To OTC Journal Members: 
 

During the week Nighthawk (OTC BB: NIHK) posted its Q3 earnings report, and I have to say I was very pleasantly surprised. Since the company had been so quiet over the course of the summer, I thought there was a possibility the Q3 numbers would be disappointing. It was quite the opposite. Record revenues, reduced losses, minuscule dilution, and higher cash levels were all highlights of the company's financial result. I would expect more of the same in Q4. Very impressive against the backdrop of an ecomonic nuclear winter. In light of this news, I would characterize NIHK as a buy if you have a six month window in time. If the new relationship with Itron (NASDAQ: ITRI) starts to result in enhanced sales, watch NIHK get back to that $.10 level over time.

Also, there was some great media coverage on China Energy Recovery during the week for your review. EE Publishing (Environment & Energy), a web portal devoted to all issues energy, conducted an interview with board member Roger Ballentine- formerly head of the Climate Change Task Force under the Clinton Administration. Simply Click Here to view the video of the interview online. This stock is headed for super stardom once we get past this deleveraging process.

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.
 

Guess The Chart

I believe the stock market moves from one bubble to the next. The bubble that got us into the current mess was a debt bubble- not an equities bubble. Fueled by Alan Greenspan's five years of low interest rates, a massive bubble formed this decade which allowed too many people and too many institutions to invest in too much with too little capital. That leverage bubble has burst, and its having a devastating effect on our economy and our stock market.

Here's what a bubble looks like as it inflates and deflates. This particular bubble was one of the most extreme I have ever seen in my lifetime. This chart goes back to January of '07. Can you identify what it is? It's probably too easy. This is a chart of the price of oil.

I've recounted this story a couple of times, but it's worth revisiting. Oil peaked in July after running up $10 a barrel every month for all of 2008. I vividly recall watching CNBC trot out expert after expert as oil approached $140. I'll never forget this one bozo they brought out as oil was making its peak. It was the perfect contrarian indicator. This guy had about 50 rational and logical reasons why the supply/demand dynamic for oil would peg the commodity at $200 in pretty short order. That was within a few days of the top. Where's this "expert" now?

It was just a matter of time before the oil bubble burst. There is a lot of money to be made betting the other way as a bubble over inflates. The problem is figuring out where the top is, as every bubble tends to be run longer and go higher than anyone ever thought possible.

So, do you think there's no bubble inflating today? Take a look at this chart. Can you guess what it is? What does it have in common with the chart of oil? Clearly, it's a bubble that has inflated very dramatically. This security was bumping along the bottom at 20 all year. Come September- BOOM- the security runs right up to 80.

Don't you think this looks just like the chart of oil from January to July? In fact, over three months, the move was even bigger. Oil moved from about $60 to $140- 133%. This security moved from 20 to 80. That's 300% in half the time. A much more radical bubble.

As I said, it's tough to call the top. You can make a fortune when a bubble bursts if you're on the right side, but it's very tough to call the top. This bubble may have peaked and be getting ready to burst as the last higher is lower than the previous high, but it's a little too early to call.

When this bubble bursts, it will be the easiest bubble to make money on. Why? - Because when it bursts, stocks will be going up everywhere, and we'll be able to make money on the long side once again.

Did you guess it? This is a chart of an index known as the VIX- which is short for Volatility index. The VIX measures levels of "fear" in the markets by comparing the activity level of puts vs calls in the S&P 500 stocks. That's right- we are currently experiencing the most massive fear bubble in history.

The VIX has never come close to approaching the levels it has recently achieved. It's a rather amazing environment when you consider during the 1987 stock market crash there were about 8 S&P 500 stocks trading below $10. Today, there are about 120 of them. That's just brutal.

Like all bubbles, this one is due to burst, and likely burst reasonably soon. Oil didn't spend too much time at it's overbought stratospheric level, and the VIX won't either. It looks like it could be topping out right now, but it's too early to call.

Accumulating stocks against the backdrop of all this bad news and the parabolic rise in the VIX might seem insane. However, when that bubble bursts as all before it have, those in good companies on the long side are going to reap the rewards.

Watch the VIX. It's starting to tell us we close getting back to a more rational market.

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