Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
 |
John
Carson, Founder and President of Irvine Sensors (NASDAQ: IRSN)- Ponies
Up Big Bet on His Company (After All, It Is Kentucky
Derby Weekend) |
 |
On Friday, just after the market
closed, I learned from both a news release and an SEC filing that John
Carson has decided to place a monster bet on the future of Irvine Sensors.
Carson is the President, founder, and scientific brains behind the company.
In addition to the $260,000 he invested
with his own personal retirement funds at the end of March at $1.10 per
share, it seems Carson has decided to add to his holdings in a very meaningful
way.
Carson has raised his ownership in
Irvine
Sensors to 11%, up from the 1% he previously held. He increased his
ownership position by purchasing 769,231 shares at $1.30
per
share, slightly above the market price last week at the time of purchase.
These were newly issued shares. Therefore, the $1 million will go directly
to the company.
Irvine Sensors achieved $15 million
in revenues during fiscal 2002 (end of September),
50%
higher than the $10 million average the company achieved from fiscal 1998
through 2001, and the highest level in their 20 year history.
The recent $13 million contract award
from the Department of Defense virtually assures continued growth in fiscal
2003. However, I suspect the March quarterly numbers will be weak, as the
DOD contract awards were delayed by 60 days during the war preoccupation
phase. A pullback in the stock after the numbers are released would be
an outstanding buying opportunity, but it probably won't happen now.
An investment in a growth stock is
a bet on the future. Insider buying is always considered a positive. Insider
buying above the market in this magnitude is very unusual. In light of
this weekend's Kentucky Derby, it would be fair to say John Carson is placing
a huge bet on his own horse. Unlike horse racing, it won't be over in a
couple of minutes, and you won't lose all your money if your horse doesn't
come in. In my opinion- a ringing endorsement of potential future performance.
Click
Here to read the news release.
 |
To Bear of Not
To Bear- Is the Bear Market Over? |
|
Are we still in a Bear Market, or
has a baby bull emerged? Certainly market performance this year suggests
the worst is now behind us. After all, the market has made a series of
higher lows and higher highs since the bottom was established last October.
All the major equity indexes are trading above their 200 day moving averages,
the level universally considered a benchmark for the long term trend.
In further support of the bullish
case: all the major equity indexes were higher year to date at the end
of April for the first time since 1999.
According to the Wall Street Journal,
Jim Paulsen, who runs Wells Capital Management ($110 billion for Wells
Fargo) believes "If the economy starts to look better, there is 40%
upside" to the market. He doesn't believe there is much risk of
stocks falling a lot farther, and he believes last October's low will mark
a lasting bottom. Paulsen's views seem to be reflective of most fund managers
in today's environment.
Toby Smith, frequent guest on Fox
TV, market prognosticator, and editor of the WaveWire, turned bullish this
week after several years of being a poster boy for the bears. In this past
week's newsletter, he asks the following:
"What would happen to corporate
earnings (i.e. stock values) if we didn't have to endure another series
of the worst economic events in the second half of 2003? What if the following
events were to occur?
-
The world gets lucky for a few quarters
and endures no earth-shattering events.
-
Energy costs drop 40%.
-
Historically low business inventories
are brought up to just plain low levels.
-
Israel and Palestine are forced to
endorse a "Palestinian Homeland Roadmap" by the end of the year that outlines
a settlement by 2005 or so.
-
Iraqi oil starts pumping again in
big quantities.
-
The dollar makes an orderly retreat
to non-bubble valuation.
-
Corporate interests rates drop and
bond spreads (risk premium in bonds) fall.
-
Europe and the U.S. agree to disagree
and move on.
-
Congress passes a 50% dividend tax
exclusion with the other simple tax cuts.
-
SARS does not become a world pandemic.
-
A $100 billion settlement in the
scourge of asbestos liability."
Good question Toby- what would happen?
|
The
Bears Say Hold The Phone - Wall Street Usually Climbs a Wall of Worry |
|
Ever heard the age old adage "Wall
Street Climbs a Wall of Worry"? Technicians will tell you any sustained
move to the upside has to be accompanied by a healthy level of fear.
David Nichols, publisher of 21st
Century Alert and an outstanding market technician, believes the market
is poised for a protracted 30 to 40 trading day pullback. He argues the
lack of fear in the market, as measured by the VIX, will backfire on the
bulls in the near future.
The VIX (Volatility Index) is a measure
of fear levels in the market. The higher the VIX, the higher the fear.
It is compiled using a complicated formula of bids and offers on options,
and most technicians love this index. Here's why:
Shown here is a chart of the VIX
overlaid on the S&P 500. The S&P is shown in green, and the VIX
is shown in red. The indexes move in nearly perfect diametric opposite
directions. Put simply, when fear levels increase, the market goes down.
The VIX is now at a multi month low.
David Nichols believes any sustained rally must be accompanied by higher
levels of fear. Therefore, in order to continue higher, the market needs
higher fear levels.
As you can see from the chart, the
VIX has recently begun to turn north. Will the market turn south in concert
with a rise in the VIX? Each time there was an extreme spike both indexes
turned in opposition to each other.
The VIX and the SPX moving in opposite
directions is typical of a bear market. Therefore, if we were in a bull
market, the VIX and the S&P 500 would climb higher together. At minimum,
the VIX would be flat at a higher level as the market climbed.
The market has traded up for three
straight weeks. It is probably a little overbought and ready for a pullback.
There is likely some easy money to be made shorting the market in the near
future. Look for a trading alert to short the QQQ's next week if the market
shows signs of tiring.
The chart also shows the extremes
are contracting, meaning severe volatility is diminishing. This could also
be characteristic of the maturing of a bottoming process.
|
Conclusion-
Bottoming Is A Process, and We're Well Into It |
|
Hall of Fame money manager Peter
Lynch points out there have been nine recessions since World War II-
we are in the 10th right now. On average, the economy lost 2 million jobs
in each recession, which is about the number lost in the current recession.
Peter Lynch also brings out one inarguable point- 100% of the time the
recession ended and the market went on to make new highs.
Like most efforts to predict the
future, a moderate viewpoint ends up being accurate. I don't believe all
the doom and gloom forecasters who say we are headed into a world wide
depression, fueled by ongoing global conflict. The market hopes for the
best, but prices in the worst.
I don't believe you can compare this
Bear Market or economic environment to any in the past.
Consider this: Economists are scientists,
and science keeps getting better. For example, breast cancer now
has a 98% cure rate. We can deal with heart disease. It requires five hours
to get across the country; it used to require five days. We can pin point
a target for a bomb within a couple of meters. Cars are faster, homes bigger
and more efficient, and lives are better.
Economists (especially Greenspan)
try to manage the cycles using the tools our government provides. Why shouldn't
the science of managing the economic cycles improve as well? We've avoided
the inflation of the 70's and the energy crisis of the 80's.
Fiscal stimulus has worked in the
past. It will work again. They say trouble comes in 3's- Here's your 3
uncontrollable events that have derailed the end of this recession:
-
911
-
Enronitis
-
War With Iraq
The bottoming process is marked by diminishing
pullbacks and longer rallies. The range is getting tighter and the pullbacks
less violent.
Six months with no cataclysmic events
will provide an environment for monetary policy to work. It will mark the
end of the recession, characterized by increasing corporate profits, and
increasing stock prices. I believe the October to December time frame will
definitely mark the end of the bottoming process with everybody's standard
disclaimer that we can't add a #4 event for it to happen. Until then the
bottoming process will continue and there will be plenty of opportunities
to make money as investors start coming back into the market.
Your comments are welcome
on this or any other subject for the Members' Forum. Please email info@otcjournal.com
with your comments and questions. We publish viewpoints on both sides of
any issue.
Charts Provided Courtesy
Of TradePortal.com |
