To OTC Journal Members:
 

Exciting Upcoming Events

Here are a couple of exciting events we know are coming up next week:

• New Profile:   We will be releasing a new profile next Friday, June 2nd.  We will probably release two profiles in June.  We could not be more excited about entry levels for small stocks, and we feel very strongly that everything we do over the next several months will pay off handsomely for investors in the latter part of the year.

Envoy Communications: There will be a conference call held by Envoy Communications (TSE: ECG) on Tuesday, June 30th, at 4:30 Eastern time.  Management will be discussing earnings, which will be released earlier that day.  There will also be a special surprise news item which will be revealed during the call.  You can listen in by dialing 800-273-9672 and informing the operator that you wish to hear the Envoy call.  Participants in the Toronto area should call 416-695-5806.  Don't worry about missing the call.  We will have a recorded audio version streamed on the Internet for you on Tuesday night, and we will send out an edition with a link.  

Your OTC Journal MVP Award

Just a reminder to members that have not taken advantage of our MVP offer this month for Investor's Business Daily.  Have you redeemed your OTC Journal Membership Value Points yet?  If not, they will expire on June 8th.  You can redeem your points for a copy of William J. O'Neal's new best-selling book, "24 Essential Lessons for Investment Success," plus two weeks' service of O'Neal's best-selling newspaper, Investor's Business Daily.  But you must do so before they expire on June 8. There are no strings, no bills; you earned your points and your reward.

There are many places on the Internet where you can sign up for a free two week subscription to IBD.  However, none of them come with the book.  That is exclusive to members of the OTC Journal.   The offer is only good in the Continental US- many apologies to our Canadian and overseas members.

Please claim your reward by following the link below to redeem your points:

Market Comment

The Bears were in complete control of the market this past week.  Right now, they have all the momentum.  During the week there were several relief rallies in technology stocks.  Stocks that gapped up were all immediately beaten back down by short sellers and short term traders.

We continue to be amazed by the herd mentality of investors.  Today we learned that about $17 billion flowed out of mutual funds in the form of redemptions in May.  This is with the NASDAQ near 3000.

When the NASDAQ was at 5000 there were substantial inflows of money into mutual funds.  This whole picture is backwards.  Right now entry levels for stocks are far less risky than they were two months ago.  Even if we're not at the bottom yet, we have to be 80% to 90% of the way there.  So way are people taking money out of mutual funds when 90% of the damage has been done?  

Now is the time for investors to be putting money in mutual funds.  With the NASDAQ near the 3000 level there is minimal downside risk compared to where we were in March.  Many of the NASDAQ high flyers are down to 1/3 of where they traded.  The risk/reward ratio from this point for investors that have an outlook through to the end of the year is outstanding.

Investors are getting frustrated and paranoid about the continuing decline in stocks.  This is a good sign that the market may be close to finding a bottom.  Once we reach the point where we are all convinced that a stock can never go up again, that is when the market will turn around.  
 

Defensive Trading Strategies For This Market- Using the Gap

Congratulations if you are a buyer in this market.  You have the courage to put your money to work at a time when the rest of the world is paralyzed by fear.  You will make the most money when the market turns up.

A good strategy to use in a market like this is to allocate a certain portion of your capital to a stock you want to own.  Start out by only investing 1/4 of the total amount you are prepared to commit.  That way you can add to the position if the stock trades lower and take advantage of other people's weakness.  This only applies to investors that are prepared to hold for at least four to six months- if you view yourself as a trader you must follow the short term trend.

A very important rule in a market like this: never buy a stock at the market when it Gaps Open.  A Gap occurs when a stock opens at a much higher price than it closed at the previous day.  In a market like this, 90% of the time that stock will drop back down and fill the gap.  Market Makers have been using gaps to line their pockets with money from investors for years.  

When market makers have market orders for a stock at the open, they will often take the stock up, fill the market orders at the higher price by shorting it to investors, and then drive the price back down.  Then when they have scared enough people into selling, they cover their short and walk away with a tidy trading profit.

We noticed that this happened last Thursday with New China Homes (NASDAQ: NEWC).   In last Wednesday's edition we featured the company as one that would benefit greatly from China receiving most favored nation status after the vote in the House.

On Wednesday the stock closed at $7.  On Thursday there were buyers in the stock at the open.  The market makers opened the stock at $8 1/4, filled everybody's order on the gap, and the stock immediately turned around and went straight back down. Traders refer to this as "Filling the Gap".  The stock has been dropping since Thursday morning, and can now be picked up in the $6 range.

In a market like this you must always use a limit order and exercise some patience.  If you wanted to pick up New China Homes on Thursday morning you should have placed a limit order no higher than Wednesday nights' close and waited for the stock to come to you.

Most of the China related stocks which had traded so well prior to the vote in Congress got clobbered at the end of last week demonstrating that the Bears are in total control.

This strategy also works most of the time when a stock gaps down at the open.  Don't be spooked into selling immediately.  If you want to sell the stock it will come back up 90% of the time, rebound enough to fill the gap, and then go lower if the news is bad.

All of these trading strategies are very short term.  If you are an investor for six months to one year in New China Homes (NASDAQ: NEWC) it won't make much difference if you own it at $8.25 or $6.25.  The stock will either perform or it won't.  However, it just makes good sense to prevent market makers from lining their pockets with your money by using the same tricks that have been working for years.

THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF THE EDITORS OF OTCjournal.com.

We encourage our readers to invest carefully and read the investor information available at the web sites of  the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com.   We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at  http://www.sec.gov/consumer/cyberfr.htm.   Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.