Author: Mitch Jones
Covestor model: Price Momentum
Disclosures: Long GFRE, GU
The month of May was quieter than average, with just 10 trades for my portfolio. Both the best and worst trades, GFRE and GU respectively, were made on smallcap Chinese environmental stocks. Smallcap Chinese stocks have been volatile lately, primarily due to concern over auditing practices. The lack of clear information on the stocks has caused some trading halts and some investors to sell in panic. The volatility caused by this selling can offer opportunity for the trader. The strategy of this investment model is purely technical -- trades are made based on data indicators, not on news. However, it is still interesting to take a look at what is driving the price movement of the stocks.
Gushan Environmental Energy (NYSE: GU) was bought by the model on May 25 after a significant increase in trading volume. But it turned out the increased interest did not continue to lead prices higher after a disappointing earnings release the next day. The stock ended down the next day I sold it for a loss, the worst performing trade of the month. It has continued to drop in recent weeks.
A trade of Gulf Resources (NASDAQ: GFRE) was the best of the month. The stock of this Chinese chemical manufacturer has been hammered this year on investor uncertainty. Allegations regarding the reliability of some SEC filings have not helped. However, it now appears to me that GFRE could be a great value amid the recent selloff and uncertainty. I closed out the trade on May 27. Shares moved back down recently.