To OTC Journal Members:
 

Interest Rates and Oil: A FED Led Market Doldrum

2006 kicked off with a Bang. On January 3rd, someone flipped the micro cap stock switch, and we enjoyed a couple of breakouts early in the year. The second half of 2005 was brutal, so I guess we were entitled to a rebound. It's the first time in many years there was no big 4th quarter rally. It's also the first time in many years that the January Effect actually happened in January.

In my view, the current market malaise is interest rate driven. The market wants to see some sign from the FED that the end of the interest rate cycle of increases is ending. Wall Street wants to believe we have arrived at they mythical "Neutral" level- steady and slow growth with little or no inflation. Good economic data these days results in a down market. The market wants the FED to have reasons to put on the interest rate brakes.

Oil plays a big part in the FED's view on inflationary pressures, and therefore interest rates. In January, oil prices had receded and there was talk of the last interest rate hike at the end of last month. Instead, thanks to geopolitical fears, oil prices ran back up towards the $70 mark, and inflation fears reigned on Wall Street once again. 

Over the past two weeks oil prices have receded, but new FED Chairman Ben Bernanke is not tipping his hat one way or another. In testimony on the Hill, Bernanke stated he would let the data lead their decisions. I believe it was President Harry S. Truman who said he needed a one armed economic advisor. He was frustrated by economists who kept saying "on the one hand, but on the other hand". He wanted an economist without the other hand.

My fear for 2006- we will grind sideways into the summer, then drift down on light volume through the summer. We will then have to wait for the 4th quarter for a decent market environment.

So- if stocks don't want to trade well for the next six months, how do we handle it?
 

Setting Your Stop Losses

Each year I try to learn from the mistakes of the past and improve our chances for profitable trades. Historically, my biggest two mistakes have been staying with companies too long when they don't deliver on promised results, and not reminding OTC Journal members to keep a mental stop loss on their holdings.

I don't recommend actually filing a stop loss with your brokerage firm unless you have no time at all to watch your stocks. Most brokerage firms don't accept stop losses in microcaps anyway. 

In the microcap world you are going to have losers. There can be many reasons- poor overall market conditions (my main current concern), poor corporate performance, and toxic financings to name a few.

While I strongly advocate being a long term investor to maximize your profit potential, I don't advocate losing all your capital in a failed situation. Stop losses provide discipline. They take the emotion out of it. 

Here's how it works- if one of your holdings trades down to your stop loss level, just sell it, forget it, and move on. Oftentimes, the stock will rebound and make you look foolish. Don't worry about it. Just take the pain and put it behind you. Also, stocks can sometimes blow through your stop levels and end up providing exciting buying opportunities. You can always reload.

Stop losses can be set using several different kinds of criteria. You could set your own stop loss based on your risk tolerance. Another words, you might say to yourself I am prepared to lose 20% on this idea. If it trades down 20%, just sell it. Using this method there are no set rules. You have to decide your own risk tolerance.

Stop loss levels can also be based on technical analysis. You could look at a chart and say to yourself "if this stock trades down to here, it is going lower". If it gets down there, just sell it. 

Here's a quick review of all the current OTC Journal ideas in order of oldest to newest. I'm not putting a chart up on each one, but all the suggested stop losses are derived from charts. You might not want to employ this strategy, or you might want to establish your own level. The choice is yours.

• HyperDynamics (AMEX: HDY): For those who acted when I called it a "must own" at $1.70, you are currently in the money by around 60%. I believe there is a chance the stock could grind lower over the next few weeks as investors become more impatient waiting for the drilling permits in Guinea. $2.20 is a suggested stop loss. Look for management to come up with something to keep everyone excited at next Tuesday's shareholder meeting, and a pop in the stock at that time.
• NetWork Installation (OTC BB: NWKI): The time to be stopped out on NWKI was last fall when the stock got clobbered. NWKI is now having a fantastic year, but it will take a little time for buyers to come back to the stock. The company announced a $3 million contract on Friday- the largest in their history. They are delivering on the sales side. $.40 would be a good stop if it's a new position. 
• NeWave (OTC BB: NWWV): Another company who's stock got clobbered the second half of last year, but is turning around and delivering solid corporate results. Suggested Stop for a new position: $.16.
• Datascension (OTC BB: DSEN): I am formally dropping coverage of this one. The company never gives the market any idea about how it is doing, despite being rumored to have a great year in '06. If you don't like the idea of it not being covered, just sell it now. After this, you are on your own.
• Health Sciences (OTC BB: HESG): It's too late for stop loss. This one is getting more of a drop dead date. March 31- if the company does not deliver some kind of significant progress by then, I expect to formally drop it. The DNP distribution agreement was nice, but it was not enough. Thoughts at the end of Q1.
• Callisto Pharmaceuticals (AMEX: KAL): Awesome science. If this one drops, it will be because of market conditions or a foolish financing. $1.20 suggested stop loss.
• TelePlus (OTC BB: TLPE): The market wants to see how they are doing with the Liberty Wireless acquisition. If they are as successful as expected, lots of upside. The recent registration statement for the conversion of their $9 million in debt into stock is not too meaningful at this point in time, but could be a problem down the road. The majority of the shares shouldn't be issued for three years. Only 2 million shares should hit the market this year. Suggested Stop Loss: $.26.
• UpSnap (OTC BB: UPSN): The poster child for stop losses. My first stop was $2.20. It dropped through, and then turned right around. Volatile the first couple of months, but now the stock just wants to trade down. We should have been out by now, looking for a crescendo blow off to get back in. Sell it on the next surge or sell it now. 
• BadToys (OTC BB: BYTH): No stop loss on this one. If you own the stock, you own it for the dividend of 1.3 shares of Southland for every share of BadToys you own. As one subscriber so succinctly put it: " I believe there is a lot more value in Southland separated away from Bad Toys". If you like the theme, just buy more if it gets cheaper. This is a special situation, and I don't believe you will make money on shares of BTYH- you will make your return when Southland stands on its own two feet.
• Dexcom (NASDAQ: DXCM): Looking for the FDA Approval on the wireless glucose monitoring device around the end of March. If they get it, looking to sell around $25, or wherever it goes on the event. Stop loss: $15.
• Medistem (OTC BB: MDSM): Recent idea on Stem Cell research. The Nike of Stem Cell treatments. This one should get a lot of publicity down the road. Suggested Stop Loss: $.55
• Nighthawk: (OTC BB: NIHK): Last week's low priced idea. Nice opening day. Early entrants were up 20%. Suggested Stop Loss: $.09.

You can get there by clicking on the "Current Profiles" button on the left hand menu bar, or simply clicking here. 
 

Subscribe

Information is power and timely information is profitable. Become informed and profit from OTC Journal Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the OTC Journal Email Newsletter on a regular basis.

To ensure newsletter delivery, you can add any additional email addresses you may have to the OTC Journal Member List. Receiving the OTC Journal Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the OTC Journal recommends @yahoo.com or @aol.com for timely and reliable email newsletter delivery.

Note: Your email address will be kept strictly confidential, and will not be shared with any other entity for any purpose at any time. If you no longer wish to receive the OTC Journal, simply follow the instructions located at the bottom of every OTC Journal Newsletter Edition.

Go Here to view our compensation on every company we have ever covered, or visit the following web address:  http://www.otcjournal.com/disclaimer.html for our full profiles and http://www.otcjournal.com/trading-alerts/disclaimer.html for Trading Alerts. MarketByte LLC has been paid a fee of $25,000 and 600,000 newly issued restricted shares by Teleplus Inc for coverage of the company.

All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities  mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.

From time to time MarketByte LLC sells shares in the open market it receives as compensation for coverage of client companies. Since the shares are received as compensation for services as previously disclosed, and not for investment purposes, the editors do not view the sale of the shares as contradictory to any advice delivered in the content. This should be viewed as a conflict of interest by shareholders or prospective shareholders of the client companies.

The editor, members of the editor's family, and/or entities with which they are affiliated aside from MarketBtye LLC itself, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed in the newsletter. Some of the companies featured in the OTC Journal pay a cash ESP fee to an affiliated technology company ranging from $2,000 to $5,000 per month for internet related technology services.

The Trustee of the MarketByte LLC Defined Benefit and Trust (“the MarketByte Pension Plan”) has invested approximately $140,0000 in Dutchess Private Equities II LP (“the Dutchess Limited Partnership”), a limited partnership in which the MarketByte Pension Plan is a limited partner. The Trustee of the MarketByte LLC Defined Benefit and Trust (“the MarketByte Pension Plan”) has invested approximately $190,0000 in the Longview Fund (“the Longview Limited Partnership”), both limited partnerships in which the MarketByte Pension Plan is a limited partner. No one associated with the MarketByte Pension Plan has any knowledge, information, or control as to any past, present, or future investment activities of the Dutchess Limited Partnership or the Longview Fund.  The Dutchess Limited Partnership is one of two hedge funds managed by Dutchess Advisors.  Dutchess Advisors and Longview periodically refers companies to MarketByte LLC for possible coverage by one of the MarketByte LLC publications, which publications include The OTCJournal.com Newsletter.  Dutchess Advisors or Longview may or may not own shares in the companies that it so refers to MarketByte. MarketByte has no information (outside of information readily accessible to the general public such as SEC filings) as to whether Dutchess Advisors or Longview owns any shares in the companies that it refers to MarketByte LLC.  The above relationships should be viewed as a potential and/or actual conflict of interest by shareholders and prospective shareholders of MarketByte LLC client companies.

The profiles, critiques, and other editorial content of the OTCjournal.com may contain statements that appear foward relating to the expected capabilities of the companies mentioned herein.

THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN  SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN  CONSENT OF THE EDITORS OF OTCjournal.com.

We encourage our readers to invest carefully and read the investor information available at the web sites of  the Securities and Exchange Commission ("SEC") at http://www.sec.govand/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at  http://www.sec.gov/consumer/cyberfr.htm. Disclaimer ID:$subst('Recip.userid') Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.  MarketByte LLC's mailing address is 3525 Del Mar Heights Rd #334, San Diego, CA 92130.