To OTC Journal Members:
 

Market Comment

Commentary on market conditions has not been the focus of the newsletter in the past.  We mostly follow the fundamentals of the small companies that we cover, and find special situations for free benefits on behalf of our members.

Until we return to a bull market we will continue to bring you market commentary in every edition because we believe that this is information that you want.  We don't claim to have any special credentials for predicting market trends, but we are rabid followers of the financial press, and we will make an effort to cut through all the financial techno-babble to bring you a simplified picture.

Most of the technicians that we follow with good track records are predicting further downside for the market in the near term.  All relief rallies this week have been met with resistance and further selling pressure.  The absence of buyers and light volume make market conditions appear to be worse than they really are.  For the most part, sellers that were going to sell have already sold, and short sellers have very little upside compared to shorting back when the NASDAQ was over 5000.

The lowest estimate we have read so far the NASDAQ is 2500.  However, 2900 seems to be the level that most technicians believe we will see serious buyers again.  Not coincidentally, the fantastic surge that we had in the NASDAQ from November to March began at 2900.  Therefore, the NASDAQ is simply giving back all the gains it made in the 4th quarter of 1999 and the 1st quarter of 2000.

2900 is only 200 points below current levels, and we have already lost 2000 points from the highs.  Therefore, the vast majority of the damage has already been done.  Which brings us back to the main question- when do we turn back up?

There were several positive signs in the financial press this week.  Earlier in the week DonaldsonLufkinJenrette came out with strong buy recommendations on many of the larger technology leaders.

Yesterday, the Chief Economist at Merrill Lynch predicted the the FED would only raise interest rates another 1/4 point in June, and that GDP would return to 3 1/2% growth over the next two quarters.  If he is right this would eliminate inflation fears and bring us back the Raging Bull. 

We continue to believe that today's investments will pay off handsomely by the 4th Quarter of this year.  This gives us some margin for error.  However, each day that stocks trade poorly gives us a higher probability of a major summer rally.

The market is desperately seeking some upside leadership.  We believe it will come when we get some benign economic numbers.  This will give the bulls some hard facts to hang their hats on, and should signify the beginning of the end of this Bear market.
 

New China Homes, LTD- A Special Situation

New China Homes (NASDAQ: NEWC, NEWCW) is not a company that we cover.  However it is a special situation that we would like to bring to your attention.

Later today (probably by the time you are reading this) Congress will have voted on granting Most Favored Nation Status permanently to China.  If the bill is passed US/Chinese trade relations will be wide open.  The measure will be very favorable for certain China based stocks that trade in the US markets.  President Clinton has been lobbying heavily for the passage of this bill.

Today's New York Times is predicting that the vote will be close, but odds are that it will pass.

New China Homes is a stock that the Main Stream financial press is not covering yet.  The company builds middle to upper income tract homes in China in the suburbs of Beijing, and their business is exploding.

Last quarters' financial results came in at $8.4 million in sales, and nearly $.07 per share in earnings.  This company is very profitable.  They came public earlier this year at $5 per share, and the stock closed yesterday at $6.81.  Last quarter's results were generated pre-IPO, and now they have a significant amount of capital to invest in their expansion.

As a condition to their IPO this company must earn $10 million in the first year of business after coming public.  If they fail to achieve these profits, management will be forced to retire a significant portion of its personal stock. 

At $10 million in profits this company would earn over $.90 per share.  If China is granted Most Favored Nation Status and the company can generate the aforementioned earnings, a reasonable expectation for this stock would be $20 to $30 per share.  A favorable vote from Congress might lead to a short term surge in the stock- time will tell.

We are not formally covering this company, and have not been compensated in any way for disseminating this information.  However, as always we inform you that one of our editors is a shareholder in both the common stock (2,000 shares) and the warrants (2200 shares) in this company which were purchased in the open market.  Therefore, you should view our comments as a potential conflict of interest.  Our editor purchased his common shares in the open market at $8 just last Friday.

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.