To OTC Journal Members: 
 

A New Idea, A New Direction

In case you didn't catch my special video announcement this past weekend- here's a review. I'm introducing my first major new idea in months this coming weekend. Does it seem like a tough time to look at new ideas in the market? Yes, at first blush, you bet.

However, this weekend's idea is a major departure from the past norm. I believe US businesses are going to struggle for the foreseeable future. Therefore, this new idea is in an economy boasting 11.8% GDP growth in 2007.

Also, I'm going to a sector the market absolutely loves right now, and will for sometime. Furthermore, Bear Markets open up very favorable entry levels for microcap investors. I'm also going to a much larger company than many of the past ideas. This one should deliver revenues well in excess of $20 million this year, and is already very profitable.

I believe this idea offers us a chance to make money while we're waiting for the recession in the US to abate and for US equities to behave better. 

I'll do this a little differently than past introductions. On Friday just after the market closes, go to the home page at WWW.OTCJOURNAL.COM, and you will be able to view a 12 minute video on the company. Invest 12 minutes of your time and keep and open mind.

On Saturday I will publish a more comprehensive report for your review. If you like the video, read the more detailed report. It will have a lot of hard information the 12 minute video won't contain.

I know it's been tough the last nine months, but you should keep an open mind to this idea. I believe you will find it very compelling for today's world. I've been biding my time waiting for the right idea- here it is.
 

When Will the Next Bull Kill the Bear?

In my view, it's not too early to start thinking about and planning for the Bull to come back. After all, I believe there are a few factors lining up that might put the market in a better mood later this year.

First and foremost, you have to understand that the market is a forward looking animal, or a "leading indicator". Economic statistics are backward looking or "lagging indicators".

If you understand this concept, you will recognize the Bear Market will end and a new Baby Bull will be born when the market believes we are about 6 months from the end of the recession and a return to economic growth is imminent. Another words, the bull market will come back before you "feel" like things are getting better. 

In my view, there is a strong possibility September could be the last really down month before a New Baby Bull is born in October. There are several reasons to believe this is possible.

Here are the factors that need to remain in place for the economy to stabilize and grow:

• Oil must stabilize in a predictable range or continue dropping
• The dollar needs to continue firming (very tied to oil prices- hard to say which leads the other)
• Residential real estate prices need to stop falling- they don't need to go back up- they just need to stop eroding. With the exception of California, Florida, Arizona, and Nevada- this is already happening.
• The market needs to believe financial institutions have completed the process of writing off all the bad mortgage debt
• No major geopolitical crises can arise that causes major injury to the world's markets

As far as the market is concerned, there are pros and cons to each candidate. Certainly, McCain is perceived to be the more "business friendly" of the two- pledging tax cuts for small business operators and keeping the long term capital gains rate.

Obama is perceived as less business friendly, but is also promising to pump billions into alternative energy strategies and create 5 million "Green Collar" jobs.

The next President will get the benefit of the next period of expansion in the normal course of cycles. Of course, that administration will take credit for the inevitable economic rebound, and undeservedly so.

The market will like knowing who the next President is, but it won't matter that much for the economy and the stock market. Now, don't send me a bunch of angry emails complaining I am taking sides in the Presidential Election. I'm not. I think this next election offers voters one of the most interesting choices in the last 10 Presidential elections. I'm only observing the next President won't really have all that much to do with how the economic cycles play out, and hence the beginning of the next Bull Market. 

When we do emerge out of the Bear Market and into the next Baby Bull, it's likely to be led by small and microcap stocks. Evidence in the current charts reveals small and micros are positioning now.

Along side you see a chart that depicts the trading action in 4 ETS- 1. The NASDAQ 100 (QQQQ in blue) 2. The S&P 500 (SPY in red) 3. The Russell 2000 (IWM in yellow) 4. The Russell Microcap ETF (IWC in green).

Here's what I find noteworthy in this comparative chart. Note the two very large cap ETFs- QQQQ and SPY are both broken trying to break convincingly below the lows for the year- the July lows.

In short, this chart offers proof small and microcap stocks are not trading nearly as poorly as mid to large cap stocks today. The large caps are in turmoil once again, and the small and microcaps seemed to be ignoring this new leg down. There are several reasons for this. I believe, first and foremost, it's because sellers are simply out of stock. Everyone who wanted to throw in the towel and give up on these stocks has done so, and there is little pressure on these smaller issues.

Secondly, I believe the market perceives smaller companies have an easier time getting leaner and meaner in tough times. They also have the ability to ramp up more quickly when the demand side of the equation improves. 

Also- one more factor to keep in mind. October has consistently been the Bear Killer. Nearly every post World War II bear market has died in October. The most important low of the 1st decade of the 21st Century happened the week of October 2nd, 2002. The one prior? Glad you asked. How about October 10, 1998. 

Coincidence? I don't think so. It's September- generally the worst month of the year for stocks. Time to start having a bit of courage and positioning for what I hope will be an improving market. I think we'll start coming out of the recession in Q1 of 2009, and the market will start pricing it in next month.

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