To OTC Journal Members:

Lots of great comments from members concerning this past weekend's edition entitled Is The Bear Back? It will take me a few days to go through them all. I hope to publish my favorite comments in this weekend's edition barring any unforeseen major events.

Most were in agreement we are due for a major leg up after one big capitulation phase. It won't happen if oil prices don't come down, but history tells us fear driven maniacal price moves are generally replaced with more tempered levels once cooler heads prevail.

Over the next month I will be writing a lot about capitulation. This is a recurring pattern. Stocks sell off in one high volume "capitulation". Bargain hunters swoop in and the stock rebounds. You generally have one more dip, as some who didn't sell use the bounce to get out. Often on the second or third try, you get a strong rebound assuming market conditions are favorable. Sometimes it only takes one.

Network Installation, one of our eight core microcap ideas, just completed a good capitulation. Is the worst over?
 

NetWork Installation (OTC BB: NWIS): Capitulation Phase Past?

When the market shakes your confidence you find yourself questioning some of your investment themes. Sometimes the world around you reminds you to go back to your core thinking.

I flew through obscure Idaho Falls twice this summer on route to fishing trips in Eastern Idaho. The Idaho Falls airport is tiny. There is one security check point, four gates, and two airlines providing service. Each has about six commuter flights in and out daily.

After a painful week of dial up internet access in June, I drove down to Idaho Falls and was hanging around in the waiting area to catch my flight home. Out of the corner of my eye I noticed a small sign: "High Speed Wireless Internet Access Compliments of Teton Wireless".

I whipped out my laptop which is equipped with the latest Intel Wireless Centrino Chip and built in wireless capability. In a minute I was enjoying the relief of high speed wireless access; for free.

For every Idaho Falls airport, there are hundreds of businesses, airports, and homes that don't have wireless internet and network access, but they will. The peak of the growth of the wireless infrastructure build-out won't happen for a year or two more.

Which brings us to NetWork Installation; NWIS. NWIS is the OTC Journal's microcap idea in the Wi-Fi infrastructure build out. When I first reported on the company about 13 months, they were just transitioning from a hardware network installation company to a focus on new technologies- especially Wi-Fi and VoIP.

Back then NWIS had one office in Irvine California, and a large customer base of Schools, Universities, Municipalities, Corporations, and Police and Fire Departments.

They have since acquired one company in San Diego, and opened sales offices in LA, Las Vegas, Seattle, San Marcos, Phoenix, and Sacramento. Contributions from the satellite offices are beginning to flow in. The company has a stated goal of having a nationwide footprint by the end of 2005. The company delivered about $.5 million in revenues in the March quarter. I'm looking for $.8 to $1 million for the June quarter. Revenues could continue to double every quarter, with the potential for accelerated growth if the right acquisition comes along.

I last reported on the company on a stand alone basis back at the beginning of June. Since then, NWIS has announced the following:

• The signing of three projects in the Seattle area.
• Moving corporate headquarters to a 10,000 sq ft facility in order to accommodate growth.
• An IP Telephony installation for a California municipality.
• Their first recurring revenue stream in the form of a voice and data installation.
• A Wi-Fi installation contract for a major hotel.
• Today: Announced another network installation at a Bay area school.

As you can see from the chart, the market side on this one has been challenging of late. The stock started selling off along with most of its microcap brethren in the May/June time frame.

$3 became the support level in June and July, as this was the price at which the company did a $2.2 million financing. Therefore, with the company delivering on the fundamental side, there was little pressure below $3.

However, we had a capitulation in this stock last week. This is a pattern I expect to see repeated in this market on many stocks. The stock traded down quite abruptly on relatively high volume. In short, everyone who was spooked by the market threw in the towel and sold. This led to a couple of high volume days which took the stock down to an absurdly low level.

Surging volume is a must for a true capitulation. The stock has now rebounded quite nicely, but may turn back once again if people who wish they would have sold before the stock dropped decide to do so now.  It might, or it might not.

I'd like to see the whole market complete this same kind of capitulation phase so we can get a sustainable rally. NWIS seems to have gotten the pain out of the way early.

I can't say for sure the stock will continue climbing with no pullback, but I expect $3 is certainly in the cards. Higher levels over a multi month period are imminent if the market stages a decent rally between now and year's end. 

I was reminded of all the reasons I liked this company in tiny Idaho Falls. 

Sometimes its hard to separate the company from the stock, but that's what makes a market.

Here is the complete text of today's news for your review:
 

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