I've always enjoyed trading small-cap China-related stocks. They can make tremendous moves and when the group is hot it isn't hard to find good trading candidates. However, if you are playing in this sector you have to be very aware that you may not be dealing with high quality merchandise. There have been many fraudulent names over the years that have burned traders who weren't careful.
I bring up this group today because there are quite a few of these secondary names trading sharply higher and when that happens you have to wonder if the speculation is approaching an extreme. This is not a group that attracts value buyers. It is the hot money that chases these stocks and they tend to be more aggressive about it late in a market uptrend.
One stock I noticed today is Fuling Global (FORK) which makes 'disposable serviceware' primarily sold in the United States. They make plastic forks among other things. That might be a booming business. The revenue growth there is about 25% quarter over quarter and it has a trailing PE of just 11 but it isn't the sort of thing that is normally a strong momentum name. The likelihood is that its being chased because it is a China name and trades very thinly.
I'm not holding FORK, but I am holding a few other China names like Phoenix New Media (FENG) and Hong Kong Highpower (HPJ) that may not be the best quality. It makes me wary to see them doing so well when the indices are trading mixed and breadth is flat.
Another group to watch are small cap biotechnology names. Many of these are stories with no revenues and they can experience some of the same speculative excess as the small cap China names. The group has been hot as well and some of these moves may not be totally justified.
These stocks may continue to run, but it is one of the few contrary indicators that I pay attention to. When these junk stocks are hot, it is late in the game and I want to be ready to hit eject quickly should there be problems.
I try not to spend too much time focusing on market timing as it tends to distract from stock picking, but there is obviously some danger lurking and I am going to be more vigilant than normal.