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There was a new BLOG entry
this week on Global ePoint (NASDAQ: GEPT). Earlier this week they
announced a new contract with an undisclosed So. Cal Law Enforcement agency
for their proprietary digital recording technology. It will be installed
on 25 of their patrol cars. This company is gaining some traction and should
do well when money flows back into the homeland security/defense sector.
Check out my comments in the BLOG.
To use the BLOG, simply go
to the home page at www.otcjournal.com
- the BLOG will scroll down automatically on the right side of your
screen. The most current journal entries appear in the middle of your screen.
Check back frequently for updates particularly when stocks are moving to
overbought or oversold levels or in volatile markets. Your questions and
postings do not automatically appear, so don't bother posting the same
question multiple times. I personally go through to moderate and respond
to every question.
Vitra System's (OTC BB: VTSI)
chairman Kelly Jones will be conducting a conference call tomorrow (Thursday)
to bring shareholders up to date on what's happening at the company. The
call we be held Thursday afternoon, June 30, 2005, at 4:15 p.m. EDT, 3:15
p.m. CDT, and 1:15 p.m. PDT.
To access the call, please dial 1-800-936-9754
for
the United States and Canada, or 1-973-935-2048 for international callers,
at least ten minutes before the call is to begin. The call will also be
available via webcast upon registration at http://www.viavid.net/dce.aspx?sid=000026C6.
A digital playback of the call will
be available until July 2, 2005. The toll-free playback dial-in numbers
are 1-877-519-4471 for the United States and Canada, or toll 1-973-341-3080
for international callers. Listeners should enter pass code “6225275” to
access the call.
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A Look at the
Oil and Real Estate Bubbles |
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I don't expect to be publishing any
new editions until after the 4th of July weekend (July 1 for our Canadian
friends). It's time for barbecues, fireworks, and forgetting about the
stock market for a few days.
In advance of the weekend, I thought
it might be fun and informative to look at what many believe are bubbles
on the economic landscape: Real Estate and Oil. Both are
huge factors in the economic picture, and have a major effect on the stock
market. Over the last year, a massive amount of market capital has swung
to these two sectors, and it could prove helpful to explore the possibility
of these bubbles bursting.
Let's start by looking back at the
bursting of the tech bubble, which was undoubtedly the biggest bubble in
the history of the stock market.
Here's a chart of the Nasdaq Composite
in the first half of year 2000. The blue line is Di Napoli's 3x3 displaced
moving average. This a moving average displaced forward by 3 time periods.
It's complicated, but it's an indicator all the big fund managers use and
much more effective than a simple moving average.
As you can see from the circles on
the chart, the COMP bubble had two opportunities to burst in January of
'00, and went on to higher highs on both occasions.
In March, the 5000+ high was made.
The COMP then dropped below it's 3x3 MA, went back above it, and then went
back below the 3x3 within 8 trading days and went to a lower high. Technicians
call this a "Double Repo" (double repenetration), and view it as a major
technical turning point if achieved within 8 trading days.
Here's the sequence:
-
Index breaks above 3x3 and closes at
new high
-
Index breaks below 3x3
-
Index breaks above 3x3 but fails to
make a new high
-
Index breaks below 3x3
-
This all happens within 8 trading days.
When this happens, most technicians
will tell you it's a signal for a major trend reversal. It happened to
the COMP in March of '00. What happened after was the well documented history
of the worst Bear Market since 1929. Now, let's fast forward to the current
Oil
and Real Estate bubbles.
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The
Oil Bubble- What's Next? $40 or $80? |
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T. Boone Pickens says oil will be
$110 a barrel in five years. Here's more rhetoric from oil bulls: Reserves
in major oil-exporting countries have FALLEN (with the exception of Canada
and its oil sands) since 1990. Mexico peaked in 1998. The North Sea peaked
in 1989. Saudi Arabia is locked into 9 million to 10 million barrels a
day because any more depletion would collapse the underground wells with
water and render them unproductive.
We are consuming 84 million barrels
a day going to 88 million by the end of the decade, and we are dropping
reserves 2%-3% a year including the addition of Canadian oil sands.
The nationalized oil companies in
Mexico, Saudi Arabia, Iran, etc. that do not allow Western investment and
technology into their countries are under-investing in drilling and infrastructure
about $20 billion a year.
OPEC has lost control of the
world's oil prices because it has lost the capability to flood the market
with excess SWEET crude. When the oil ministers tell us this week that
they will add another 500,000 barrels of oil to OPEC's tally.
1) Oil can only come from Saudi Arabia,
as no one else can raise production.
2) The oil that CAN be added to
production is the heavy-sulfur oil that only 10 refineries in the U.S.
can turn into gasoline.
On the flip side, the price of oil
has undergone a parabolic rise in the last year, and is overdue for a major
correction.
The fundamentals suggest increasing
demand and decreasing supply for oil over the next several years. But-
hold the phone: Could oil go back down into the $40 per barrel range? Is
the bubble going to burst anytime soon, or will oil just keep charging
up the charts?
Recalling the example of the 3x3
on the Comp in '00- The price of oil has fallen below it's 3x3 moving average
this week. Oil should now rebound back above the 3x3. When it does, if
it doesn't make a new high before falling back below the 3x3, it's all
over. Plain and simple. The bubble will have burst for the time being.
For now I would hold all my energy
stocks for higher levels and watch oil's performance. If the next bounce
doesn't take us to a higher high it could be all over. It would be good
for stocks.
However, don't jump the gun. Only
half the picture has been painted. If the price of oil rebounds to a new
high, $80 could be in the cross hairs, and the energy bulls will own the
market. Stand by for future updates as the charts paint the remainder of
the picture.
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The
Real Estate Bubble |
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From 1995 to 2000 the stock market
was the investment of choice for our aggressive money. Post market bubble,
Americans started focusing on their homes, and viola: real returns on real
property. Real Estate has become the aggressive investment de jour, just
like the market was in the late 1990s. This is why volumes are much thinner
than in past times in microcap stocks.
I believe there is a real estate
bubble that will burst at some point in the future. Who can forget the
Savings & Loan collapse of the late 1980's? Here in California people
are buying $1 million homes with no money down and interest only payments
at 5%. Aggressive lending, shored up by low interest rates, is the gasoline
being poured on the fire.
When interest rates go up and real
estate values go down, over leveraged home owners will be blown out of
these overpriced properties, causing a domino effect in real estate values.
Will this happen for sure? I can't
say. I know there are web sites devoted to the buying and selling of condos
site unseen. I know people feel their real estate can never go down in
value. I know there are 3 closed transactions in real estate in California
for every licensed broker. These are all signs of a pending top.
The DJ New Home Construction index
has recently dropped below the 3x3, and rebounded back above. For signs
of this bubble imminent burst, this index must fail to make a new high
and drop back below the 3x3 next week. If this happens, the market might
be forecasting the inevitable correction in the real estate market.
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Conclusion |
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I'm not suggesting either bubble
is going to burst next week. The indexes are setting up for the possibility,
but the second half of the game has yet to be played.
If both indexes do roll over, look
for market money to flood back into the technology sector led by biotech
in the second half of the year. If not, both bubbles could become much
larger and expand for a year or two more before meeting their inevitable
fate.
If you find this information useful,
please forward this edition to a friend using the referral function below.
Stand by for updates on these charts,
and have a safe and happy Holiday weekend.
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