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Fabulous Friday-
The Easy Money Bounces Keep Coming |
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I don't know about you, but Friday
was an awesome day for me. Two more easy money oversold August bounces
put a smile on my face. Two of my personal favorites had big days, and
both look good for future gains.
Commerce Planet (CPNE) is
to date, the superstar of 2006. I have continued reporting on this company
for over 2 1/2 years, and my faith is beginning to pay off. If you want
to go back into ancient history relative to today's levels, I introduced
the company at $.90 in early 2004, saw it make a high of about $2 in early
2005, and watched it fall back to an all time low of $.19 in March of this
year.
Since making the low, the stock has
now made a five fold move, and is behaving as if higher levels are imminent.
The market is beginning to understand that the Q2 numbers, which were great,
were also burdened with a $1 million one time charge for paying off their
debt early. The company has paid off about $5.5 million in long term debt
this year directly out of cash flow, and is now debt free. If revenues
remain about the same in Q3 (a traditionally slower time of the year),
the company should deliver $.06 or $.07 per share in Q3. If you like PE
Ratios, this suggests the company will deliver about $.25 per share in
earnings over the next year- at a 10 PE, this would put the stock at $2.50.
The way the stock is behaving, it sure looks like it wants to go there.
My advice- this one is probably going back to its all time high and probably
higher- continue to accumulate on dips.
The stock surged north of $1 for
the first time in over a year. Awesome. MarketByte LLC, the parent company
of the OTC Journal, retains 380,000 free trading shares of this
stock. We may sell some to meet cash needs, but hope to be able to hold
the majority for some time.
Dexcom (NASDAQ: DXCM), another
big OTC Journal win from earlier in the year delivered its oversold
easy money August bounce. The stock, which got absolutely taken out to
the woodshed and beaten to death by the big mo short sighted hedge fund
managers, jumped beautifully on the first good news in some time.
Those who followed this idea know
I recommended it at the end of January in the $16.00 range. I recommended
a sell at $23 to $24 after their wireless glucose monitoring device
for Type II Diabetes was approved in March. The company then did a secondary
offering at $24 just before the stock completely fell apart. You
can see the waterfall on the left side of the chart.
I blogged a buy suggestion for this
stock after it catered in the $12.50 range. Personally, I accumulated 4,000
shares with an average cost of about $13.25.
On Friday, the stock had its first
strong day in months on the back of some break through news. They had been
embroiled in a patent infringement law suit with behemoth Abbott Labs.
Dexcom's view has always been that the suit had no merit- it was simply
an attempt by Goliath to harass David, with the larger company knowing
they were overmatched on the technology side.
On Friday, a judge in Delaware granted
a motion to stay the suit, and in essence threw Abbott's main claims out
the window. The stock responded in kind with a nice move back above $14,
putting me back in the money.
I'm hanging in there for a move back
into the $18 to $20 range. Look for regulatory achievements and the holy
grail of insurance reimbursement to fuel this one to higher levels. Again,
accumulate on dips. There could be some opportunities in September.
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Where
To From Here? |
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After a couple of brutal months,
August has seen a resurgence in the market. The "microcap switch" has not
flipped back on, but it is still August. September probably represents
the last opportunity to do some bargain basement shopping. For those of
you who need a reminder, September is generally the worst month of the
year in the stock market.
Overcoming the early summer sell
off appears to relate to interest rates and inflation. The ideal scenario
for the markets would be slowing but sustained growth with little sign
of inflation. This would allow the FED to continue to stand pat, and perhaps
lower interest rates if the economy appears to be slowing.
Over the past several weeks, both
the bond market and the stock market appear to be buying into the "soft
landing" scenario. Three economic reports in a row indicated a slowing
economy with little inflation- CPI, PPI, and housing starts all have moderated.
The FED has succeeded in cooling off an absurdly hot real estate market.
However, there still remains one major threat to the tame inflation picture:
Commodities, and specifically oil remain the scariest potential source
of inflationary pressures.
I've heard a wide variety of opinions
about the future of oil prices. Despite all the varying and dire predictions,
one theme is universal. Nearly all analysts and "experts" agree there is
about $20 per barrel of "risk premium" built into the price of a barrel
of oil. $20 per barrel has nothing to do with supply and demand, and everything
to do with geopolitical turmoil and unrest in the Middle East.
So, can we sustain the current market
rally? If you can tell me what will happen during hurricane season and
what will happen in the Middle East over the next six months, I can tell
you where oil will trade. Will Iran threaten the blow up Israel with nuclear
weapons? Will another hurricane hamper gulf oil production, or will we
have a reasonably benign hurricane season? I don't know.
Here's what I do know. There appears
to be a direct correlation between oil prices and stocks. Check out the
chart I put together. This compares the price of oil against the movement
in the NASDAQ Comp in 2006. Note oil surges from $60 to $75 in the early
going this year while the COMP tanks. Conversely, in recent weeks as oil
has retraced down to $70, the COMP has surged.
If the soft landing scenario plays
out, and oil remains tame, we could be in for a very strong market in Q4.
One important thought: September is usually the worst month of the year
for stocks. I believe investors sell stocks in September out in front of
Q3 earnings reports, which tend to soften a bit over the summer vacation
months. Once Q3 numbers are in the rear view mirror, the market tends to
trade well out in front of the holiday shopping season.
You have been warned. September is
seasonally a great month to be a buyer. Get ready to pounce on oversold
opportunities.
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The
BLOG |
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Three new BLOG entries were
posted this past week. They were all observations on quarterly financial
releases. Two of three also had August easy money bounces. Teleplus
(OTC BB: TLPE) and Network Installation (OTC BB: NWKI) both
shot up off severely oversold levels. The third BLOG was on US
Energy (OTC BB: USEI), which had already bounced off its oversold level.
The last culprit not to have reported Q2 earnings is Bad Toys (OTC BB:
BTYH). I'm looking for their filing on Monday. Keep your eyes on the
BLOG
for comments.
The BLOG is your opportunity
to ask questions and offer comments. I will make an effort to answer every
legitimate question. If I don't know the answer, I will contact the management
and get the answer. Alternatively, if you have questions you don't want
publicly displayed, you can always email me directly at editor@otcjournal.com.
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 in volatile markets.
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