Hot Money HEAT

Michael Davey again with basically just a comment cleaner, so you get what happens to be on my mind right here and now. As always, don’t do what I do. I’m a self-professed fool and this is a hot potato!

You can thank me for the lesson if you get burned (or make money fading/shorting this instead), but do not thank me if you play this and profit – that would be your doing.

The Pollution Control-Equipment group has been rising steadily in terms of relative strength (RS) lately and is now highly ranked. This is the group which sports RINO and DGW…and now we can add another Chinese small-cap to the fire – HEAT (Smartheat Inc.).

Several things intrigue me here (although I wish I had started buying yesterday instead of on the breakout today):

Positives:
-Small cap Chinese growth name from a rising group (i.e. the kind of play that has been working best all year).
-There was a 2ndary September 18th and the stock traded that day better than 33% above the offer price (offer was 9.00/share; PO on the above chart). This is an incredible indication of strong demand.
-Institutions appear to be coming in now (average volume is rising and volume is very, very strong for a tiny, $400M mkt-cap.
-New Highs today in RS; at least as long as it closes above 12.60 or so.
-Volume is on pace today to be over 4x’s with this potential breakout (breakout pivot-price is around 12.60/share and everything is a green light as far as I’m concerned above that level. A close below 12.60 today will cool my jets for the time being).
-HEAT breakout (unless it fails late today) is 8 weeks in the making (I like 6+ week breakouts and 8 is about perfect for.
-Growth is risig in sequential fashion and the company is going to top better than 100% growth this year while the PE is only 20 (PEG* therefore is quite attractive/low).
-No matter what you think of this market, momentum and thin are in.

Watch OUT’s:
-Already moved about 40% in a few days to get to this breakout. That is a sign of incredible strength, but it is also a sign of too-much-too-fast.
-Small-cap nature and high beta means the potential risk is great (no reason to trust this name below 12.60 at this time).
-I’m going out of my way to mention this stock – could be I’ll end up paying for it.

*PEG = price-to-earnings, divided by growth. A high-PE name with high-growth will have a relatively low PEG; compared to a lower PE-stock where growth is low.

This entry was posted on Tuesday, November 17th, 2009 at 4:02 pm and is filed under Market Outlook. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.