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Market
Comment |
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The NASDAQ rose 12% in August
and is back to the levels which we started the year. Many of the large
cap stocks have rebounded nicely from April's bloodbath. Interest rate
and inflation fears remain at bay.
August is a seasonally slow time
for small stocks. Investors are vacationing and corporate developments
are few and far between as commerce slows. This August we have seen some
evidence that small stocks are beginning a comeback.
Here's a list of a few small stocks
that have been rebounding nicely- Note the previous highs to get a feel
for the true carnage in the NASDAQ:
|
Symbol
|
Low
|
Current Price
|
Previous High
|
|
CRDS
|
$4.50
|
$11.1875
|
$202
|
|
ZOOX
|
$7.625
|
$9.15
|
$98
|
|
XLA
|
$11.50
|
$21.625
|
$112
|
|
DAVX
|
$8.40
|
$12.625
|
$39
|
|
GMGC
|
$4.25
|
$7.31
|
$19
|
These are some random examples that
we have chosen to demonstrate both the extent of the carnage in small cap
stocks and the beginning of the rebound phase.
Unless the market is sabotaged by
a major pull back in September this rebound phase for small stocks should
continue and accelerate as companies start unveiling positive corporate
developments. Many small companies wisely choose to wait on positive news
releases until after Labor Day in order to maximize investor response.
On July 14th we published a list
of five stocks. These stocks were chosen from the ones we follow, and presented
in the order of profit potential based on our views.
We tried to contact the management
of each of these companies this past week. We spoke with most of them,
and were able to get a feel for coming events. Two companies stood out,
and we feel that both of these companies will reveal major corporate developments
during the month of September. We believe that both of these stocks will
be at higher levels by the end of September subject to the overall market
continuing to improve. Here are our two favorites for profiting in September
as we move past the Labor Day weekend:
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Blue
Zone (NASDAQ: BLZN) |
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Blue Zone has developed revolutionary
new Internet related software. As more Internet users move to high speed
Internet access, better and richer content can be provided. Blue Zone
has developed software which fills the need for Convergence.
Convergence
is the new buzz word which has been coined to describe the homogeneous
blending of TV, Radio, and Print Media with the Internet.
In about two weeks, CTV, which
is Canada's largest TV news network, will be deploying convergent programming
to one of its major shows. This technology will allow the viewer to experience
the same content on TV or the Internet with enhancements. Internet content
must be created on the fly as news stories break. This is revolutionary
programming. Blue Zone's software will provide the convergent technology.
We spoke with management at the company
earlier this week. They are very excited about the roll out, and are very
optimistic about prospects for new contracts. In short, management at Blue
Zone is higher than kites about the future of the company.
On the technical side there has been
a nice volume surge in the stock over the last two days. Monday through
Wednesday the stock traded about 50,000 shares per day and remained in
the $6.25 range. On Thursday and Friday the stock traded 180,600 and 214,000
shares respectively, and closed at $6.75 on what should have been one of
the slowest days of the year.
We anticipate that during the month
of September Blue Zone will go back and re-test the July high of
$9. Time will tell if we are right and that is only our opinion. When we
published our July 14th list Blue Zone was our Number 1 pick to
rebound to its old high of $15 in the next Bull Market, and we are sticking
with that prediction.
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Envoy
Communications (NASDAQ: ECGI; TSE: ECG) |
|
This company is the Rodney Dangerfield
of the NASDAQ- It just can't get no respect.
Long term investors are very frustrated by the lack of appreciation in
the stock, but we believe their patience will be rewarded in the next Bull
Market.
Last Tuesday Envoy released
its June quarterly results. If any institutions really knew about this
stock it would be $12 ($20 Canadian). The stock closed at $5.60 yesterday.
Here are the June financial results reported in Canadian Dollars (The company
is headquartered in Toronto):
3 months ending
June 30th, 2000
2000 1999
% Change
-----------------------------------------------------------------------
Revenue
$44,469,269 $36,911,205
+20%
-----------------------------------------------------------------------
Gross Margin
$13,716,105 $11,363,553
+21%
-----------------------------------------------------------------------
EBITDA
$2,798,742 $1,800,942
+55%
-----------------------------------------------------------------------
Net Income
$970,735 $772,338
+26%
-----------------------------------------------------------------------
EBITDA/Share
- FD
$0.15 $0.12
+25%
-----------------------------------------------------------------------
Net Income/Share
- FD $0.05
$0.05
0%
-----------------------------------------------------------------------
This financial table tells us
that Envoy made $2.7 million EBITDA in the June quarter.
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation,
and Amortization. Most analysts view the EBITDA number as the true measure
of a company's performance. On this basis the company earned $.15 per share
in the June quarter.
More importantly, while sales were
up 20% true profits were up 55%, which means that their profit margin is
improving. If any serious players on Wall Street were following
this company the stock would be $12 to $15 today based on the company's
financial performance.
The company has achieved these outstanding
results without a Wall Street Investment Banking relationship. No major
brokerage firm has a stake in the company's future which explains the lack
of institutional participation in the stock.
In our discussions with management
this past week we learned that September could bring some exciting corporate
developments which might finally put this stock on the Wall Street radar
screens.
We believe that the stock has a real
chance to see $7.50 to $8 by the end of September, and possibly higher
if the market cooperates. Again, that is just our opinion. There are the
numbers- You be the judge.
The SwingWire community is
beginning to grow rapidly. It is turning into a bonanza for short term
trading ideas. MarketByte LLC, the owner of the OTC Journal, is
a partner in the company and helping with its development.
The SwingWire is a premier
online investment community which provides a forum for anybody to become
an analyst and submit stock trading ideas for investors. Performance is
tracked with total integrity. Moreover, as an accomplished "Cyber Analyst"
you will be able to get paid for your stock picking performance by the
Swing
Wire.
Currently the CA StockMaster
is leading on the SwingWire based on closed out positions in the
past seven days. On August 23rd he picked ASYS at $12.50. He closed
this position on August 25th at $16.88 for a net 35% return in two trading
days. Some of his other picks have also been outstanding performers.
The SwingWire has features
which allow you to be notified by email or instant messaging anytime one
of your favorite CAs makes a trade. The system forces CAs
to allocate a certain percentage of their portfolio to each pick which
mirrors the true investing challenges we all face. The SwingWire
not only identifies the best stock pickers, it also identifies the best
money manager for maximum returns on a fixed dollar amount in a portfolio.
You need to sign up for a 30 day
free trial and begin spending some time at the site. The site has a tremendous
amount of robust functionality and it will take you some time to learn
it all. From there you should begin using ideas you are comfortable with.
If you believe you are a good stock
picker you should become a Cyber Analyst. Special notice to members
that have been sending us ideas for the last two years- Here is your opportunity
to show what you can do.
Once the community converts to paid
subscriptions you will begin collecting a monthly check based on your performance
and the traffic in your trading space.
To register for a free, two month
trial for the Swing Wire Click
Here.
Or go to the Following Web Site:
http://www.swingwire.com/cgi-bin/account.cgi?referrer=10007
We will be providing weekly ideas
on how to best use the site, and featuring ideas from the top performing
Cyber Analysts.
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eGoose
Seminar- Discount Available to OTC Journal Members |
|
We have long been believers in the
eGoose
trading advisory service. Subscribers can get short term swing trading
ideas. You can find out more information about them at www.egoose.com.
eGoose is holding a trading
seminar in Southern California next Saturday, September 9th. Here is a
list of topics they will cover:
-
High Probability Technical Analysis
-
eGoose Swing Trading Strategies and
Case Studies
-
Required Understanding of Market and
Macro-Economic Analysis
-
Understanding Essential Market Internals,
Intermarket Analysis, and Sentiment Indicators to Master Market Timing
-
Understanding and Interpreting Level
II Data and Market Maker Tricks to Improve Market Transparency
-
Exploring and Understanding ECNs (ISLD,
ARCA, INCA, etc.) in Order to Maximize Liquidity
-
Different Execution Strategies for Various
Market Conditions
-
Recognizing and Trading Intra-day Chart
Patterns and Other Strategies for Short Term Traders
-
Scaling Techniques
-
Developing an Effective Trading Plan
That Fits Your Trading Style
-
Trading Discipline and Risk Management
If you wish to attend the cost is $795
and it includes lunch. It will be held in Irvine. eGoose will refund your
full tuition if you are not satisfied with the seminar.
Call toll free 1-877-EGOOSE1 (346-6731)
for more information. If you identify yourself as a member of the OTC
Journal you will receive a $100 discount on your tuition.
September could prove to be a great
month for small stocks. Stick with us for further exciting developments.
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