Newsletter

Summer Relief Rally - Is It Possible? and Energy Power in the News

August 10, 2002
Volume V, Issue 60
Email : info@otcjournal.com
URL : http://www.otcjournal.com

To OTC Journal Members:
 

Special Announcement: Trading Alert Next Week

We're looking at a situation which may turn into a Trading Alert on Tuesday or Wednesday afternoon next week. Before deciding if you want to participate, please read the OTC Journal's section on Trading Alerts found on the left hand menu bar of our home page. For a Track Record of former Trading Alerts, Click Here.

Keep an eye on your inbox for an exciting opportunity in the middle of next week.
 

Summer Relief Rally- Is It Possible?

The market was up this past week for the first time in several months. All the major averages posted solid gains, taking investors by surprise. Some attributed this past week's performance to expectations of an interest rate cut when the FED meets on Wednesday. This seems highly unlikely, as 11 interest rate cuts last year didn't work.

Others attributed this week's performance to the absence of sellers. Overseas investors have been liquidating US equities for months, and they seem to have run out of stock to sell. Short sellers were conspicuous in their absence. They're probably all buying new mansions in the Hamptons and jetting around the world enjoying the billions in profits they have accumulated in the past 2 1/2 years. Wall Street pays off when you're right.

Despite the typical August seasonal lack of interest and pervasive doom and gloom, this chart of the NASDAQ Composite suggests we may be in for a summer relief rally.

This past week the NASDAQ broke up its' downtrend line (shown in red) for the first time since the sell off steepened in mid May, leading to three months of bloodletting on all the major indexes.

In addition, the NASDAQ has recently put in a double bottom. The second bottom was slightly higher than the first. Technicians will tell you this is a bullish indicator in the short term.

As long as the NASDAQ stays above the red line, there is a possibility of temporary rebound into the 1450 area. Of course, this will not change the long term downtrend. We believe the trend will continue until October or November, when a new, very weak, and very young Bull will be born.

Here are a couple of oversold trading ideas which may yield a short term profit if the market puts in a relief rally. This scenario may not play out, so use a stop loss as an insurance policy against a new leg down.
 

Flextronics (NASDAQ: FLEX)

Flextronics is probably the largest outsourced off shore manufacturer of electronic devices. OEM (Original Equipment Manufacturers) outsource their production to this company.

Formerly a profit powerhouse, the company's fortunes have declined along with the entire technology industry, and they are losing money at this point in time. However, the value is compelling at this level.

Annual sales run about $13 billion. At this price, the company is trading with a $4.2 billion market cap, or about 1/3 of sales. It is also trading at less than book value (liquidation value), which is about $8.62 per share.

The chart suggests a slight uptrend started in late June when the stock hit it's all time low of $6. If the market improves, this one may want to go back an fill the gap from early June, suggesting a good target price might be $12.

However, stay light on your feet. The company's fortunes are declining. A stop loss based on your risk tolerance is highly recommended.
 

Nvidia Corporation (NASDAQ: NVDA)


 

Here's a stock traders have taken out to the woodshed and beaten to death. The company designs and manufactures 3-D graphics processors and graphics processing units.

The company has a book value of $5.72, $5.45 per share in cash, and at current levels trades with a PE ratio of about 7. This company had an adequate June quarter, but announced the future looked bleak. 

In favorable market conditions this stock could rebound into the middle of the blue bands. This shows the average price since the stock began it current leg down, toppling from $24 to just above $9 in less than a month.

Most of the analyst community downgraded this stock once it reached the $9 level, which is a bullish sign as far as we are concerned.

Again, if you decide to roll the dice, a stop loss to minimize the risk is strongly suggested.
 
 

Energy Power Systems (AMEX: EGY) Back in the News

Energy Power Systems, one of our long term profiles, was back in the news for the first time in months yesterday morning. This stock was a big winner for us in 2001, yielding a profit of 60% to 70% for our members who sold towards the end of the year.

This year it has been all down hill for no apparent reason other than lack of news and horrendous market conditions. The company has not been proactively out in the investment community, choosing not to swim against the tide. They are waiting for calmer waters before proceeding.

Yesterday, just before the market opened, Energy Power made it first very positive announcement in some time. The company announced its Offshore and Engineering Division had been awarded $6.2 million in contracts by major energy companies operating in Atlantic Canada. Click Here to read the entire text of the news release.

We are expecting Energy Power to make a come back this Fall, predicated on the possibility of major new business. Stay tuned for more developments. The stock is oversold at current levels, and the company is doing well.


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