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This week I posted a BLOG
entry on the 1.8 million share print in BPTR for those who are interested.
This could be a precursor for a rebound in the stock. Please review the
entry if you have an interest in the company. As always, your questions
and comments are welcome.
To use the BLOG, simply go
to the home page at www.otcjournal.com
- the BLOG will scroll down automatically on the right side of your
screen. The most current journal entries appear in the middle of your screen.
Check back frequently for updates particularly when stocks are moving to
overbought or oversold levels or in volatile markets. Your questions and
postings do not automatically appear, so don't bother posting the same
question multiple times. I personally go through to moderate and respond
to every question.
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Are You An Event
Driven Trader? |
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Are you the sort of investor that
likes to trade events? Do you find yourself piling into a stock when they
have hot news, volume, and the stock is moving. Do you then watch in dismay
as your recent purchase turns around, starts down, and ends up lower than
your entry level, forcing you to hold the stock for the next big event?
If so, you might find today's edition
valuable.
Information travels faster than the
speed of light in today's ra ra, go go stock market. There are now 5,000
hedge funds managing over $1 trillion, all reacting to events with the
click of a mouse.
My grandfather's style of investing
was completely different than mine. He believed in buying stocks in the
big names, putting the certificates in a safety deposit box, and leaving
them for 20 years. When I think of those stocks, I think of AT&T, IBM,
GM, and US Steel.
Those days are over. A disciplined
buy and hold strategy isn't dead either, it's just changed to a much larger
universe of stocks and shorter time frames.
I believe in event driven trading
under the right circumstances- mostly when you are on the sell side.
The market always gets it right in
the long term, but always over reacts to major events in the short term.
In a nutshell here's the best strategy for making money in the market:
Identify a number of stocks you like and accumulate them when they are
quiet and no one wants them. Then sell them when the big event drives the
price and volume up, and everyone wants them.
This strategy requires courage, discipline,
and above all patience. If followed, it will maximize your returns.
A couple of recent OTC Journal
examples are worth reviewing.
Global ePoint (NASDAQ: GEPT)
is a case in point. The stock has been very good to OTC Journal
subscribers not once, but twice now. I first featured on November 26th,
2004 at $2.31. The stock traded up to $6.64 on December 8th for an impressive
187% two week profit.
The June/July move was more recent.
I published two editions and two BLOG entries on GEPT from
June 3rd to July 7th. That's four items of content in one month, all encouraging
accumulation of the stock.
On July 21st the "Big Event" happened.
Cramer recommended the stock on his CNBC show Mad Money, and the stock
did in fact go MAD. It gapped open to nearly $6 and found it's way almost
to $8 before starting a longer term decline. On July 23rd I recommended
taking a profit in the $7 range for a whopping 150% gain in 6 weeks.
So, was this great idea the result
of careful planning and a genius stock pick? No- it was just pure dumb
luck. For once we were in the right place at the right time.
Credit should be given to the timing.
After all- I did start covering the company again when it was quiet and
no one wanted it. I knew the company had a lot of growth potential in the
Homeland Security arena with some very clever products in video surveillance,
and sooner or later I hoped the stock would find a bigger audience. Cramer
just made it happen sooner rather than later.
There can be trading opportunities
during event driven extreme moves. Remember- the market always over reacts
to either the downside or the upside. There have been two OTC Journal
examples of great trading opportunities this summer. In each case, the
companies were victimized by bad news, and the stocks overreacted to the
downside. I personally profited from the rebounds in each case.
Many of you will recall the fiasco
with ZAP (PSE: ZP). The company had accumulated a huge volume of
orders for the Mercedes Benz Smart Car, but hadn't yet nailed down the
supply side of the equation with MB. In what only can be viewed as a major
strategic blunder, ZAP publicly challenged MB to sell them the cars,
and they were slapped in the face with a highly public NO response.
As a result, the stock cratered from $2.50 to about $.80 in three trading
days.
As chronicaled in the BLOG,
I stepped up to the plate for 20,000 shares at $.90, and sold them
a few days later at $1.50 for a tidy $12,000 profit. I knew
the believers would be in denial, and swoop into to buy what they viewed
as a bargain basement steal. At this point, I wouldn't own the stock until
ZP
demonstrates
they can get cars.
HyperDynamics (AMEX: HDY)
is another recent example. This stock cratered from about the $2.20 level
to $.80 when they had the misfortune of being informed by the Guinea government
that they wouldn't be allowed to drill. At the time, I was holding about
38,000 shares. I had been prepared to hold those shares for years longer
if they were moving forward off the coast of West Africa.
When I heard the news I decided to
sell. As far as I am concerned, the huge upside was lost in a day, and
I like microcaps with huge upside. If you review the BLOG entries
from that day, I cautioned everyone to wait for the inevitable rebound
from believers who were in denial. Sure enough, over the next three trading
days, I was able to off load those shares in the $1.30 to $1.50
range and minimize the losses.
If you want to try your hand at event
driven trading, Barr Labs (NYSE: BRL) could be interesting over
the next week or two. The company is expecting a decision from the FDA
in the next week or two on their application to market the "Morning After"
birth control pill in an Over the Counter form. Anybody over the age of
16 would be able to walk into a drug store just after sexual activity and
purchase the medication. If taken within 24 hours of an unprotected encounter,
the pill reduces the risk of pregnancy by 90%.
Ideally, I would love to see a chart
where BRL had been running up in price out in front of the event.From
there, if the application was approved and the stock gapped to the upside,
a short position in the stock would nearly be a sure thing for a quick
trade. Buyers out in front of the event would immediately turn into sellers.
However, this is not the case. The
stock appears to be out of favor with Wall Street for whatever reason.
Therefore, if they are fortunate enough to get the approval and the stock
gaps to the upside, a short position might yield a nice trade. Since the
stock hasn't been trading up, the probability is somewhat lower.
On the other hand, if they are declined
and the stock craters on the news, a long position might yield a nice gain
as well. The morning after pill is a highly controversial product, and
therefore the decision will bring a tremendous amount of media attention.
The media focus will exacerbate the move in the stock.
If there's no major move in the stock
on the news, there is no opportunity for an event driven trade. I'll try
to follow the situation and publish an update.
Your comments and questions are welcome.
Email editor@otcjournal.com
anytime. Forward this edition to a friend who might benefit from the ideas.
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