Chinese Stocks Drop 5% Overnight

With the exception of the Nasdaq, the major indices finished yesterday with slight losses. And it looks like an even money bet whether they’ll finish in the red today. We’ve seen an unlikely move over the last two weeks. The S&P 500 has made gains in 9 of the last 11 sessions and moved 11.3% higher. Volume hasn’t been especially strong during this move, but it is summer. Volume is always a bit lighter in the summer.  
It seems more and more strategist-types are looking for a pullback or correction for stocks. Yesterday, CNBC‘s Jim Cramer said he was expecting some red. Of course, Cramer makes so many calls it’s hard to keep them all straight.  
For the record, Cramer says he likes healthcare stocks, technology and financials, believe it or not. He says financials are so universally hated that they will be stronger than average in the event of a pullback. That’s the "no one left to sell" theory.  
I’m not so sure. The banks have been given time to earn their way back to health. And it could work. But a lot depends on the housing market. Many banks still carry toxic assets. And their reluctance to sell into Geithner’s PPIP suggests they remain hopeful these assets will regain value. If they don’t, it could be problematic. And then there’s the commercial real estate situation we’ve been discussing.
******Did you know I’m about to publish my first book? The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks will hit the shelves on September 14.  
In The Small Cap Investor, I share the proven techniques for uncovering the small cap companies poise for a huge run higher. My biggest success was apparel company True Religion (Nasdaq:TRLG). I recommended that stock to my readers at $1.13 a share. We sold it in 2008 for 2,216% gains. My techniques have also led my SmallCapInvestor PRO advisory service to a 93% win rate this year. 
Now, I need your help. As part of the marketing plan for my book, we are holding a T-shirt contest. I want you to be the one who comes with the slogan for The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks T-shirt.  
Obviously, "Secrets to Winning Big with Small Cap Stocks" is taken. But slogan’s like "I made a 142% on Gulfport Energy and all I got was this lousy T-shirt" or "Ian Wyatt: The Best Small Investor" are open.  
We’ll be holding the voting on the Small Cap Investor page on Facebook starting today and running through August 9th. You can leave your submissions there, or send them to [email protected]. 
The winner will get their very own shirt plus a full-year subscription to SmallCapInvestor PRO. This should be a lot of fun. I hope you’ll participate. 
******China is in the news again. Overnight, the Shanghai Composite fell 5%, the biggest drop in eight months. Investors are nervous on reports that the Chinese government may be discussing clamping down on lending due to the potential for imbalances to occur.  
Specifically, Bloomberg is reporting that the Chinese government is concerned that asset bubbles may be forming in the stock market and that inflation may be building.  
Chinese stocks are reportedly trading at 35 times reported earnings. And that is expensive. But interestingly, the Chinese stocks in the SmallCapInvestor PRO portfolio are trading with Price-to-Earnings ratios between 8 and 11. That’s much cheaper than most Chinese stocks, apparently, and one of the reasons we recommended them.  
Of course, valuations won’t keep our stocks from declining if the Chinese stock market takes a hit. But Chinese stocks are recovering today after last night’s sell-off, so that’s a good sign.  
If you’re interested in finding out more about the Chinese stocks in the SmallCapInvestor PRO portfolio click here to get a copy of the report. 
*****Finally, Top Stock Insights reader took 35% gains yesterday on Chinese medical device maker called Mindray (NYSE:MR). I love the science fiction name, but couldn’t resist taking the gains. 
Ian Wyatt
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