GFRE

It's been awhile since I've introduced a new small cap stock pick and since 2008 has decimated equity valuations across the board, maybe it's time to go shopping.

The stock universe is filled with companies selling at or below net asset value, companies involved with China, companies in niche markets, companies with a great story and companies selling at PE's in the single digits with growth in the double or triple digits. What is rare though is finding a single company that has all of these characteristics.

GULF RESOURCES (GFRE @ $0.22 - OTCBB)

From Web site:

Manufacturing bromine and specialty chemical products

Gulf Resources is a leading provider of bromine, crude salt and a portfolio of various specialty chemicals throughout China. Our products are necessary components for China's flourishing oil and paper-making industries.

Gulf Resources is one of only six companies with a highly coveted Chinese license for bromine exploration, production and distribution. Bromine is a chemical element that is used in the refrigeration, medical, agrochemical, and oil field industries. While the international market is large and growing, China currently consumes all the bromine produced domestically. Gulf Resource will capitalize on the growing demand for bromine with its large proven reserves in Shouguang, China.

In addition to bromine, our company manufactures and supplies crude salt, which is found in large quantities near the bromine brine wells. Gulf Resources also develops numerous specialty chemicals for China’s papermaking and oil & gas industries.

Gulf Resources is aggressively pursuing complementary acquisitions, which coupled with sustained organic growth, will help us become a dominant worldwide player in the bromine and specialty chemical industries.

Key Statistics

Market Cap: $21.93M
P/E: 1.16
Revenue per share: $0.79
Cash per share: $0.23
Price per share: $0.22
52 Week high: $3.15
52 Week low: $0.15


Technical Analysis


Above is a Weekly chart of GFRE. It is still in a longer term downtrend channel but only a few cents away from a major breakout. A breakout on the Weekly chart would confirm an MACD cross-over Buy signal and suggest an attempt at the 50 day moving average up at 1.35, a 400% advance from current prices. I've also included a smaller term uptrend channel forming since mid-October. The top of this channel is about 0.45, a 100% gain from current prices.

Trade Triangles


On the Weekly Market Club chart GFRE is still on a Sell signal. But it would only take a pop above 0.25 this week to generate a new Buy signal. Below is the daily chart, it flipped to a Buy on Friday and any strength this week, related or unrelated to this blog, will easily challenge the Weekly chart to get on board the bullish trend.


The Story

Earlier this year, with GFRE trading at $2.80, Equities Magazine did an excellent write-up on the company. Below are some highlights and below that, a link to the article. But for the market crash, this was a good speculative buy at $2.80. At $0.22, it is a no-brainer.

GFRE is one of only six companies that hold a license to produce bromine in China. They already are China's largest bromine producer. Bromine is used in agriculture, oil and gas drilling and papermaking. China is still a net importer of bromine, meaning GFRE can sell everything they can produce to the world's fasting growing market. The world market for bromine is about $1.2B with $249M coming from China.


THIS IS A COMPANY WITH 20% THE CHINA MARKET AND A MARKET CAP OF ONLY $22M!


Kicker: In 2006 the Chinese government passed a law prohibiting the licening of any further bromine producers. Thus GFRE is one of only six companies producing bromine in China and the state has declared that there will be no further competition allowed.


Could this story get any better?



*Gulf Resources maintains property rights on over 87 square kilo-
meters (21,500 acres) of land containing over 2.27 million tons of
proven reserves.

*Bromine is a non-renewable resource. Bromine is only found in large quantities in four countries: the United States, Israel, Jordan and China.

*From the CEO of Gulf Resources:

Already the largest player in the Chinese bromine market with over a 20% market share, we plan to aggressively pursue additional complementary acquisitions, which coupled with sustained organic growth, will help us become a dominant worldwide player in the bromine industry. In addition, we expect ancillary growth from the portfolio of specialty chemical products we manufacture for the oilfield industry. Gulf Resources, Inc. will continue to be a prominent figure in the Chinese chemical industry while obtaining international recognition.

Link to the March, 2008 article in Equities Magazine.


Kind of a Disclaimer

I usually own shares of a company before touting them on my blog. In the past few months, probably due to some prescient market calls, my readership has grown significantly. Thus any stock I write up, like Gulf Resources, is likely to get a certain amount of buying upon publication of the blog, causing a pop in price.

I DON'T NEED TO MAKE MONEY LIKE THAT.

As I write this on Saturday morning, I do not own a single share of GFRE. In fact, I would prefer to wait for the break-out above $0.25 before purchasing these shares. If the stock opens Monday and trades above $0.25, I expect to begin accumulating the shares. Since I expect near term price gains to easily exceed $0.50, I'll buy at any price under 50 cents. Any price higher then 50 cents will cause me to probably wait for a pullback. This is my road map to purchasing GFRE, subject to change of course, but this is how I am intending to play it as of now.

Recommedations

Take a good long look at the GFRE charts, read the above linked article from Equities Magazine and go explore the company's web site.

Then make up your own mind.

A

Special Update - Thursday night

News of the failure of the auto bailout has tanked an already weak market sending S&P globex futures down over 40 points from Thursday's close.

This on top of the late day's drop of 25 points is clearly an impulsive wave down, probably igniting the next drop to new market lows.

If so, the 7500 level on the DJIA should be tested and breached by this move.


A

Mid-week Update

Our mechanical trend following system a/k/a Trade Triangles flipped to a Buy on Monday, after being on a very profitable Sell since early September. The Daily NNVC system still clings to it's recent Buy from some 30% lower.

Make no mistake about this one, I DO NOT trade in and out of NNVC. When this one hits, it will be unforgiving to anyone not yet in and that is not a risk I am willing to take. Until further notice, buy on Buys and hold on Sells.

The Q's are more problematic. It was easy to be Short on the Sell signal because so much else was pointing to a hard down autumn. The current rally was strong enough to trigger the Buy (unexpected) but the patterns that I find so useful, Elliott Wave and NeoWave, are both still pointing hard down as soon as this rally peters out. When will that be? The triangles will catch it after it has built some momentum. I hope to catch it earlier and will try to post what as soon as I think this next leg down has started. Meanwhile, it's day-trading for me, which has been doing just fine, thank you.

Every December I go into the last two weeks of the month swearing to take some time off because nothing trades right around the holidays. Yet every year, I am at the helm, thinking a few decent trades are better then no decent trades and anyway, with all the stress there is no such thing as down time around the holidays. With what should be a heck of a dive coming in the indexes, this is not a time I want to be away from trading. Opportunities like those of the last three months don't come along that often and with my expectations as they are, it's no time to go bowling.

But it is time to go to a hockey game. I will be at Jobing.com arena Saturday night to watch the Phoenix Coyotes host the Detroit Red Wings. Last year Red Wing jerseys outnumbered Coyote jerseys about two to one. It's like going to a home game, without the snow, cold or boarded up businesses. Anyone who would like to buy me a beer, or give me a back rub, I'll be in section 116, Row T wearing a Red Wing sweat shirt......sitting next to a blond.

A

Ten Easy Pieces

Once again I have been moved by the magic elixir of song. Ten Easy Pieces is a collection of Jimmy Webb songs, performed mostly solo by Jimmy Webb, accompanied only by Webb's hand at the piano and sung so beautifully and soulfully that each exquisite song stands alone as a spiritual awakening, leaving no listener untouched or unmoved.

You may have thought you heard these songs before, but think again, this is the truth, as it unravels the beauty and depth of romance, of love found, of love lost, of love eternal. Others may have told these tales before, but no one shared the feelings of living sentiment with the listener like this.

It isn't until you hear Webb perform these songs himself, that you have heard any of them for the first time. "By The Time I Get to Phoenix" becomes the reality of parting from the love of your life, not some country pop song on the radio. You part, not knowing what happened, not knowing what is coming, or what is real anymore:

By the time I get to Phoenix she'll be rising
She'll find the note I left hangin' on her door
She'll laugh when she reads the part that says I'm leavin'
'Cause I've left that girl so many times before

You feel this music, the heartbreak, the sadness, the hopelessness of loss......a year passes, you miss her every day, you seek her out, she marries another. Webb takes those feelings here:

Girl I heard your getting married, heard your getting married, this time your really sure. And this is the end, they say you really mean it, This guy's the one that makes you feel so safe, so sane and so secure, And Baby if he loves you more then me, Then maybe it's the best thing, maybe it's the best thing that can happen to you, But it's the worst thing that can happen to me.

At the end of your journey you have lost. Life has turned and now you don't fit anywhere, nor anyone. This is Webb's vision, but it's your own life. How does he do it? This is the genius of the artist, he fills you with your own reflection, your own sorrow and remorse. Where once lay two, you are alone. Does he love her more? You know the answer and Webb provides the soundtrack:

I fell out of her eyes
I fell out of her heart
I fell down on my face, yes I did
And I tripped and I missed my star
And I fell and fell alone
The moon's a harsh mistress
The sky is made of stone

The moon's a harsh mistress
She's hard to call your own

Webb weaves a labyrinth of words and music around our lives. In the darkest moments, where thoughts ring hollow and heavy, you see and feel his vision all around you, the poetry and melancholy falling relentless, wrapping around a simple truth:

But the ending always comes at last,
Endings always come too fast,
They come too fast
But they past too slow,
I love you, and that's all I know.

And then there is Webb's masterpiece. Seven and on half minutes of what was formerly pop vulgarity, it falls anew, mystifies the senses, a rapture of feeling so personal, so privately sensuous and sublime that your heart gasps and you face mortality with a glance at the end:

There will be another song for me
For I will sing it
There will be another dream for me
Someone will bring it
I will drink the wine while it is warm
And never let you catch me looking at the sun
And after all the loves of my life
After all the loves of my life
You'll still be the one
I will take my life into my hands
and I will use it
I will win the worship in their eyes
and I will lose it
I will have the things that I desire
And my passion flow like rivers through the sky
And after all the loves of my life
After all the loves of my life
I'll be thinking of you
And wondering why

My first sit down and listen to Ten Easy Pieces ended in tears. To this day I don't know if it was the music, the words, the memories, or someone, but the experience buried me. Now what, you ask, does he mean by, "Buried me?" Surely he is still among us, having obviously written and posted this review. I will leave that answer to this music. This is no collection of songs, this is the fabric of life itself, full, robust, passionate and sadly tragic. Touched by love, never the same, this music will touch and change you.

What more can I say?

A



Trend Following

I've been trying to write a blog on trend following for about a week now, but each time I sit down to write, there is yet another distraction in my thoughts, driving off the nearest exit and following some back road in my mind to places that have nothing to do with trend following. But persistence is a trait I have mastered and this subject is too important to be sidetracked by the assorted circumstances of an anything but staid life.

This particular journey was too good to be left untold. I reluctantly paid a visit to Trader Joe's yesterday. I didn't want to go, but out of my daily trading nourishment staples, organic milk and cereal, I knew that if this task was not undertaken in a prompt and efficient manner, I would rue my laziness at a most inopportune time. So off I went, in my best impersonation of Hank Moody, rumpled clothes and two-day beard, gum in lieu of a hanging cigarette and only a passing hand upon my head as my grooming for the occasion.

In the isle of juices, I came upon her. A 40ish blond, tall and thin, blue eyes deep and penetrating all encased in skin so creamy white and utterly appealing that my inquiry of her, "What does pomegranate juice taste like?" spurted out of me before my mind could alert me that coming on to strangers in public is tactless and rude and fully the most risky behavior in the middle of a Saturday that a single man can embark upon if he has any dignity or self respect left at all.

Twenty minutes later I am leaving the store with her email address and a promise to make me her famous pomegranate martinis at some undetermined time, so I can integrate the juice of the pomegranate into my life that somehow, in my romantic stupor, was moronically stated as in need of the aphrodisiac qualities she described of this mysterious berry.

I bring this up only to show how the time otherwise allocated to writing a blog about Trend Following was usurped by what can only be described as biological based unfettered insanity in the presence of such overpowering female power shrouded in a pink and white sun dress loosely clinging to a form so perfect that wars would be fought and armies slaughtered to return her to the throne to which she so clearly belongs.

Pomegranate martinis. Such are the rewards that inure to the victors of market timing. What better allegory then this nectar of the Gods to remind us all what it is we are doing here. Our object is to win this game, pocketing the spoils of the market wars as those lessor souls forfeit to us in this marketplace of stocks, etf's, derivatives and gold. Humbly kneeling before the blond Goddess, oh ye of little faith, rise up and take your place among the victorious and righteous noblemen who through the ages have conquered their fear and vanquished their enemies before the magical splendor of Aphrodite.

But I digress.

Morphed into a Sunday morning, refrigerator and pantry stocked, we turn once more to the art of living off of trading platforms on our screens, no commutes, no ties, no office politics, just one on one jousting for the pot that lays in the center of the table. As every day brings front page stories of fallen hedge funds, largely absent from the reporting are tales of the winners, the ones that take the pot game in and game out, for every dollar lost, a dollar is won, but who is leaving with the prizes?

About three years ago, I read a book by Michael W. Covel, "Trend Following, How Great Traders Make Millions In Up Or Down Markets." In over 400 pages, the book made the case for trend following as the preeminent market strategy of our time. It heralded the work of Richard Dennis and is famous experiment of taking 20 novice traders and making the vast majority of them millionaires by teaching them a simple trend following algorithm.

That trading methodology is almost identical, in it's core approach to trading, to the same basic tenants of Market Club's Triangle Trading which I have written about extensively over the past year.

As for the aforementioned winners, who by definition have been cleaning the clocks of everyone else in this bear market, are the Trend Following hedge funds and traders who have been anchored short for the past 18 months because, well because the equity markets themselves have been in a steep downtrend. That's what trend followers do, they mirror the markets.

Such a simple and colossal notion that by it's very humble and unassuming premise goes so largely unnoticed in the blogosphere, on CNBC, in the New York Times and in the myriad of esoteric notions on how to pick tops and bottoms, in concepts of oversold and overbought and sadly (for some) in the brokerage accounts of the vast majority of market participants.

Chasing the latest market fad isn't all bad.

Some investment funds that jump on trends are outperforming traders who pride themselves on outthinking the market. Increased volatility in markets from commodities to stocks is helping the trend followers profit.

A particular category of trend-following funds called managed futures funds have outperformed hedge funds this year by making a killing from the dollar's rally, the plummet of emerging markets and the collapse of commodities.

With $234.1 billion in assets, these funds gained 8.9% year to date through October, while the average hedge fund lost 18.9%, according to preliminary data from research firm Barclay Hedge. Barclay, which isn't related to Barclays PLC, doesn't consider managed futures funds to be hedge funds, though other data trackers do.

Wall Street Journal, November 5, 2008

What is the common denominator of "...the dollars rally, the plummet of emerging markets and the collapse of commodities..."?

Trend following, in all of it's unsung glory.

I will be writing more on this subject in the coming weeks. For now, I want to provide some food for thought with the following excerpt from Covel's book:

Final Thoughts

Tom Rollinger, a friend of mine in the hedge fund world, approached me this spring about attending an investment conference in La Jolla, California, co-sponsored by Altegris Investments, Inc. Tom had just accepted an invitation to join Altegris. Altegris had placed over $1 billion in client assets with various fund managers of futures trading programs, commodity pools, and hedge funds, including significant placements with trend followers. Upon my arrival at the conference, Tom introduced me to the President and CEO of Altegris, Jon Sundt. Jon's presentation at the conference hit home. He postulated:

"Can a great trader have great skill and no opportunity to make money? Can a bad trader have no skill and tons of opportunity to make money? The answer is yes to both questions. Luck is at play in the short-term for most traders. There will always be "some guy" with a great one-year return, but the sustained edge appears only over time."

What's Jon's big picture point? He wants you to think about what happens when the bad trader with no skill finally finds himself with no opportunity. If you don't want to embrace his wisdom, you will eventually feel the pain in your trading account.

There will always be crictics, and there will always be cheerleaders. I, however, find solace in the performance numbers. And trend following performance numbers are the real story. No matter how many people agree or disagree with the content of this book, the performance numbers paint a picture you either accept or reject---it's your choice.

A

Trap door

Here is my "You Are Here" ( see arrow) map of the markets tonight. Note that 5 waves down ended November 24 to end Wave 3 down. There has been a three wave rally since that low, labled A-B-C covering the past week or so. C may have ended today, or may end tomorrow, or could extend into next week. The take away is that once C is complete, Wave 4 up is complete and Wave 5 of 5 down will commence to new lows, under 7500 on the DJI and maybe way, way under 7500.

This is a good example of how I use Elliott Wave. The market will do whatever it wants to do, but I have identified a typical three wave pattern that is often a prelude to an new impulsive wave to the opposite direction. It's these wonderful impulse waves that we lay in wait for and that is where you will find me in the coming days.

A

Updates: QQQQ & NNVC

Above is the Daily Q chart which triggered a Sell on Monday, signaling that those who tweak the Weekly system using the Daily signals to get back short, in line with the Weekly signal:


Above is the Weekly Q chart, revealing that it will take a print above 32 on the QQQQ to reverse the signal from Sell to Buy this week. Unlikely, but keep it in mind as this has been a very lucrative Sell trade and we don't want to get blindsided, unlikely as it may seem.

This is the Weekly NNVC chart, notable for it's Buy Triangle triggered today at 76 cents. Remember, NNVC trades best with the Daily chart:

As the above Daily chart shows, NNVC triggered long at 62 cents, now 80 cents, a gain of 29% in about a week, but with the Weekly now on board, this has the makings of a huge trade.

The truth is, these four charts are all I am interested in tonight. I can flip through dozens of other charts but I know from my EW analysis that the lows have not been seen and that most any long trade here is full of risk, much more risk then I am willing to take. My game plan is to remain very long NNVC and short the market at opportune times. There are times to be wildly bullish and times to be a raving bear, neither of which is present right here, right now. Being mildly bearish and very excited about NanoViricides just might be the perfect strategy going into the end of the year. Keeping it simple has it's place too.

A

NNVC - News

"We are very excited to study the effectiveness of nanoviricides against the most current strains of H5N1 in animal models,” said lead AFIP scientist Dr. Mina Izadjoo.

AFID = Armed Forces Institute of Pathology

Dr. Mina Izadjoo = Publications

H5N1 = Bird Flu

"Very Excited" = $80B = Market for the company that cures common influenza

NNVC = The Company is developing anti-influenza drugs under the brand names FluCide™, and FluCide-HP™. FluCide is a broad-spectrum nanoviricide that mimics sialic acid, and therefore no influenza viruses (including bird flu) can escape it, no matter how much they mutate, say the Company scientists. FluCide-HP is expected to be more effective against all highly pathogenic avian influenza (HPAI) viruses than is FluCide, according to the Company’s proprietary data. Any of the HPAI viruses may cause a potential pandemic, according to the World Health Organization (WHO). The most prevalent current HPAI virus is H5N1.

120MM = Outstanding Shares of NNVC

$80B/$120M = Hold these shares tightly

A

My Bad

OK, I'll say it since you are too polite and respectful to point out the blooming obvious, I missed the rally. Maybe hard to believe, but I really didn't miss it. Late last week it appeared that a counter-trend rally was in order. On Thursday, I even hinted at it on my Blog:

"For now, let's just say anything is possible...........including a tradable rally."

What I didn't expect was a rally lasting very long or carrying very far. One can argue that in light of a 6,000 point Dow decline over 12 months, that 1,000 points over a couple of days is not worth getting excited about.......

E X A C T L Y

If it weren't for Turkey Day, which from the traffic and stores is now Turkey Week, I would suggest that this rally has just about run its course. With 2 1/2 days to go this week, I suspect the rally might extend, although neither would I be surprised if a violent decline were to be in it's immediate future. In other words, sometimes I am more certain of the market's immediate path then at other times and this is one of those other times.

What I am more certain of is that the Bear has not been broken and that lower, maybe much lower prices, still lay ahead.

Maybe we all need a few days off, to spend with family and loved ones and to give thanks for the better times and special people who have crossed our paths this time around.




A

Charts & Comments

Let's start with the USO (Crude Oil ETF) Triangles Chart. I haven't been trading this one but want to include it here because it illustrates just how well the Triangle trading system works. In roughly the past twelve months there have been five trades on the Weekly chart. The first three were all modest losers, whipsawed out of trades as Oil sought to establish a tradable trend. Then on February 11, 2008 a Buy Signal at 73.43. This was followed by a Sell signal on July 18th at 106.83. This Sell is still in effect today, with USO at 40.91. A few modest losses and then two grand slam home runs, back to back. What more can we realistically hope for in a mechanical trading system?


Above is the chart of the QQQQ (Nasdaq 100 ETF). The Sell from September 2 at 45.92 is still in effect. I chose the bar chart for this format to point out that a Weekly Buy signal is far away, above the 32 level for this coming week. The Q's finished Friday at 26.66 so it would take about a 20% rally to trigger a Buy next week. Unlikely, but good to know just in case.


Above is a Daily chart of NNVC. This stock is one of the few that I have found that trades much better on the Daily charts then the Weeklies. For what it's worth NNVC triggered a Buy this past Friday and if you were following the bar charts, you could have anticipated the Buy Triangle appearing upon a break-out on the Daily bars, which occurred on a spike up in price just after Friday's Open. The Triangles don't distinguish between spikes to new 3-period highs or modest pops above three-period highs. The beauty of a mechanical trading system is that there isn't much thinking involved.

Above is a chart of GLD (Gold ETF) which triggered a Buy last week on the Weekly chart. I have just recently been following this Triangle chart because is appears to be doing a pretty good job of tracking the ups and downs in the price of Gold. Both GLD and SLV (Silver ETF) are tradables that can enter into huge price trends, both up and down, and like the USO chart above, represent other lucrative ways to trade a commodity, thus diversifying out of a trading portfolio of only stocks.

Finally, we have AAPL, which continues to trade very well under the auspices of the Weekly Triangle trading system. The pattern above is like many of the successful Triangle studies, modest whipsaws followed by huge trends followed by modest whipsaws followed by huge trends. Maybe half of the trades are losses, but the half that win more then compensate for those losses.

Short Term Analysis

I wrote last week that Friday and Monday should give us a clue as to whether a bottom was in. Despite the rally late Friday, the picture is far from clear. Now with Thanksgiving pending, it may not clear up until after the holiday. But as they say in the dance hall, lets dance with the one we came with. Since early September, all ambiguities in the market have resolved themselves to the downside. Until this pattern changes, I am favoring lower prices across the board and, believe it or not, maybe much, much lower prices. The primary trend of the market is DOWN and it is going to take more then a few hours (or even days) of robust buying to present a tradable bottom. When we go LONG we want to be buyers for weeks or months, not hours and days. We are not there yet.

A