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Beachman

There is no doubt that last week's move was pretty amazing. Could this have been coordinated attach on the shorts?  I think the first step will be to see if the market can reprice the P/E risk premium upwards to between $5 and $10.   But I am also not sure we should blindly dive head first into the space.   (we have seen this before)There is little doubt in my mind that several companies passed 2011 audits that should not have.  What will happen to market sentiment if  some high profile names are halted and delisted?

Some key ingredients to reduce risk moving forward:

1. Considering firms that  are willing to be adamant that raising equity capital is off the table for the foreseeable future.  They need to portray an ability to grow the business using internal capital.  Furthermore, many firms will not be able to raise equity capital, so they need to show that they can grow without it.

2. Putting less money in firms that have been negatively written about (Let us not be fooled into a belief that the SEC is not investigating many firms, albeit slowly). This is part of the reason I have some reservations about investing in Lihua Intl (NASDAQ:LIWA) and Telestone Technologies Corp (OOTC:TSTC).

3. There is really little  excuse for not having internal controls in check at this stage in the game.

4. Give back massive amounts of capital back to shareholders (special dividends, tender offers)

5.  PRC filings matching SEC

Overall, i think the auditor rank is really useless, since top firms are sill behind the curve. The real challenge is identifying real firms that didn't steal some money.

I think we need to start with some fresh names that have not been attacked, even if they have some near-term growth problems. The key will be to find the names that will thrive once China starts to recover.  IPOs may be a consideration too.  We also need to be cognizant that many pure short investors will revisit the space once prices become compelling.  Our positive/negative investigations into company operations will be carried out regardless of price.

I own TSTC and LIWA and we need to start this board up things in the CGS world heated up big time wed-fri with small caps and alot of them threw huge volumes and made HUGE moves HEAT went form $2 to $9 in 2 days. I think the dam is about to break. LIWA was a massive short attack victim friday as a last gasp attempt for Abseroka to cover their short. stay tuned

I prefer to keep my analysis concentrated on the price action.

~Power 

Are you aware of any financial estimates for LIWA?

LIWA 1/02 $10.45 - is setting up for a Week 1 Breakout.  It also has the CANSLIM metrics for IBD 100 inclusion if it trades above $15.  Many times the CANSLIM'ers will jam the price to $15 to get inclusion.  We will use the POPower "Rules of Engagement" as our decision process to enter/exit.....but knowing a stock qualifies for IBD 100 after $15 is achived is something worth knowing from a price momentum perspective.

Here is link to my chart work:  http://j.mp/7lBwx0

~Power