To OTC Journal Members: 
 

The VIX Rocket

Do you know what the VIX index is? They are talking about it a lot in the financial media. Extreme levels in the VIX are considered by many technicians to be one of the best technical indicators for picking market bottoms.

Yesterday's 700 point plus drop in the DOW was one of the ugliest days I have ever seen, and no prisoners were taken in any grouping or asset class.

The VIX, which you see pictured here, is a complicated compilation of indicators used to measure the "fear levels" in the stock market. It is derived from a formula for measuring the volume in puts and calls in S&P 500 stocks.

Anytime the VIX surges about 30, it is considered a very fearful market- one where the fear factor far outweighs the greed factor. Big spikes in the VIX have been associated with important market lows.

Here's a chart going back over 20 years. As you can see from yesterday's massive spike, the VIX nearly hit the 50 mark- this was one of the highest levels in history.

As one analyst pointed out, over the last 30 years, each time the VIX spiked above 40, it was followed by an average 20% move in the S&P 500 over the ensuing six months.

Today's rebound in the markets is being fueled by information coming out of the Congress suggesting the "Investment Bill" (I refuse to call it a Bailout Bill) will be revisited and should pass later this week. We'll see.

Nevertheless, if you are a contrarian, yesterday's VIX spike was heaven sent if you want to get long.
 

China Energy Delivers $3.2 Million System

China Energy was out with news pre open today which should help investors understand the future of this company. Just as a reminder, this stock, like all the others, is now trading below my SSL. Here's what this means- if you're not prepared to be long term, sell the stock, take your loss, and get out.

I suggested in yesterday's edition that I believed the stock had a good chance of trading down to this level, and unfortunately my forecast has become reality. Sell it if it freaks you out or you want to remain disciplined. Buy it or buy more if you like the company and aren't afraid to be longer term. I'm personally a holder today, but will be a buyer when I believe some sort of reliable bottom has been put in. I'm looking for the stock to close higher two or three days in a row before continuing to accumulate.

Today, the company announced the delivery of a $3.2 million system to one of the largest sulfuric acid plants in the Far East. Here's what I find interesting. Two Lions manufacturing- the customer, is a repeat customer.

Their 2005 installation is now generating more than $2.5 million in annual carbon credits cash receipts. This is extra money outside the normal course of their business. That's an amazing benefit. Factories in China without this technology installed might be paying carbon credits due to their dirty footprint. In about 15 months, they pay for the system without factoring energy cost savings. Amazing.

On another front, after yesterday's drubbing, my large cap China suggestion- FXI- is bouncing nicely today. It hasn't traded below $30,so it isn't below my SSL. 

The dollar is firming quite dramatically today- up 2.75% in one day. This bodes very well for large cap China companies. As the dollar firms, we will be able to afford more Chinese manufactured goods.

In the interim, I believe CGYV is a screaming value at the current level, but technically it is struggling. It is below my SSL at the current time. Supply is likely coming from a few funds who have the "liquidity at any cost" mentality thanks to market conditions.

I am waiting for some sort of bottom and a couple of up days before suggesting technically it's any sort of buy. 

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