Newsletter

August 18, 2004

Volume V, Issue 79

Home Page : www.otcjournal.com
Email Questions or Comments To: editor@otcjournal.com

To OTC Journal Members:

This past weekend's edition, entitled Is The Bear Back? sparked a number of well thought out comments. I asked for your thoughts, and promised to publish some of my favorites on both sides of the argument. Delivered today, as promised.

I have been receiving a number of concerned emails from members holding stocks that are making new lows. Some have started to rebound, some not. American Water Star (AMEX: AMW), Family Room Entertainment (OTC BB: FMLY), and NuTech Digital (OTC BB: NTDL) are all generating concern. Since you probably learned about all the companies from the OTC Journal, I consider it my responsibility to provide feedback. I'll get the facts, share my thoughts on what they mean, and then you can make up your own mind whether to buy, sell, or hold.

They'll probably be an edition on AMW tomorrow, NTDL next week, and I'm not sure about FMLY. Nothing has changed there and no developments to report at FMLY. Nearly 500 stocks on the NASDAQ alone made new 52 week lows last Friday, vs 41 making new 52 week highs. The majority of the deterioration is probably market related on all of these issues, not company related.

Comments From Members On Last Weekend's Edition

Here's my personal favorite. Jean S writes:

I am 83 yrs.old. I have been in the market for 40 yrs. I have made a fortune, and lost a great deal in the last terrible fall. However in my experience,I have been able to take my husband, married daughter,and 3 grand-daughters to Europe, China, and thru the US all on gains made. I firmly believe,and from past experience, that the time to buy will be here very soon. On the day the market takes a heavy fall, I'll be in there buying solid stocks, that will fall on the lowering tide. My cash has been on the sidelines, just waiting to jump in. Who knows? I might even be able to purchase more Berkshire Hathaway at bargain prices.

You go girl.

Comments on the Positive Side For the Market

Here's DK's contribution, although I'm not quite sure if this is positive or negative. Nevertheless, food for thought:

It is my sincere opinion that hedge funds and the Eastern, (New York) large money changers are mulipulating the market for their own gain and President Bush's defeat. The financial industry, lawyers, and eastern New Yorkers all hate President Bush. By causing negative market setiment which they can do and gain by it (short selling and all the other fancy numbers games) control the market. In the last two months 90% of the trades on the New York stock exchange were initiated by hedge funds. They now control $800,000 billion dollars. Hedge funds are a wild out of control speculative organization that left unchecked will bring down our capitalist system.

If Kerry is elected watch the markets go up as they get back in on the long side having accomplished their goal to unset President Bush from serving another term.

Randy K provides this commentary:

I'm holding thru this downturn....flipping some blocks along the way to accumulate more free shares when it feels safe, and I'm running close to 100% success ratio lately with that strategy. Of course it feels like I'm winning all the little battles, but losing the war.

Bottom line for me is that the baby boom generation still want and needs a lot between now and 2009 or so, when mass retirements change their spending habits. So, I am bullish thru about 2008 or longer, but I will change my trading habits before then to hold cash more often than stock. Corporate profits should look strong thru that period. After that, I may look for short opportunities or invest my IRA's in other countries.

Thanks for the updates and outlook which I happen to agree with.

TF shares this thought:

This is a period of growing strength for stocks... Companies are seeing their earnings increase while the price of their shares are decreasing... the result is a healthier price earning ratio... As you said, companies are earning more, but they are not hiring. What they are doing with their money is buying back shares and paying down debt... the result of this is a healthier balance sheet.
A couple more quarters of this repairing action will produce an investment field that will again be able to support sustainable growth, both of the companies involved and their share prices.
Suffer the pain... It's like a dose of disgusting tasting medicine... but when the medicine goes to work, you'll feel much better for having taken it.

Here's the last one from Dan W:

I tend to agree with virtually all you said in that last email. I also know from history that the remark about the "Hamptons" rings truer that anything... heck it's summertime and the trading is always low.
I think allot (hoards actually) of inexperience people are dabbling and don't realize summer=low volume. They put up stops and the downward spiral feeds off itself. I love the prices now, and will probably buy a little more microcap/pink-sheet/over-the-counter and otherwise low-priced stocks before Sept. Come mid-Sept and Oct, I imagine the up turn will show.
Personally, our President is waiting another few weeks before he pulls umpteen strings to rein in our economy... so he can keep the momentum of good news going until election with minimal effort, like riding a wave. And I think he's so tight with oil-men, US and foreign, that he can "have the price" manipulated down to act as the catalyst. Wait 20 days and see Bush pull our country & market back onto the hiway from this back-woods road we're on now... Money managers getting back from the Hamptons will help too; the timing is all lined up for President Bush and the Hampton republicans to provide the US with a "happy" time to pursue... regardless of OBL & AQ.

Comments on the Negative Side For the Market

For some unfathonable reason, people arguing on the negative side tend to be very long winded. Some of the responses were simply too long to republish in this format. Perhaps it's too hard to condense a complicated viewpoint into a couple of paragraphs.

Here are some comments on the negative side:

Jason R, a faithful reader from Australia comments:

Is The Bear Back? - yes, without a doubt.

I find it encouraging that you acknowledge the role $40+ oil is currently playing. Perhaps you are aware of the growing concern regarding the coming peak of global oil production? It states that oil extraction follows a curve similar to a bell curve, and we are currently poised at the top, with nowhere to go but down. America was the first country to experience a peak in oil production, and it was this event that triggered the oil shocks of 1970. A global peak in oil production along with the current growth in demand will be the event that sends oil to over $100 a barrel. I personally am more worried about how I am going to feed myself in the coming years than how to feed the stockmarket, which along with the global economic financial system is going to suffer
greatly. Don't underestimate the role that an endless supply of cheap accessible oil has played in our society for the past 80 years.

John N is not bullish either:

Your near term targets for the Nas and S&P500 are Fib retracement levels +/- a bit. Yes they may offer short term support but do you really thing this will hold to form the base of a new BULL market. Elliot Wave Theorists would think not and will look for the Dow for example to once again challenge the 7500 area. As an issue - why did so many insiders in US companys sell stock last year if 2004 was to be a bumper growth year, is the employment situation improving or are the figures more likely massaged (smoke and mirrors in an election year). Can any growth recovery in the US continue based on increased debt (borrowing bananza continuing) when debt is ballooning along with the ballance of trade deficit which must impact the value of the dollar (possibly 20% overvalued from here) and will stifle inward foreign investment to promote growth going forward. A collapsing dollar, lack of foreign inward investment in the US as a result, a slow down in consumer spending (contributes circa 60% US GDP growth), slowing export options along with a slowing foreign demand for US goods (also due to debt levels and rising interest rates resulting in stifled buying power - will improve with falling dollar - eventually), higher levels of oil prices and geopolitical concerns of terrorist activity will all impact investor willingness to risk capital in these markets worldwide. Despite your own investment position (I hope you have stock option safety nets in place) which is presented in a fair and refreshingly unbiased and professional manner I cannot subscribe to the BULL argument. Elliot Wave Theorists would not consider any of these potential or ecocomic issues as primary in influencing where things go from here. The trend is a consequence of the mass psychology of the market which is technically BUST for the forseeable future or soon will be.

Here's Warren M's message:

The 4 year cycle always provides the answer over all the 50 years I have played the market. It is not widely understood because it requires definition. It is measured from bottem to bottem, not top to top....and...it is not 4 years always but can range from 3.5 to 4.75 years. At present we are probably going through what can be called a "left translation" which merely means that the top occurs to the left of the central point between bottems. The last bottem in October, 2002 projects the next bottem in 2006, with the top having already occurred probably. Normally the top occurs to the right of the center point of the bottems. Bottems are easy to see happening in real time. Tops are much harder and require a different analysis and must be based strictly on sentiment systems ( odd-lot theory, put/call ratios, etc.) and not on economic fundamentals that you read about in the paper each day. It seems like every four years the analysts forget that the stock market predicts the future of the economy and start using good economic numbers to reason that the stock market will follow. Normally they all are in agreement that the stock market is predictive. I have never been able to understand exactly why this occurs, but it does.
I hope these simple minded thoughts might be helpful to someone out there.

Thanks for you comment Warren. However, I wish bottoms were as easy to spot as you say. If I could always pick the bottom, I'd be writing the newsletter from my 150 Yacht anywhere in the world I wanted to go.

Thanks very much for all the contributions. Hopefully, I have presented both sides as the readers see it.

Charts Provided Courtesy Of TradePortal.com

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