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||Fear of Fear
What a shellacking the market has
taken since the 1st of June. I thought there would be a relief rally, and
I am long an option on the QQQQ's that is simply ugly. The way things look
right now, I will probably lose most or all of the $25k I have in those
options. In fact, I believe that the current melt down could take the NASDAQ
Comp all the way down to 1900 before beginning its next leg up.
When I turned on my computer on Thursday
just before the market opened, here's the news that greeted me:
Crude Oil futures are hitting all-time
highs after Nigerian rebels attacked a pipeline in that country.
Israel has bombed Lebanon, disabling
North Korea has refused China’s request
to return to nuclear negotiations.
Merrill Lynch has downgraded WalMart
on the notion that high oil prices will dampen consumer discretionary pricing.
Dell announces a “new pricing initiative,”
which is indicative of their concern over consumer demand.
There's no site of the end of War in
Iraq, and it is rapidly turning into a truly civil war.
Is it any wonder the market is blowing
it brains out? Flushing itself down the proverbial toilet. The stock market
is absolutely petrified into complete paralysis. There's a buyers strike
on anything non-energy. And, by the way, one more factor - here is the
single biggest driver of the "Fear Quotient" in the market- the Bernake
The market hates uncertainty. That's
a given. Everyone knows we are in the midst of a global slow down. That's
a given. The global slow down has been fueled by lack of fuel- another
words, skyrocketing oil prices. Here's what the market doesn't know: Will
the US economy, and the global economy (which are becoming closer to the
same thing everyday) experience a soft landing as we did in 1995 to '96,
or are we in for a nasty recession? If Greenspan were still navigating
the ship, the market might be more willing to buy into the soft landing
scenario. Bernake is an unknown quantity at this time, and the market hates
I have doing a lot of reading on
the theory of 4 year cycles of late. The current market is being compared
by some very smart people to the market environment of '74 to '78, '86
to '90, and '90 to '94. In two out of three of those four year cycles,
the market sold off viciously near the end of the cycle, and charged forward
to make new highs once the cycle was completed.
While this is interesting information,
here's the bigger question- what do you do about it?
In our little universe, here's a
list of the stocks I am covering and believe have significant upside potential
with varying degrees of risk:
Nearly all of the aforementioned companies
have several things in common. I believe they all have a substantial amount
of upside. HESG and HDY would be 2 exceptions- both have
to have "epiphanal events" for there to be upside. Absent company changing
events, those will both die. The other 9 need only stay the course for
success and profits.
Commerce Planet (OTC BB: CPNE)
NetWork Installation (OTC BB: NWKI)
US Energy (OTC BB: USEI)
Medistem (OTC BB: MDSM)
Advanced Cellular (OTC BB: ACTC)
Bad Toys (OTC BB: BYTH)
Callisto Pharmaceuticals (AMEX: KAL)
Health Sciences Group (OTC BB: HESG)
HyperDynamics (AMEX: HDY)
Dexcom (NASDAQ: DXCM)
Sub- Urban Brands (OTC BB: SUUB)
With the exception of SUUB and
CPNE, every stock on the list is now trading below the SSL (Suggested
Stop Loss) level I recommended for those with a trading mentality.
Therefore, if you are a trader or
concerned about preservation of capital at all costs, you should be out
of all of them right now with the exception of SUUB and CPNE.
So, where to from here? Either corporately
or personally I hold positions in every stock listed above with the exception
of HDY. I have sold my shares of HDY, preferring to wait
for them to prove themselves. Some on the list are restricted shares that
I cannot sell at this point in time even if I wanted to.
However, at this point I am simply
going to hold my nose and wait it out through the dismal summer months.
There are two editions you can plan
to see every year. Sometime in the spring I will publish an edition reminding
everyone that the summer months can be very tough on microcap valuations.
This year it was entitled "Don't
Say You Weren't Warned", and was published on May
The second repeating annual edition
will come sometime in mid August. It will contain some ideas in the I believe
have been the most beaten down and are ripe for a rebound going into the
last 3 months of the year, traditionally and cyclically- the best time
of the year.
If you want an early idea, take a
look at this chart:
Commerce Planet (OTC BB: CPNE)-
the ecommerce company formally known as NeWave, strikes me as notable.
Why?- look at this weekly chart- Here's what we know- the company was troubled
in 2005, but has turned around beautifully in 2006. In the
first six months of 2006 they have reduced their debt considerably out
of positive cash flow from operations. They have delivered huge revenue
gains and turned profitable.
What I like about this chart- the
stock has risen nearly four fold since the $.19 low in March, and is still
trading within a few cents of its reborn high for 2006. If this stock hasn't
gone down yet, it probably isn't going down much more. This chart suggests
to me someone really believes in the future of this company and isn't willing
to part with many shares no matter how much the market wants it to crack
like the rest of them.
I'll keep sharing the breaking news
over the summer months as it develops. For the most part, I will hold my
positions and look to add to them at the point of maximum pessimism- with
it was $.19. Who knows what it will be for some of the others.