutely no potential effect on the financial performance of the vast majority of public companies. That remains intact, and numbers are improving. Companies are so far beating estimates handily, and expect a continuation of that trend through earnings season.

Until proven otherwise, I believe this sell off is a buying opportunity as Friday's news has no bearing on corporate performance. If there's a lot of downside follow through, I might change my mind, but as of now I still love of our menu of smaller China based companies with real earnings.
 

Biostar Pharma (OTC BB: BSPM): How To Play the Possibilities

It's been widely written about and discussed on the internet- many feel Biostar Pharma (BSPM) is on the verge of receiving a major promotion- from the more obscure bulletin board to the higher promise of the coveted NASDAQ listing. Biostar Pharma (BSPM) has been behaving as if the promised land is near.

I've been through this quite recently with a company I am close to, and had a seat behind home plate for the game. NASDAQ does a rather rigorous review of their candidates and all things associated with their operations and SEC filings. Once the process is completed and the company passes the review, there is one final requirement the company must meet- it must trade at $4 to meet the final hurdle.

I don't know if Biostar Pharma (BSPM) has completed the process. They certainly meet all the qualifications. If you'd like to review NASDAQ'S requirements, simply click here. Biostar Pharma (BSPM) fits the criteria, and perhaps all the prognosticators are right when making this forecast. 

Here's what I can share. While not written in any handbook, NASDAQ requires stocks trading around the $4 mark when approved close at a minimum of $4 bid for five consecutive days before receiving the final go ahead. As of he close on Friday, Biostar Pharma (BSPM) achieved the objective. Therefore, it wouldn't surprise me in the least to learn early next week BSPM has been granted the coveted promotion. At that point, a simple wire of a mere $120,000 fee gets them the upgrade and a bell ringing ceremony.

If they're not quite there, it will happen eventually. The company is too good to remain on the bulletin board for much longer, and NASDAQ wants the 1/2 million average daily volume in trades. 

Despite Friday's pullback, BSPM has run up rather prolifically. In part- I believe- on the assumption a NASDAQ listing is coming, and this event will lead to another surge north. It's been my experience that widely anticipated events like this generally lead to a short move up, followed by a sell off as the hot money "buys the mystery, and sells the history". The investor who doesn't understand this trading mentality jumps into what he believes to be a great idea, only to end up with egg on his face as the stock gets beaten down in short order after the initial blip up.

In light of the Goldman Sachs related market disruption I can't guess what Monday's environment will bring. I suspect BSPM will stop selling off, and either stabilize or move a bit higher. If news of a NASDAQ approval comes early next week, the following surge north in the stock will be a selling opportunity, and those who have been in this with me since the sell off two weeks ago to $3.70 should use the opportunity to take all or partial profits. 

Those who follow my writings know I am a fan of Fibonacci Retracements- those ratios that constantly reoccur in nature. The first natural retracement move of the stock's recent scamper to new heights is represented by a 38.2% pullback of the entire move. Note in Friday's sell off, the stock pulled back to a near perfect 38.2% retracement, and bounced. 

If $4.37 gives way, I am quite certain a level of about $4.13 is inevitable, and which point the stock will be a screaming buy for traders and investors. News of a NASDAQ listing and stability in the markets would forestall this move, but who knows.

For those investors in the audience take heart. All these trading strategies are rather meaningless over the longer term as this stock makes its inevitable move into the $6 to $8 range as sales of the only approved OTC treatment in China for HepB and its other drugs ring up $.55 to $.60 in EPS this year on about $80 million in sales. 

Trade out of some or all on big news, only so you're ready to really dive in on the inevitable pullback.

Yes- I own the stock starting at about $3.70, and intend to follow my own advice if it plays out.

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