To OTC Journal Members: 
 

We don't talk about the market on a general basis very often, but it's always good to keep our fingers on its pulse. The market's heart has come pretty close to flat lining several times this year, but seems to pumping, albeit slowly. 

It's all a matter of opinion, really. One school says the latest rally is the start of a bull market exclaiming, "Ding, dong the bear is dead." The other warns not to place much merit in the gains since March 9 and to brace for further corrections of 10% to 20%.

It's been quite a rally, that's for sure. After closing at a 12-year low on March 9, the S&P 500 has soared 32%; the Dow Jones gained 27% and the NASDAQ Composite added 34%. 

That's all in the face of a chain of bad economic news, enough stuff to strangle any sector. 

Considering markets are forward-looking beasts, let's put everything behind us: the banking and housing collapses, non-existent credit, anemic consumer spending, high debt and President Obama's stimulating first 100-plus days in the White House. 

As we look forward, we have Fed Chairman Ben Bernanke to thank for the latest financial buzzword: "green shoots," referring to any early indicators of a financial recovery." 

I've yet to see any, how about you? Maybe this week's government releases might produce some.I'll keep my fingers crossed; in the meantime, let's take a look at the major domestic indexes and their support and resistant levels. Numbers don't lie.

The S&P 500 Index added 4.12 points (0.47%) last week to 887. The intermediate trend remains down with support at 666.79. Resistance has formed at 930.17 and could also be forming at its 200 day moving average at 936.24. The Index remains below its rising wedge pattern, a bearish sign. 

The Dow Jones Industrial Average added 8.58 points (0.10%) last week to 8,277.32. Its intermediate trend also remains down. The 200-day moving average remains below a rising wedge pattern, a bearish technical sign. Support is at 6,469.95. Resistance is at 9,088.06 and could be forming at its 200 day moving average at 8,844.25. 

Finally, the NASDAQ Composite Index added 11.87 points (0.71%) last week to 1,692.01. The intermediate trend is neutral. Support is at 1,265.52 and resistance at 1773.13. 
 

Not Much Better Outside of Our Backyard

Last week, Mexico reported that its economy contracted at an annualized rate of 21.5% in the first quarter. Reports from Japan, Germany and the United States were equally dismal. Japan - the world's second largest economy - said its gross domestic product (GDP) shrunk at a 15.2% clip, its worst performance since 1955. Germany's economy slowed at a 14.4% annualized pace, it's worst showing since 1970.

In fact, Europe as a whole stumbled in the first quarter, as economic activity in the 16-nation Euro zone fell the most in 13 years. 

At home, the U.S. economy contracted by a 6.3% annual rate, with the U.S. Federal Reserve predicting "a gradual recovery" that starts in the second half of this year ...which happens to begin simultaneously with the Dog Days of Summer. 

This is the time when commerce and business naturally slow and this is reflected in 3rd quarter corporate numbers ...typically the worst quarter of the year for earnings. Then as business picks up and the holiday season rolls in, Q4 becomes the best quarter for earnings. 

If you have positions heading into the summer months, don't worry about them moving too much with low volume. Of course, keep one eye on them in case any earth-breaking news hits the company. 

The soonest we see any "green shoots" sprouting would be late in 2009 or early 2010. August is one of the best months for bargain hunting and positioning yourself for any fourth-quarter sparks.

Keep this is mind, there's still nearly $8 trillion sitting on the sidelines, so when those "green shoots" indicate a full-blown recovery, we should see a sustainable market rally.

Some of the best buying opportunities follow bear markets. In fact, the four worst bear markets since 1922 all had one thing in common: After dropping very close to 50%, all experienced at least a 52% rally triggering uptrend in various areas such as health care, real estate, utilities, technology, natural resources and financial services. 

The National Bureau of Economic Research (NBER) officially announced in late 2008 that the U.S. economy was in a recession.

Interestingly, whether you consider one month, six months, one year, even three years after a recession, small-cap stocks trounce their larger brethren coming out of slowdowns, according to the data crunchers at Old Mutual and Morningstar.

That's why I migrate toward small-cap stocks.

For example, the 12 months following the 2000-2002 bear market, small-cap performance nearly doubled that of large-caps, 46% vs. 24%. Another illustration of this wide gap came a year following the 1982 crash when small-caps surged 96% compared to 59% for their large-cap counterparts. 

Why is this? Small caps are nimble and quick to react to changing market conditions. They also don't have the issues with bureaucracy that larger companies can that inhibit bold moves. 

That coupled with a technical trading system that identifies companies based on real numbers, not rhetoric, will be your ticket to making money when the "green shoots" sprout and even when they remain in hibernation. 

In fact, I'll soon be revealing another great company with huge profit potential and close ties to China.