To OTC Journal Members: 
 

Whipsawed To Death: Post Traumatic Stock Syndrome

Early in the week it felt like 2008, but now it doesn't. Maybe I'm confused, but do we really care about the shape of Societe Generale? That's the French bank that made all the news this week, as rumors of its demise made the markets go berserk.

Now, I know there's all sorts of ripple effects throughout the world economy, and many of these big banks are tied to each other. However, let's get real. If Societe Generale were to fail tomorrow, the markets would tank, but how many people in the US would not shop at WalMart this weekend. How many people would not go into the Apple store?

In my view, very few.

The market is a rather insane emotional animal in the short term. Earlier this week, it behaved as if it was 2008- it was suffering from Post Traumatic Stock Syndrome- assuming the banks in Europe were in far worse shape than imagined, and raising cash at any cost.

Funds flows out of equity were the 3rd largest in history, and the individual investor is notorious for selling at the bottom.

I suspect it could continue to be a bit insane for a while, but it doesn't feel like 2008 to me. We have some serious long term problems in the US that need to be solved- the Federal simply needs to spend more in line with what we take in. This can happen over time, but the markets are sending a message to Washington that those partisan bozos need to stop worrying about posturing to get re elected, and start worrying about solving problems.

In this kind of environment the micro caps take it on the chin the hardest. Since those are the playground of individual investors with an appetite for risk, when there's no bids around, market makers are happy to see the bottom fall out. 50% to 75% drops can be the norm in an environment like this.

These stocks can come back quickly as well. I suspect bargain hunters will show up over the next two months, and the microcaps can have their usual great performance towards the end of Q3 and into Q4.

In the meantime, all this fear has investors flocking to gold.
 

Coming Attractions

And, speaking of gold, in light of the rebound in the markets this week, I believe I'll get the Sunday special going again. The "Sunday Special" has yielded a positive trade about 2 out of 3 times. I'll take those odds.

However, sector is important. Sunday's idea is on of my OTC Journal "First Looks" - you guessed it- it's a gold play, and you'll be the first to get clued into this idea. There's Gold in the Hills, and I'll have it for you.

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