To OTC Journal Members:
 

Comments in the BLOG

This past week I posted two new BLOGS. Please check out the commentary on beleaguered NWWV which I expect to trade up in year end rally mode, and DSEN which had a wonderful week, up 33% from an oversold state. Those that acted quickly were rewarded with a nice gain this week in DSEN. I expect more rebounds between here and the end of the year from the summer sell off. When microcaps we own trade up from the typical summer sell off, I will re-evaluate them individually as they get into more favorable ranges, and I will suggest taking money off the table where appropriate. 

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 or in volatile markets. Your questions and postings do not automatically appear, so don't bother posting the same question multiple times. I personally go through to moderate and respond to every question.
 

The Next Big Thing: Biotech

This was the year of energy stocks. I believe energy stocks will continue to do well through the remainder of the 1st decade of the 21st Century, but the huge percentage gains are probably behind us.

In the microcap arena the OTC Journal had two offerings- one huge win and one disappointment. I should have found a few more, but I didn't have the foresight on the huge spike in oil prices. Torrent Energy (OTC BB: TREN) was first recommended on 8/3/04 at $.96. A sell was recommended on 6/10/05 for a net 184% gain over 10 months.

HyperDynamics (AMEX: HDY) was first covered on 9/20/03 at $1.76. I stuck with it for nearly 2 years before throwing in the towel. At one point we had a double in the stock, but the company's fortunes turned south as they were refused permit applications to begin drilling off the coast of West Africa. Such is the risk with owning companies that do business in unstable 3rd World Nations. If you took my advice and sold on the rebound, you should have gotten out in the $1.30 to $1.60 range. I did.

Energy stocks will continue going crazy as long as the market perceives the cost of energy commodities (i.e. oil and natural gas) continue rising rapidly. They won't. 

A good common sense approach is in order here. If you turn off the sensationalized news, and think about the past 18 months, you come to the inevitable conclusion that energy costs will not continue to rise at such a rapid rate. After all, oil has moved up 160% in the past 18 months. The perfect storm of increasing demand, middle east conflict, and a mother nature created cataclysmic event have all converged simultaneously to create a massive spike unlike anything since the 70's.

I'm not saying energy prices will come down. I don't know. I'm simply saying the rate of increase will either slow or halt altogether, and Wall Street's hot money will look elsewhere. If you remove energy stocks from the S&P 500, the index is down about 12% this year. When energy stops rising so rapidly, the hot money will rotate out of energy. The luster should start dulling throughout the remainder of this year.

I believe the next "Big Thing" on Wall Street will be BIOTECH. Smart money managers are positioning now for big gains later this year and into 2006. Biotech companies have always been Wall Street darlings. The empty pipelines of the big pharmas have made headlines recently, and the Pfizers of the world look to small companies for breakthroughs.

In addition, the Baby Boomers, the proverbial pig in the python bulge of population, are rapidly approaching old age. They will become voracious consumers of health care and new anti aging technologies, creating unprecedented demand.

We could be on the verge of a moderate recession fueled by higher oil prices, and that dark cloud bodes well for biotech as well. The consumer might stop shopping for new computers and washing machines, but the consumer will still need health care.

The NASDAQ Biotech Index (NBI) is butting up against new multi year highs. Here's a long term long look, predating the '00 crash. A test of the 2 year highs is coming soon. If this index can break through the 851 level (the blue line and 2 year high), I believe 1,000 is easy money.

A good way to participate in an overall biotech rally with your less speculative capital would be to invest in the IBB. This is the symbol for the Biotech ETF (exchange traded funds). 

The IBB has tracked the NBI nearly tick for tick. It is an easy way to participate. You simply buy IBB just like any stock. It trades on the AMEX.

Biotech companies don't need to generate one dime in revenues in order to make money in the stocks. As companies push towards commercialization of new products, the market assigns higher valuations based on clinical data and progress through the lengthy FDA Approval process.

For the riskier end of your portfolio, I am working on several new ideas in the microcap world of biotech stocks. We had one earlier in 2005 which did very well. A buy was recommended on Xenomics (OTC BB: XNOM) on 3/17/05, and the sell was recommended on 6/8/05 at $4.46 for a 79% gain in a mere three months. XNOM has made a round trip, and is probably at a favorable entry level right now.

Next week I expect to be publishing an edition featuring a new biotech idea. The stock is trading at around $1 on the AMEX, and very close to a 52 week low. On the plus side, the company has a reasonable amount of cash and no long term debt. This company is developing some very exciting technology to fight blood cancers. Their main focus is on therapies for Leukemia.

Stand by for several new biotech ideas between now and the end of the year, the first to come around the middle of next week.

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