Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
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Where's The
Bottom? |
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Technicians are simply guessing.
Whether you've been investing for four months or forty years you have never
seen a market this bad. Technicians have given up trying to predict the
bottom. All areas of support are burning down like dry brush in high winds
at a wild fire.
Early in the week we felt we made
a good call on Oracle (NASDAQ: ORCL) and Art Group (NASDAQ: ARTG).
We were looking smart until about midday on Thursday. Then the market collapsed,
and both these stocks got clobbered.
If you participated in these Trading
Alerts you could have taken a nice short term profit on either one.
However, if you held for higher gains you should have been stopped out
with no more than a one point loss. In this free fall market discipline
is required. There is no telling how low stocks can go. We are in uncharted
territory and this market is driven entirely by emotion.
Short Sellers continue to
use the media power of CNBC to convince the public stocks can never
go up again, and it's working. Prior to the open the "Trader Talk" is down,
down, down. They are winning. They're mission is to create an atmosphere
where everyone throws in the towel. They're close to a Super Bowl victory.
Momentum is the most powerful force
in the universe. Short sellers have momentum and they are relentless in
their pursuit of the demise of technology stocks.
This past year has been amazing.
In a life time of investing you may never experience times like this again.
Never have the markets seen such extremes in such a short period of time,
and you can be telling your Grandchildren that you survived the nasty bear
market at the turn of the century.
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The
Good News |
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Simple- the lower the market goes
the better. Bears make convincing arguments that many growth stocks
are still overvalued in the climate of a shrinking economy. The market
is proving them right.
The lower the market goes the better
bounce when we finally hit bottom. In our minds, the worst thing that could
happen would be six months of sideways trading on very light volume. Apathy
would hit an all time high.
As stocks continue dropping your
opportunity to make substantial returns when stocks rebound increases dramatically.
As stocks go lower entry points become less risky. If they continue down
for much longer at this pace, stocks will become nearly risk free for anyone
with a six month investment time horizon.
Take Apple Computer (NASDAQ: AAPL)
for example. Apple has the most exciting product line for the new
generation of computer users. Go in the store and look at their current
designs. It's space age. Their computers are configured for all the latest
applications- digital music, pictures, and video. They're new razor thin
titanium note book looks exciting.
Apple lost $.27 per share
last fiscal year (September Year End) as it invested a tremendous amount
of resources in the new product line they have introduced.
The company is expected to return
to profitability this quarter. Analysts are now talking about a break even
or a small loss as a result of the slowing economy. Here's the good news-
Apple
is trading at about $19.50 having seen a low of $13.625. The company has
nearly $12 per share in cash. Therefore, at this price you
are paying about $7 for Apple's business in every share you
own, and they should have positive cash flow even in the absence of EPS
going forward. Many investors believe Apple's business and brand
are worth considerably more than $7 a share.
We are not recommending you run out
and buy Apple Computer when the market opens on Monday. The market
could go a lot lower. We are just suggesting investors perceive the values
being created by this market free fall.
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Some
Perspective |
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There is a very simple way to view
this market. Think of the NASDAQ over the past twelve months like
this:
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The drop from 5,000 to 3,000 eliminated
the irrational exuberance.
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The drop from 3,000 to 2,000 correctly
reflects slowing economic conditions.
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The drop below 2,000 is irrational
pessimism about the future state of the economy and purely emotional.
Thinking along these lines, any continuation
of the NASDAQ's drop below 2,000 represents a chance to make profits
on the way back up. The further it falls, the more you will make.
If you have your entire wealth in
the stock market right now with no chance of ever having cash to work with
you will have a long wait, but it will come back. It might take several
years for the NASDAQ to see 5,000 again, but it will get there.
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OTC
Journal Favorites |
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The three stocks in the micro cap
arena we have focused on this year are Envoy Communications (NASDAQ:
ECGI), Energy Power Systems Limited (OTC BB: EYPSF), and MedGrup (OTC BB:
CODX). All three companies are profitable and all three are undervalued
in our opinion.
Envoy Communications (NASDAQ:
ECGI) got killed this week, closing at $2. This is a level we thought
the stock would never see. The company is having an outstanding year, and
the current market capitalization of $40 million is a joke for a company
doing nearly $100 million in annual revenues and making substantial profits.
Unlike our other two favorites, Envoy
has institutional participation in its stock, and fund managers were selling
this past week with no regard for their cost basis or the company's fundamentals.
This may turn out to be the all time bargain basement steal at $2.
Energy Power Systems (OTC BB:
EYPSF) had a great
week in the face of a horrible market. The stock actually appreciated
37%
on the news of the company's new contract in Atlantic Canada. This company
is at the front end of a steepening growth curve, and there is no institutional
participation in the stock, which explains why it could go up in this market.
MedGrup (OTC BB: CODX)had
a quiet week, closing down $.10 for the week on extremely light volume.
The stock has a loyal shareholder base of individual investors, and no
one is panicking in the face of the tough market. Next week we hope to
have their year end financial results.
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Conclusion |
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The OTC Journal will continue
to publish Trading Alerts when we feel there is an opportunity for
a short term trade. If we publish any short term trading ideas please use
a Stop Loss until the market becomes more predictable. Preservation
of capital to be put to work at the inevitable bounce is prudent. Remember-
the lower we go, the better the bounce somewhere down the road.
In the meantime, we continue to like
our three microcap stocks for long term investors, and they should be accumulated
at these levels. When the market comes back these stocks have the potential
to double and triple.
Our previously announced new profile
on a software company developing XML applications will be put on
hold for the time being.
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