Newsletter

WOW

November 10, 2007
Volume VIII, Issue 80
Home Page : www.otcjournal.com
Email Questions or Comments To: editor@otcjournal.com

To OTC Journal Members:
 

Wow

I was up at 5:30AM Pacific on Friday morning. I couldn't sleep, so I got to work. I turned on CNBC, and the rhetoric was predictable. I watched for about two hours as the network went through its usual gyrations of interviewing fund managers, floor traders, and general know-it-alls. Art Cashin, widely acknowledged one of the true old time characters and cagiest traders on the floor of the NYSE, said in his usual tongue-in-cheek manner: "Goldilocks is buckled in with two seat belts and a helmet". Goldilocks is the pet name for the current slow but steady low growth, low inflation economy, which is ideal for stocks.

In the first two hours of coverage, CNBC couldn't find one individual to say anything positive about the market. All the major indexes have been in a free fall this week, and as I said, the rhetoric was predictable. Stocks in all sectors have been getting clobbered.

Call it instinct, experience, seat of the pants analysis, whatever. When I hear this much negative sentiment on CNBC, I start doing some bottom fishing. I believe when the rhetoric is this negative, the bottom is near at hand. I could be wrong. There's lots of negative stuff going on out there. However, take a look at the chart. There have been two similar sell offs this year, and both turned out to be outstanding buying opportunities. Will history repeat itself? We'll see. Personally, I like our chances.

Thursday was a critical day. Ben Bernake, the market's new "put" against the downside, testified the FED could be done lowering interest rates. He thinks their work could be done for this year, depending on the data. Of course, the market interpreted this to mean that between collapsing housing prices and higher oil prices, the consumer ain't going shopping this holiday season- dead consumer equals dead economy- equals dead stock market. This sent traders into a second selling frenzy for the week. What I call a "cash at any cost" mentality.

In light of the drubbing in the markets this week, I want to write a little about my SSLs- Suggested Stop Losses. Whenever I cover companies, I generally post an SSL- suggested stop loss, on the left hand menu bar at the home page.

Using the SSLs is a very personal decision. They are not for everyone. Here's how I advise you to use the SSLs. If you are an active trader- someone who likes to trade in and out of positions on a daily, weekly, or even monthly basis, you must use the SSLs. You must preserve your capital against major losses. As you know, it can happen, especially in microcap stocks. Sometimes it's the market- sometimes the company- sometimes both. Nevertheless, you need to live to fight another day.

You might not like my SSLs- you might choose your own. You might use them for some positions that you view as a trade- for other positions you might want to be long term. The choice is yours. 

Here's one psychological acknowledgment you need to make- if you continue to hold a stock below the stop loss level, whether it's your chosen level or mine, you have decided to become a long term investor, and shouldn't be concerned with trading levels in the short term.

In light of the massive sell off in the markets, I am updating the SSLs on the home page for you to use should you choose to do so. You can never tell where the bottom is, but bull markets can be characterized by swift, brutal sell offs, and this past week could have been one of those corrective phases which could be close to running its course.

A couple of OTC Journal featured microcaps traded quite well today despite the brutal sell off- SPKL, TTGL, and TCGD all had pretty good days in light of the free fall. This leads me to believe individual investors are not buying into the death of the market.

In case you don't believe in my Fibonacci Retracements, check out the current chart of SPKL. I don't know why, but I seem to be able to call this stock really well. Here's a chart with the whole move from $.50 to $2 in Sept/Oct. In the BLOG, I have been suggesting the stock could sell off to the 61.8% retracement level of about $1.10.

Sure enough, like a trained hunting dog retrieving a bird, this stock went straight to within a couple cents of its pre determined destination, and turned right around and headed for home- back up. The low print of the week was $1.09 on Thursday, and it turned right around and headed back up. It closed at $1.35 Friday. Big rebound.

I got a bunch of calls from friends who had all made money on the stock, wondering if it was time to jump back in. I can't be certain we saw a bottom at $1.09, but it seems likely to me. I can't predict where this stock will be in one to two months, but I believe it will be $3 to $5 in one to two years. There's a lot going on, and it's all very positive.

If you're looking for to jump into something that has done beautifully for us while there's blood in the streets, consider Apple Computer (NASDAQ: AAPL). I've been recommending the stock since it was $93 in March.

AAPL has given back 38.2% of its Fall move, which should represent the first level of resistance. Last quarter the company literally blew away analysts' estimates and delivered $1 billion in profits on $7 billion in sales. MAC sales are being fueled by iPhone and iPod sales, and iTV should be big this holiday season and into next year. The new Leopard operating system is being delivered, and it plays well with Windows Vista. 

However- here's the other side of the story. If you believe the American consumer is going to hide in the closet for the foreseeable future, AAPL should be avoided. iPod, iPhone, and MAC sales will all disappoint. Guess what- I don't think it's going to happen.

I still believe the stock is going to $225, but I can't say when. I thought we might see the $200 threshold this year, but who knows at this point. However, I am a buyer of AAPL to some degree in some form on Monday- perhaps through a Call option which will limit my downside risk to the amount I invest, but could yield on heck of a return on a multi point move to the upside. Check the AAPL Blog on Monday morning.

Like Goldilocks, it's time to buckle up with two seat belts, put a helmet on, and put some money to work before there's two hours of coverage on CNBC telling you it's all right to buy stocks again. By then, it will be too late to steal some bargains.
 

Comments in the BLOG

There is a long awaited update BLOG posted on beleaguered and disappointing Bad Toys/Palladin/Southland Health Services. I spoke with CEO Larry Lunan on Friday, and the report was not encouraging. However, all hope is not lost. Read the current BLOG for the 411.

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.

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.
 

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