To OTC Journal Members:
 

Late Friday I published a BLOG on the status of my current suggested trade- short the NASDAQ COMP through QID (AMEX: QID). This particular security trades as a negative proxy to the ETF for the NASDAQ 100- QQQQ. If the QQQQs go up 2%, the QID trades down about 3%, and vice versa.

Two weeks ago I suggested going short the QQQQs by going long QID. It's a bet the market will correct, but without the risk of an options trade. During the first week, I looked like a genius as QID made a nice gain during a very rough market. Over this past week, the market is grinding higher on very light volume, make me look a little silly.

Right now, there is a disconnect between the actual NASDAQ COMP index and the QQQQs. It's quiet interesting, and I've highlighted it in Friday's BLOG, along with my current strategy for this trade. Please have a read if it's of interest to you.

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.
 

PhotoChannel (OTC BB: PNWIF): So, What's the Big Deal?

PhotoChannel Networks came back to life this week, and now would be a good time to have another look at this situation. The stock woke up for the first time in six months this past week, and much higher levels could be ahead for this one in conjunction with the NASDAQ listing we've all been rooting for.

I have been a fan of the PhotoChannel business model from Day 1- why? simple- low overhead and huge margins. They have huge margins because they don't have to go out and get customers- their gigantic client retail customers do it for them.

Here's a screen shot of the Photo Finishing web page for Costco Canada. Here's how it works. You go to Costco.ca. You find their photo finishing section. You upload your photos. You order prints. You go into the store and pick them up in one hour. It's called "Online to Retail" in the digital photofinishing world, and the retailers love it. They love it because it gets you in their door when you go back to pick up your pictures.

Here's where PhotoChannel comes in. The ecommerce web portal is created and maintained by PhotoChannel. It's all housed on their servers. The transaction flows through their process, and they keep a few cents for every print you order. They do not provide the photo processing equipment- that's at the retail location. They don't have to go out and get customers- Costco provides the customers.

It's a great business model. It's just a bunch of servers, programmers, and designers in Vancouver collecting money. Growth is being fueled by the expanding use of digital photography and a consistent stream of new retailers signing up for their service. Here's the big deal with PhotoChannel- they have been pirating business away from formidable competitor Hewlett Packard over the past year. Sam's Club and Costco specifically.

Want the abbreviated list of retailers they process for? Here you go: Sam's Club, CVS, Costco Canada, WalMart Canada, Eckard Drugs, Loblaws, Shoppers Drug Mart, KMart, and Boots. Now here's the Mac Daddy- Costco US.

Rumored to be one of the largest photo processing operations in the US, Costco jumped ship late last year from HP to PhotoChannel. The company has been building out the Costco infrastructure this year, and is just about ready to flip the switch and start generating revenues.

This past week PNWIF announced it has entered into an arrangement with Kodak China to provide the back end interface for 800 of Kodak China's 4,000 retail locations. It is expected the infrastructure will be in place for the pending summer Olympics.

If you want to learn about in great detail about upside with PNWIF, boutique and highly respected Merriman Curhan Ford out of the Bay area has an analyst following the company. He has a buy recommendation on the stock, with a price target $4.50 to $5.50 in the short run.

Of course, I have it for you. Here's a link:

Click Here Read the Report, or visit the following URL: http://www.otcjournal.com/news_images/PNWIF.pdf

Merriman analyst Eric Wold forecasts $.30 per share in EPS in fy2009- which begins on October 1st. He provides a "moderate" price forecast of $4.50 to $5.50. This past week, Wold raised his estimate to $.33 based on the Kodak China deal.

Here's the real upside. There is no accurate estimate for what Costco's business will be worth to PNWIF. There are no accurate numbers for the revenues HP generated when they enjoyed the relationships. The Costco switch flips on to PN within a week.

I have heard whisper numbers in the range of $10 million to $15 million annually in very high margin business.

Once again, my chart of PNWIF is corrupted, so the chart I am really showing you here is PN- the company is dual listed in the US and Canada, and the shares trade in concert with each other.

There was a beautiful break out from an ascending wedge formation this past week in conjunction with the news of the arrangement with Kodak China.

On Monday, PNWIF will release its Q2 numbers (Q1 calendar quarter)- It is traditionally their weakest quarter of the year, and they have been committing a lot of capital to building out the required infrastructure for their raft of new customers- WalMart, Sam's Club, South America, Australia, and Hall Mark.

If the numbers disappoint the market a bit, I believe any weakness in the stock should be used as an opportunity to jump on board. If and when they obtain their NASDAQ listing, there will be a lot of institutional interest in this stock. 

I own 24,500 shares I picked up nearly 18 months ago at about $1.80. On Tuesday, when the market opened and the company announced the arrangement with Kodak China, I picked up 5,000 more shares at $4.50.

There going to have to start delivering bigger numbers, and perhaps add a few more retailers to the mix, and get the NASDAQ SC listing. However, a little longer term, I believe I'm looking at a possible $10 stock here.

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