Playing the Chinese Auction

The dip-buyers did their thing, and the indices are well off their lows and trying hard for green as we enter the lunch hour.

We really could use some better consolidation than an hour or two of mild selling, but when a market is as strong as this one has been lately, there are lots of folks who are so anxious to make up for underperforming that they jump on minor weakness.

We continue to have a very high level of speculative action in the Chinese stocks. The group is really starting to trade in a manner reminiscent of Internet stocks back in early 2000.

Traders are shaking the bushes looking for anything China-related that hasn't made a big move yet, and once a little momentum is ignited, then it's off to the races. Valuation is totally irrelevant. All that matters is that a stock be China related.

I enjoy playing the crazy momentum game with China stocks, and because I'm watching the market every minute and am willing to hit the eject button quickly, I don't feel like I'm taking on a huge amount of risk by trading these stocks. Lots of folks forget that the easiest way to reduce your risk is being ready, willing and able to sell at a moment's notice.

I've been building up a bit of an index hedge this morning, not because I think we have a major top forming, but because we are slightly extended. And I think we may get a momentary bout of profit-taking. I expect dip-buyers to stay active, which will keep pullbacks shallow, but I'm looking for one here fairly soon nonetheless.

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James "Rev Shark" De Porre is the founder and CEO of Shark Asset Management, an SEC-registered investment advisory firm. He also operates sharkinvesting.com, an interactive online community that serves and educates active investors. De Porre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children.Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here to send him an email.