To OTC Journal Members:
 

It was a big week for me, and I hope at least of few of you were paying attention on Monday morning and followed my lead. Sundays are usually devoted to sports around my house- either playing, watching, or both. Financial news takes a back seat. However, I caught the news about the FED's 1/4 point rate cut and the death of Bear Stearns on the local news, and was up at first light in front of the computer Monday morning to see how it would all shake out. I had last week's calls on the QQQQs open, and I was interested in seeing how the market behaved. Sure enough, there was a monster swoon, and the financials were getting killed. As I have been saying, these emotional, knee jerk reaction swings make for great trading opportunities. 

I decided the sell off in financials was overblown, and looked at the Goldman Sachs (NYSE: GS) April 145 calls for a trade. With the stock at $144, they were asking $10- highway robbery- forget it. I simply bought 500 shares of the common stock at $144.25, and posted a BLOG for all to see immediately. Later in the day, a limit order filled a little lower, making my position 1,000 shares at about $143. Mid day the trade looked questionable, but by the end of the day the stock closed at about $151- mana from heaven. I held overnight, and it was pure dumb luck GS was issuing earnings pre-open. The numbers were good, and the stock gapped up another 10 points- I might have held another day had it not be the day of the FED announcement. I took my 20 points in one day, and ran. I also closed out my QQQQ calls from last week for a small loss, which would have been very profitable had I held for the remainder of the day. With the FED's move an unknown, I was perfectly happy to notch my gains and keep both feet firmly planted in the air.

I am going to start making a greater effort to find these trading opportunities, and bring them to you through the BLOG. You have to take a few minutes every day to check the site, or use the RSS Feeds to imbed the BLOG in the home page in your browser. Simply go to the home page at www.otcjournal.com and check the right hand menu bar for new postings. I wish everyone in the audience would have gotten in on Monday's trade, but you had to be proactive to do it.

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. If you submit a comment or question, it will not appear on the site until I have responded.

To use the BLOG, simply go to the home page at www.otcjournal.com - the BLOG scrolls down from the upper right hand corner. The most current journal entries appear on the right hand side of you screen. Check back frequently for updates particularly when stocks are moving to overbought or oversold levels in volatile markets.
 

Is the Death of the Bear the Beginning of the Death of the Bear?

That's an amazing quote coming from one of the early pioneers in the digital world- 1977 really doesn't seem that long ago. I share this with you for two reasons- 1. It sure is great entertainment, and 2. It proves that even some of the greatest minds can be absolutely wrong when it comes to predicting the future. 

It has also been an amazing week in the markets, with some of the greatest minds proving wrong there as well. I've been in the markets for 20 years, and never seen this kind of wild volatility. I was very happy to get on the right side of one trade early in the week, and I'm keeping my eyes open for other, counter intuitive wild swings. I will be going the other way with my trades.

There's a lot of chatter in the financial world about the FED's unprecedented move to back Morgan Stanley's take out of Bear Stearns over the weekend. Here's what happened- Bear's bad loan portfolios forced them into an illiquid position, and they were on the verge of bankruptcy. The FED pledged Treasuries to Morgan Stanley, who was then allowed to use the Treasuries to take on Bear's illiquidity in return for absorbing the firm at the bargain basement price of $2. (it was $70 back in February). At the same time, the FED made the unheard of move of lowering the discount rate a 1/4 point on a Sunday. WOW. News unlike any other in history.

Here's Mr. Bernanke's message to the markets- Financial Institutions, who have made mistakes by investing in this very high risk debt, will die if market forces kill them, but transactions will continue to flow smoothly, freely, and without default. There's a lot of grumbling on the Street about the way it was done, but the market loved the FED's actions.

This could have been a pivotal week- and I emphatically stress the word "Could". We are still in a Bear market until proven otherwise. However, there are some forces suggesting trend reversals may be in place. 

The recent slate of interest rate cuts are pretty meaningless, and viewed as inflationary if anything. However, the International investing community is a little bit in awe of Bernanke's recent extremely creative moves to provide liquidity to a cash starved system. After all, loan interest rates do nothing to stimulate the economy unless you can borrow at those rates, and Gentle Ben has put some very creative strategies in place to provide the aforementioned liquidity. Looking back, there wasn't one of these Wall Street Geniuses who predicted the FED would pledge out Treasuries to big banks in return for the Mortgage backed securities so they could get back into the lending business.

So- after many months- guess what's finally happening this week- the almighty Dollar, the international cash trash, is finally firming, and it could bode well for the US stock market. 

The markets are rewarding the FED for it's unprecedented creativity - the moves the Bernanke FED are making now have never been employed by and of his predecessors- many were critical of the FED being too slow to act in 2007, but investors are now starting to believe this guy is a genius.

With the Dollar firming this week, the commodities that have been moving up inversely to the dollar- specifically gold and oil, are rolling over big time, which is a very good sign for stocks.

The seven year bull market for gold could be coming to an end- after all, seven years is quite a run. We need to look at lessons of the past. It seems the financial markets move from one bubble to the next. The 1990's it was the tech bubble. The first half of this decade it was the real estate bubble. For the last 3 years it has been the commodities bubble. These bubbles tend to run on far longer than anyone can predict. Who could forget Alan Greenspan's "Irrational Exuberance" comment. Do you remember it was made in December of 1996?- there was 3 years of a massive bull market still ahead.

This week was interesting. Oil and Gold, two commodities that have been rising inversely to the dollar's fall, have sold off big. However, steel stocks- another commodity driven industry group, are up big this week. These are infrastructure stocks being fueled by International growth.

Here's the lesson I am taking from the past. The bull markets for gold and oil are not over yet, but the beginning of the end is here. Consider the Dot Com implosion. I remember it well. The NASDAQ starting falling apart in March of 2000, but bounced throughout the course of the summer. It rebounded, but made a lower high. Then, the NASDAQ absolutely cratered in the Fall of 2000, which is when the huge money was made on the short side.

Guess what- it's March of 2008. Gold, after a seven year Bull Market and a parabolic rise at the end, is selling off big this week. I believe we will see a repeat of the NASDAQ in 2000 in the Gold market. Gold will come back, but it won't get up to the previous high. Then, it will be a great short, and it will roll over just like the NASDAQ in the Fall of 2000. Same movie- just different characters. 

A lot of investors are starting to believe the FED's moves over the past week could be a watershed event. The end of Bear could be signaling the beginning of the end for the Bear Market.

It's too early to call for sure. We're still in a Bear Market until proven otherwise. There's still more damage to come in mortgage portfolios. However, it's really time to start thinking about being positioned for that first big move up when cash becomes trash, and money floods back into US stocks. The dollar is the key. A firming dollar will bring international money back to the US markets. If Gold can go on to new all time highs, then the message I just delivered will prove wrong.
 

Lots of comments and questions about EFSF's pullback under the $.20 mark out in front of what might become a transitional period for the company, and I wanted to share my version of the EFSF World According to Isen- the OTC Journal editor and publisher.

The stock recently gave everyone hope as there was a lot of disclosure about the coming direct response ad campaign. We now know transformational events will be coming over the next 90 days, the campaigns kick off in earnest within one week, and then gain momentum as results come in. The results don't stretch over time- Respond2 knows if the message is working in real time, and can modify the campaign accordingly.

So, with all this great news out there, why is the stock back to testing it's previous lows? A quick look at that chart provides an obvious explanation. This stock has been going down for one year, and this kind of damage was not going to be reversed in one week. 

I call it the "WHEW" factor. When a stock has been in a long term downtrend, and that trend starts to reverse course, a bunch of shareholders who were looking from some sort of rebound to get out said "WHEW" to themselves, and got out. Glad to be out of that mess.

Very often, it's the next or even the third move up that actually holds, and allows the stock to really gain some ground. 

Sure, I'm disappointed to see the stock trade back below the downtrend line, but it's not unexpected. This is all happening against a very negative headline environment. When investors turn on the news, they can't wait to turn stocks into cash.

Here's what it boils down to- there is nothing wrong with this stock that $10 million in sales won't fix. They have changed marketing course. Their advertising for the first month or two is paid for. The balance sheet is the strongest I have ever seen it. The campaigns start next week.

If you want to be in on success before the stats start flowing in, now is the time to act while the stock is weak. If you want to be positioned ahead of what could be a transformational time period for the company, act now. It's riskier, but should prove more rewarding. If you wait for the campaign to prove out, you could pay up for the stock. If you didn't participate in the $.17 to $.18 range, you have a mulligan- in golf- you get to do it over again. That's the EFSF World According to Isen.
 

Next Monday- post close- I'll be publishing a new idea for the first time in months. I have been holding off on new ideas, but it's finally time to start positioning for the next Bull Market, and there are some absolute bargain basement steals out there.

Check your inbox next Monday post close for an exciting new idea.
 

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