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To
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Don't Say You
Weren't Warned |
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In the last 10 trading days everything
changed. May 11th now seems likes it was months ago. I mention May 11th,
because that was the date of the publication entitled "What
A Week!!". The edition reviewed one of the hottest weeks OTC Journal
members have enjoyed in a long time- Golden Peaks (TSX: GL), US Energy
(OTC BB: HYFS), NeWave (OTC BB: NWWV), and Advanced Cellular (OTC BB: ACTC)
all made big moves during the course of that week.
Alas, the fun came screaching to
a halt just after May Federal Reserve meeting, wherein the "One and Done"
scenario the market had been banking on went up the chimney like smoke.
The market had been betting new Fed Reserve Chairman Ben Bernake would
provide some language suggesting the FED was done with its interest rate
increase cycle for the time being after raising one more 1/4 point. Instead,
against a background of another surge in Oil and Gold, the FED felt it
was unable to provide such assurances, and the market didn't like it.
The momentum stocks fell apart in
all hot sectors- there were no prisoners. Pretty much any stock that had
been moving up the charts of late was flushed down the toilet.
In fact, as mentioned in last week's
edition on HYFS, Thursday's oversold reading was one for the record
books. According to my favorite technician, the oversold readings on Thursday
were the third most extreme in the last 7 1/2 years. The two other ugliest
days were September 21, 2001 (the first day the market opened after 911),
and July 23, 2003 (the height of the Enron scandal). The July '03 market
bottom turned out to be the turning point back to a bull market.
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Time
To Take Stock of Your Stocks |
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There is more than just the recent
market decline working against us. There is also the seasonal nature of
the market, which is exaggerated in the microcap sector.
"Go away in May" is a long standing
Wall Street adage that has some basis in reality. The summer months tend
to be fairly quiet in the microcap world, and prices (of course, there
are always exceptions) tend to erode on light volume. Microcap participants
are mostly individual investors, and their absence in the summer months
leads to a low volume environment.
I believe the market's seasonality
is based on corporate achievement. Let's face it, not much really big stuff
happens in the summer. This leads to seasonally weak Q3 numbers at the
end of September. The market starts to price it in now, and then generally
rebounds in the Oct, Nov, Dec time frame when Holiday commerce gets the
economy fired up again, and corporate America kicks in the acheivement
afterburners out in front of the year end. When the kids to back to school,
people go back to work.
The market is due to bounce, and
when it does you need to have a plan. Here's what I know- the summer months
are coming and the market tends to quiet down and stock drift down. Here's
what I don't know- I don't know what kind of investor you are. If you don't
know, you should.
Do you consider yourself a day trader
(100% cash everynight); a swing trader (looking for 1 day to 1 month trades);
or a long term investors (willing to hold over a year to go for long term
capital gains)?
I am both a long term investor and
a swing trader. I am not a day trader. I have funds segregated for what
I consider my "trading money", and funds set aside for investments I am
prepared to hold for one year plus.
If you consider yourself a long term
investor, you needn't worry about trading. Bad Toys (OTC BB: BYTH),
NeWave (OTC BB: NWWV), and Teleplus (OTC BB: TLPE) are all microcap
value plays. They are all profitable companies. If you are a long term
investor I wouldn't worry about any of them.
In the commodities sector, recent
idea Golden Peaks (TSX: GL) and long term fan favorite Hyperdynamics
(AMEX: HDY) are a bit riskier. I have funds I consider my "trading
money" in both of these stocks.
Over the next month, as the market
rebounds, I intend to use bounces to convert my "trading money" stocks
into cash for the inevitable quiet summer months to come. I'll be looking
for absurdly oversold opportunities in August. Whether they be OTC Journal
ideas or from another source, if you are not prepared to accept the possibility
of slow erosion in the coming summer months, do the same.
I'll get right out in front of this
now- Don't send me emails or comments asking why stocks are trading poorly
this summer. I am telling you right now there is a good chance many will.
Now is the time to deal with it. Also- if you visit the archive section
at the home page, there is a suggested stop loss for nearly every followed
company.
If you are a long term investors
that doesn't mind the market's gyrations, ignore all you have read today.
If you are a day trader, the OTC
Journal is not for you. If you are a swing trader, consider yourself
warned right now.
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