To OTC Journal Members:
 

Do Oil Prices Matter Any More?

Despite having a few moderately down days this week, small stocks have begun trading extremely well. There are a lot of very good looking charts out there. 

Nearly all of the stocks within our little universe of microcaps are beginning to show signs of life. AMW finally bounced nicely this week. New addition BPTR is moving up the charts (up 15% in the first two days) - that one's a no brainer. VTSI tried to break out through $.41 early in the week but failed- maybe on the next try. NWKI is moving up on triple the average volume. NWAV is only about 20 cents below its all time high. NTDL is trying to move to higher levels. Laggards FMLY and HYPD could start to catch up next week. AGSI is the only one that seems problematic at the moment.

In June and July today's headlines would have sent the market reeling. The market is defying gravity. Oil prices, which I thought would have eased back a bit by now, have eclipsed the $50 per barrel level and continue climbing. Three hurricanes took care of any hope for declining oil prices.

The picture on the Presidential Election race has become far murkier as John Kerry has been making a decent accounting of himself in the debates. The market hates that kind of uncertainty.

Friday's jobs report was anemic at best. US companies, despite having record amounts of cash on their balance sheets, are not hiring. It appears the tax cuts took money away from the government and gave it to companies, but they are not spending it for expansion.

The chart on your right shows the NASDAQ Comp in red, and the OIX Oil index in green. In the June and July time frame the NASDAQ got clobbered as oil prices climbed. However, in mid August the pattern changed. The NASDAQ now seems to be tracking higher with oil prices, rather than selling off every time oil ticks up. This is an interesting paradigm shift.

In light of a number of reports suggesting the economy is entering a "soft patch", interest rates have come down. Perhaps the market is telling us it is more concerned with rising interest rates than with rising oil prices.

I believe seasonal patterns have more to do with the improving market. Recall one fact I provided in the September 25th edition entitled "I Don't Trust September". Over the past 25 years, investors who bought stocks in October and sold in April made nine times the return of investors who bought in April and sold in October. 

September, which is usually the worst month of the year, was an up month.  Statistically, this means there is a 57% chance October will follow suit.

Seasonally, October through January is the best time to be in the market. Stocks generally move up at this time in advance of the Holiday Season, and stocks have almost always performed well in a Presidential election year.

If you are willing to make the leap of faith that stocks are rebounding nicely after a very tough summer, now is the time to be accumulating positions with an eye towards taking profits in December/January.

The NASDAQ looks like it wants to pull back to the 1900 to 1910 level, then probably head back up. The market had every reason to get clobbered this week, and the market grudgingly gave back a moderate amount of its recent gains.

Here are three charts of stocks that I believe look bullish. They are all small to mid cap stocks, and I own them all in an active trading account. Look at them and see if there are any you like. They all have the common characteristic of making higher lows and higher highs over the last month. You should do some research on each one if you are considering investing since I am not providing much fundamental information.

I'd like to know what your favorite stocks are. Send your best trading idea to editor@otcjournal.com in the small to mid cap category. We will look at the charts, and pick the three we like best. Send the symbol of your best idea only, and just send one. The three favorites will be published in an upcoming edition.

M-Systems (NASDAQ: FLSH) is an Israeli based manufacturer of Flash memory systems. The Company primarily targets two fast-growing digital consumer electronics markets: the universal serial bus (USB) flash drive market with its DiskOnKey product and the multimedia mobile handset market with its Mobile DiskOnChip product.

One of the most astute fund managers I have ever met knows this company inside and out, and maintains it as the largest position in his fund. 

I own this stock at $18.20, and have held it since last Spring. I hung on to it in the summer pullback, but unfortunately didn't have the courage to buy more when it dropped to the $12 level. My fund manager friend is looking for $30 long term on this stock. This week's pullback is providing a welcome entry level.

Avanir Pharmaceuticals (AMEX: AVN) is a drug discovery and development company. The company is in Phase III clinical trials on Neurodex, a drug for pseudobulbar affect, also known as emotional lability.

Recent late stage clinical trials demonstrate Neurodex significantly reduces the frequency and severity of uncontrollable laughing or crying episodes in multiple sclerosis patients. 

The stock rocketed up the charts in late August when clinical results were released. Some reports claim Neurodex could receive an FDA Approval later this year. As you can see from the chart, the stock broke out on Friday on high volume.

I own this one at $2.94 thanks to some fairly recent purchases. I am looking for $5 to $7 later this year. I view this stock as highly risky. If an FDA decision goes against you, the stock will crater before you can do anything about it.

eResearch (NASDAQ: ERES) is a past MVP in the OTC Journal line up. I first featured the company on December 2, 2002 at a pre split level of $14.57 (Post split- $3.11).

The stock went on to become nearly a 10 bagger, hitting $29 this past July.

eResearch manages cardiac related clinical trials and studies for major pharmaceutical companies. The stock has been a darling of the momentum players, who have recently turned their backs and annihilated the stock as their meteoric growth rate is slowing a little.

One of the more obscure brokerage houses downgraded the stock from "Strong Buy" to "buy". The momentum hedgies took this one out to the woodshed and beat it to death.

I believe the company will continue to grow and prosper. They are by far tops in their field. I also believe the stock is very oversold and due to bounce. I own in at $13.75. I am looking for a bounce to $18 to $20 by the end of the year. 

I'd like to know what your favorite stocks are. Send your best trading idea to editor@otcjournal.com in the small to mid cap category. We will look at the charts, and pick the three we like best. Send the symbol of your best idea only, and just send one. The three favorites will be published in an upcoming edition.

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