Wednesday, 18 October 2017

Hot Chinese Stocks On The Rise: RCON and SPI

This morning we issued a trade alert on Recon Technology, Ltd. (RCON) which we think will increase in price over the next several days. We are also issuing an afternoon alert on SPI Energy Co., Ltd. (SPI) at 14 cents, which is up around 10% on increasing volume and looks like it is going to revisit the 20 cent area. The company went up on October 12 on news of a massive investment stake into the company:

"HONG KONG, Oct. 12, 2017 (GLOBE NEWSWIRE) -- SPI Energy Co., Ltd. (“SPI Energy” or the “Company”) (SPI), a global clean energy market place for business, residential, government and utility customers and investors, today announced that it has entered into share purchase agreements with each of Qian Kun Prosperous Times Investment Limited and Alpha Assai fund SP of Sunrise SPC.  The share purchase agreements provide, among other things, that Qian Kun Prosperous Times Investment Limited and Alpha Assai fund SP of Sunrise SPC will purchase 80,000,000 and 240,000,000 ordinary shares of the Company respectively, for a total consideration of US$33,920,000, subject to the terms and conditions of the respective share purchase agreement, including a lock-up for 90 days from the closing date of the contemplated transactions, or such other time or on such other date that is agreed upon in writing by both parties. The consummation of these transactions are also subject to customary closing conditions."

The two investment firms are putting in a combined $34 million into the company. It's at an average of 10.6 cents but there is a lock up period for 90 days. So expect follow up news on the uses of that cash since that is a ridiculously high sum for a company with a $10 million market cap (excluding the new investment which won't be part of the float for a while).

Chinese nanocap stocks have been hot recently. Cleantech Solutions International, Inc. (CLNT) and LiNiu Technology Group (LINU) have moved up drastically over the past several sessions. Even though recent news events were interesting, they wouldn't usually justify such extreme price moves. RCON has also moved up a lot on a bit of light news, more than doubling on Monday after announcing a sewage treatment agreement in China. It pulled back 8.5% on Tuesday to close at $1.95.

Why do we think RCON is due for a push back up? There are several similarities between RCON, LINU and CLNT:

  • All three stocks have extremely small floats and have market caps of less than $20 million.
  • All three stocks are based in China or Hong Kong. 
  • All three have spiked on little or no news in October.

Have a look at the price history of CLNT:




And now the price history of LINU:



And here is RCON over the past couple of days:


On October 9, CLNT more than doubled to $6.52 on 16.6 million volume. The next day it dropped 25% on a little more than 1 million volume. Over the next few days it stabilized and hit as high as $5.80 on October 13.

LINU has fared a lot better. It more than doubled to $2.35 on nearly 40 million volume on October 6. The next trading day it dropped 35% to $1.54 on 4 million volume but went right back up again the next day, increasing 44% to close at $2.21 on 8.5 million volume.

RCON more than doubled to $2.13 on 22.3 million volume on October 16. Out of these three it actually has fared the best on Day 2 of the run, dropping only 8.5% on 4.6 million volume. RCON looks like a very strong candidate to bounce back based on Tuesday's strength even after a huge run and how those two very similar examples from the week prior recovered substantially from their Day 2 drops.

A quick note on DGLT, which was our pick from last week when it was trading at 30 cents. The company gave an update that the LOI between itself and Urban FT expired but that the two are still in talks looking to get a merger deal done. We continue to hold the stock.

If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 321 followers despite not giving out a lot of alerts, a fact that we think is indicative of a diligent and prudent stock picking history.  If you would like to share this blog, make sure to use the URL "nasdaqnewsreports.blogspot.mx" as certain spam filters on social media don't let you post blogspot.com addresses.

Disclosure: We are long RCON and SPI

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