Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
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A
Sneak Peak at Coming Attractions |
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My mission with the OTC Journal
is to be a source of information on companies you won't find through the
main stream Wall Street media. The companies I cover are simply too small
to read about in Fortune or be interviewed on CNBC. I love this end of
the market. It's risky, but can be very rewarding and profitable when you
get involved with a small company on the front end of a dramatic growth
spurt.
There's a good diversity of companies
to choose from right now. I'm covering potential undiscovered gems in semi
conductors (IRSN), wi-fi (NWIS), virtual reality (VTSI), labor force outsourcing
(ISTO), video streaming (AMNM), motor vehicle technology (STLOF), entertainment
(FMLY), financial content (SWEB), and electronics manufacturing (TTGH).
The list includes nine companies.
Of that nine, there are going to be at least two big winners. I don't know
which two they will be. If I knew, I'd be writing this from my yacht on
the Riviera. Each one has significant growth opportunities, and if the
right factors fall into place any of the aforementioned stocks could rocket
up the charts.
There are two categories missing
from this list, and I'm hoping to fill in the blanks over the next two
months. I'm reviewing several opportunities in biotech and oil
& gas exploration and production. I need to find ideas in both
of these sectors to complete the offerings on the menu.
I'm going elephant hunting for an
oil & gas stock and a biotech stock. Both will be undiscovered with
elephant sized upside potential. Stand by for an idea in each of these
sectors in the future. If you're a gold bug, I have a surprise coming for
you too.
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Is It Time For
A Little Market Insurance? |
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September is traditionally the worst
month of the year to be in the stock market. This table is not random.
It measures market performance since 1900. This is a 103 year sampling.
As it turns out, September averages a drop of 1.25% in the DOW. September
seems to set us up for the start of a rebound in October, which peaks in
December and ends in February.
In spite of the calendar's inevitable
march from August to September, the market continues charging forward as
if September never arrived. The news on the earnings front and the economy
is robust. Analysts are talking 5% GDP growth throughout the remainder
of the year. Intel raised estimates again this week, and National Semi
Conductor reported blow away earnings. As the semi's go, so goes the tech
sector.
The dollar rallied this week and
broke a long term down trend line. Retail sales figures were strong, which
many believe was fueled by Bush's economic stimulus plan. The projected
operating earnings for the next four quarters in the S&P 500 has risen
to $60. Productivity continues at record levels, while employment stubbornly
refuses to join the party. The productivity numbers are a fancy way of
saying "when the going gets tough, the tough get going". We are all working
a little harder to meet the demands of our jobs. We're probably at the
point where companies will have to start hiring again.
Traders know September is a treacherous
month and everyone is expecting a pullback. However, in light of such good
news on the earnings and the economy, fund managers are holding their nose
and diving in any ways.
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Wall
Street Climbs A Wall Of Worry |
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This is one of the oldest sayings
on Wall Street. Fear provides fuel for moves to the upside. Fear is virtually
absent in the market right now. Everyone is convinced the new Bull Market
has arrived, and it's smooth sailing from here on.
The market has a fondness for transferring
wealth from the majority to the minority. Right now the majority believes
the market is going higher. It makes me nervous.
The market could go higher for quite
some time, but I also believe we are at a fairly high risk entry level.
Here's a chart showing my perfect trading world. The green lines represent
the QQQ's, which is the stock that trades as a proxy for the NASDAQ 100.
This stock trades up and down with the NASDAQ 100.
The Blue lines represent the QQV
index. It wasn't good enough for traders to know that "Wall Street Climbs
a Wall of Worry". Someone had to figure out a way to measure the fear.
Hence, the QQV was born for the NASDAQ, and the VIX was born for the S&P
500. The QQV and the VIX use a complicated measurement of options transactions
to quantify fear in the market. If the index rises, the fear level rises.
This chart goes back to April, which
is when many feel the new bull market was born. The QQQ's could pull back
to 30, and the market would still be in an uptrend. This would represent
a 50% retracement.
A more likely scenario would have
the QQQ's pulling back to about $32, which would be a 50% retracement of
the move from the beginning of August. I would love to see the QQQ's pullback
to the arrow in conjunction with a move up in the QQV. In my mind, this
move would represent a lower risk entry point for investors. The pullback
would spark enough fear to fuel the next rally.
So, what are the chances the market
will bend to my will? Slim to none. The truth is I don't know what will
happen. I can only hope.
So, what to do now? Sell all your
stocks and wait for the September decline? Buy along with everyone else?
Do nothing and just ride the market up (or down)?
Here's a compromise suggestion- Take
out insurance.
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Puts
on the QQQ's- A Stock Market Insurance Policy |
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Buying puts on the QQQ's is an excellent
strategy for profiting from a corrective phase without selling your stocks.
You might consider committing a small amount of money to purchase few QQQ
puts. If the market starts to decline, your QQQ puts will increase in value.
This strategy is known as "hedging".
Most of us don't think twice about
paying insurance premiums and never making a claim. You pay your car insurance.
Never making a claim is a good thing, as with your homeowners insurance
and your health insurance.
Why not take out some portfolio insurance
during this high risk phase? If you never need to make a claim it's because
the market is doing well. If the market corrects, you'll make a little
replacement cash to cover your losses through the puts.
You might want to look at the October
35 QQQ puts which closed at $1.25 on Friday. If you lock in at this price,
20 puts would run $2500. A pullback to $30 on the QQQ's would put your
$2500 investment at about $11,000. If the market continues higher, you
will probably lose your $2,500, the same way you spend your insurance premiums.
If you have never traded options
this might seem a little confusing. If you're a novice, get a book and
read up on it. Options can be a powerful tool for enhancing returns on
your portfolio when used sensibly. A little insurance never hurt.
Charts Provided Courtesy
Of TradePortal.com |
