To OTC Journal Members:
 

StockGroup (OTC BB: SWEB) and Irvine Sensors (NASDAQ: IRSN) In the News

StockGroup was out with some very exciting news on Friday. The company announced June quarterly results, and they were impressive across the board. Here's an overview of the highlights:

• Quarterly revenue increased 69% over the same quarter the previous to $.68 million
• Revenue increased 15% over the previous quarter
• Financial Content and Software revenue increased 86% year over year
• Margin increased to 74% over the same quarter last year
• Gross Profit increased 115%
• Eliminated all long-term debt and convertible note
• Losses were reduced considerably over the previous quarter and the same quarter last year.

In addition, Irvine Sensors held a conference call to discuss its quarterly earnings results on Wednesday. A replay of the conference call is available through Monday, and I strongly recommend you listen to this one also. Management gave us some idea of where the company is headed, and if they begin announcing sales of their new BGA Stack Memory products, you will wish you owned more.

We saw a high trade of $2.20 the morning after this week's trading alert, which was below my $2.50 target and a bit of a disappointment. I was hoping the stock would open a little more favorably, and then trade up like NWIS and IMTO. Instead, we opened high and went down. However, I was looking for this move sometime over the next 30 days. If the company delivers additional reportable corporate events over that time frame, we could still hit the target. In the interim, there seems to be resistance at about $2, which could give way with a couple more high volume days. Perhaps the stock's inability to hold above the $2 level will end up being an opportunity for those looking to accumulate.

Click Here to listen to the Irvine Sensors conference call.
 

The Dog Days of August and the Summer Grind- Where Are We Headed?

We're smack dab in the middle of the Dog Days of August, and both price movement and volume on all the major exchanges are anemic to the point of a near coma state.

The market has been grinding sideways in a very tight range since the first week of June. After a three month move which took the NASDAQ up 40%, it is entitled to go through a period of "digestion".

All of the action this summer has been in the bond market, which woke up one day and decided to believe in the economic recovery. Over a three week period bonds got slaughtered. The yield on the 10 year jumped from 3% to 4.5%. This represents a 50% move to the upside in yields, and a massive drop in value.

The bond market has stated in no uncertain terms it is prepared to believe in the economic recovery. The FED can only control extremely short term levels. The long end of the curve, which relates more to the interest you and I pay on debt or receive in interest payments, is controlled more by market forces. Interest rates are climbing because the market believes interest rates won't need to be so low in during an economic recovery phase.
 

A Look at the NASDAQ

Back on July 22nd I published an edition entitled "Are the Bulls Back in Control?". In that edition, we looked at some simple technical indicators, specifically trend lines and measures of support and resistance.

Let's look at where we are today, and try to figure out where we go from here.
 

Here's a chart of the NASDAQ going back to the big run which began in early March. The NASDAQ appreciated a full 40% during this move. I've drawn in the uptrend line. The market displayed a willingness to bounce off the uptrend line until it breached it convincingly at the end of July.

In my opinion, the breaching of the uptrend line for several days signaled a trend reversal, meaning one could expect the market to either pullback or grind sideways for sometime. Does this mean the Bull Market is over?- No, it only means we were entering a long overdue and healthy period where the market will consolidate some of its gains. So- how far will it pull back?
 

Here's a chart drawn over the same time frame with support/resistance lines drawn in. Since the trend has been broken, I now believe a healthy retracement or "digestion" period is in the cards.

The three red lines in the middle represent various levels of potential support. The market is entitled to give back 30% to 50% of its gains, and still be in a long term uptrend. A pullback to the top line will signal about a 35% retracement, and a pullback to the middle line would signal a 50% retracement.

If the NASDAQ does pullback into the 1500 to 1550 range, I believe this move would represent a very strong buying opportunity at a low risk entry point. If the NASDAQ were to drop below the bottom of the middle three red lines, I would tend to believe the Bear Market was not over, and we were in for further price erosion.

So- why the optimism?
 

And The Market Grinds On

This chart of the S&P 500 shows just how long we have been grinding in this tight range. The S&P broke above 960 in early June. Since then it has challenged 1015 twice, and challenged 960 twice, only to grind its way right back into the middle at 990.

This extended period of grinding will inevitably lead to a major break in one direction or the other. The longer the period of congestion, the more violent the inevitable move will be.

Right now, I believe the next major move will be to the upside. My view is biased by my natural bullish inclination- I love the market. Despite the nasty three year Bear Market, investors would do well to remember that over the long term, the market spends a lot more time going up rather than going down. Because stocks go down a lot faster than they go up, bear markets cause a lot of psychological damage.

My belief the Bear Market is over is based on earnings growth. After an extended period of damage, earnings are growing again. Here's are some recent statistics which support this claim:

• 12 month trailing operating earnings for the S&P 500 stand at $49.74 cumulatively. According to Thomson Financial, analyst estimates of future operating earnings for the S&P 500 over the next 12 months now stand at $57.89- this equates to 16% growth in operating profits- Fuel for a bull market.
• June's trade deficit came in lower than expected- probably as a result of the declining dollar- a positive for the economy. (the number was 39.5 billion; analysts were expecting 42 billion)
• Retail Sales for the past two months were recently revised upwards.
• Weekly initial jobless claims have finally fallen below the 400k mark, suggesting the economy has stopped losing jobs.
• The recent Kansas City Fed Manufacturing survey for July had new orders surging to a new high at 24 and both Average Employee Workweek and Number of Employees turned positive (reading 4 and 3 respectively) for the first time since February and June '02 (also respectively).

The March to June rally should be considered the "Hope and Faith" rally. It was based on faith that fiscal stimulus would finally begin to work. Since faith could be defined as hope in the absence of data, it seems faith paid off.

The earnings growth and positive economic reports that are now coming in were already priced into the market during the hope and faith rally. The market may take some time finish digesting those gains.

With earnings season over, the market will turn all of its attention the economy. If the numbers keep improving 3% GDP growth will not be far behind, and higher stock prices are on the horizon.

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