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To
OTC Journal Members:
I wasn't going to publish over the
Memorial Day Holiday Weekend, but I came across some market data which
was too interesting to pass up. I hope you find this edition entertaining
and informative. First, here's and update on CADA which reached
our target price this past week.
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Cam Commerce
(NASDAQ: CADA): Target Price Reached. Is This the Top? |
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Back on April
1st I published my sixth edition on Cam Commerce. The stock
had attained by originally projected price target of $12, and I
set a new target price of $20. The stock hit that number earlier
this week, and closed Friday at $18.91.
Making a new all time high is unusual
in the current market environment, and suggests there could be a lot more
upside in this idea. The chart you are looking at is not typical for a
small cap stock. Most show their high back in March, and many have given
considerable ground since then.
The company's X-Charge recurring
revenue business has no doubt transformed their entire profit picture.
The market has recognized the value
we identified in February of 2003 at $4.75. In light of the current
market environment, I believe you are looking at the chart of a stock that
could easily go a lot higher. If history repeats itself, the stock will
probably pull back to about $18, trade sideways for a while, then
breakout to a new high.
If you still own this one, there
is nothing wrong with taking your profits. However, in light of the way
this chart looks, you might want to keep a little in the "forget about
it" portion of your portfolio. This one could go a lot higher.
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Oil
Versus Equities |
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Over the last month I have noticed
that the stock market has moved inversely to the price of oil. Oil up;
Equities Down. Oil down; Equities up. The chart of the July Crude oil prices
vs the price of the June S&P 500 emini futures demonstrates it perfectly.
Oil prices are affected by many factors,
mostly geopolitical these days. These new all time high oil prices are
definitely a big drag on the economy. High oil prices are viewed as a valueless
tax, and therefore a drag on GDP, income, and employment.
I don't believe the highly publicized
view that the short term price of oil is being driven by increasing demand
or a shortage of refineries. I believe oil futures have skyrocketed simply
due to the increased violence in the Middle East.
If you buy this argument, you have
to believe a long term drop in the price of oil will restore stocks to
their previous northbound path. Evaluating where oil is headed long term
should help us understand whether the 2003's impressive rebound in stocks
was simply a correction in an ongoing bear market, or we are currently
in a correction in a Bull Market.
A very significant clue can be found
in the price of longer term oil futures. The top black line tracks the
price of oil futures looking one month out since May of '03. You can see
the recent parabolic rise as near term oil futures eclipse the $40 per
barrel level.
The lower red line tracks oil price
futures looking out for a year, not just the next month. Amazingly, the
long term price of oil futures has remained at or below the $30 per barrel
level. This indicates the market is not prepared to pay up for oil a year
from now. The market is betting oil will be considerably lower a year from
now.
So, what does that tell us about
the future of stock prices? The first chart demonstrates higher oil prices
are driving stocks down. The lower chart would seem to indicate the market
is not prepared to believe these higher oil prices will stay around for
very long.
If the futures are doing a good job
of predicting a drop in the price of oil, one could assume there will be
reduced geopolitical conflict leading to lower oil prices and increasing
stock prices.
On the fundamental side, here's a
look at the big cap earnings picture:
As of the end of last week, analysts'
consensus for next 52 week operating EPS for the S&P 500 is pegged
at $66.83, up $0.17 for the week and another new all-time
high. The acceleration has slowed, but earnings estimates are still
rising. The 52 wk forward PE on the S&P 500 stands at about 17.
The market has now adjusted prices
to reflect increasing interest rates and higher oil prices. Stocks began
to behave a bit better this past week. May is traditionally a weak month
(sell in May and go away), and June usually delivers a rebound. Look for
better fortunes in June against a backdrop of declining oil prices if we
can get a little help from subsiding tensions in the Middle East.
In my view, the market is offering
outstanding accumulation opportunities for investors with a window of six
to twelve months.
Charts Provided Courtesy
Of TradePortal.com |
