Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
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Are You Ready
For the Next Stock Boom? |
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It has not escaped our attention
nearly everything we have covered this year has been flushed down the toilet
along with the rest of the market. Until 10 days ago, Cross Media
was the one stock on which we could claim a solid victory, and this situation
has now turned disastrous. More on that in our next edition.
There are two exceptions. Two penny
stocks we have covered in the last 45 days have done well. In fact, we
believe we may be on the verge of a bull market for good old fashioned
penny stocks, and there is evidence to support this belief.
Wall Street defines any stock below
$5 as a penny stock or microcap. According to this definition, nearly all
of the major technology underwritings done by the major Wall Street investment
banking firms in the last three years have now become penny stocks, although
most started at higher levels.
For our purposes, penny stocks will
be defined as stocks which trade under $1. In today's market there are
too many stocks trading in the $1 to $5 range to view them all as penny
stocks. We also believe any company trading with a market capitalization
of under $100 million should be considered a penny stock.
This year we have covered stocks
ranging in price from $.15 to $15. We're having a lot more success with
the $.15 range stocks, so we will focus our efforts there.
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The
Broader Markets- A Picture of Damage and Despair |
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There is no hope for stocks in the
broader market just yet. Perhaps a trading rally at best is in the cards.
For the first time in many years, the market has become disconnected from
the economy. Continuing news of fraud and corporate malfeasance dominates
the headlines. With little belief in the credibility of financial reporting,
even earnings gains might not drive stocks higher.
A quick glance at the charts of the
indexes tells the whole story. As you can see, both the DOW and the NASDAQ
continue in steep declines. More importantly, neither index has shown any
sign of being able to break above the down trend lines depicted in red,
indicating we are likely headed lower. A break above either downtrend line
could signal a reversal, but both indexes continue to be under severe pressure
as the few investors who are still around head for the exits. Short term
traders have been buying until the indexes bump up against the down trend
lines, then they sell relentlessly.
On the other hand, two of the companies
we have been featuring in recent editions are in solid uptrends, and there
are some common characteristics the two share:
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They are both penny stocks.
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Both companies were on the verge of
going out of business two months ago.
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They both have exciting new technology.
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There is no institutional ownership
in either stock.
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You can own a lot of shares for very
little money.
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They don't have far to fall.
On your left is a chart of Calypte
Biomed (OTC BB: CALY). We published a Trading
Alert on the stock in our May
31st edition when the stock closed at $.138. Since that day
we have featured it in two other editions, and the stock is up 160%,
closing at $.36 yesterday. This stocks is headed rapidly up the
chart, and a pullback to the support line would be welcome news for those
looking to establish a position.
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XML Global (OTC BB: XMLG)
(on your right) broke its downtrend in mid June, and the chart would suggest
it has reversed course into a solid uptrend. This stock has been featured
in 10 editions since the end of April.
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Penny stocks seem to be an arena
in which the individual investor stands a fair chance in the worst Bear
Market of all time. In fact, there is historical evidence to suggest that
Penny Stocks could lead us out of the current Bear Market.
In an article which appeared in the
business section of the July 7, 2002 Sunday LA Times, author Tom
Petruno points out some parallels in today's market to the early 1980's:
| Investors who have little
faith in the long-term prospects of companies, or in the accuracy of corporate
reporting, may figure there is no material difference between cheesy penny
stocks and those that purport to be blue-chip shares. There certainly hasn't
been much difference in the case of the Lucents, the Qwests and the Enrons.
With that attitude, and with
the potential to triple your money in a penny stock in a week (a la WorldCom)
if you get lucky, the allure of the penny-stock arena may become overpowering
for some individuals. If investing is just gambling anyway, why not gamble
for the big percentage win?
It has happened before: In
the early 1980s, the public was generally uninterested in equities after
years of miserable performance but became fascinated with the penny stocks
of fledgling oil companies amid predictions of $100-a-barrel oil. That
penny stock boom ended badly, as they all do. But for thousands of people,
it was fun, and profitable, while it lasted.
Tom Petruno- Article entitled After
Blue Chips Fall, Some Pick Up Pennies which appeared in July 7, 2002
business section of the LA Times.
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Our more mature members should remember
the penny stock market of the 1980's. In the late 70's the market was still
suffering from the Carter Administration hangover. Inflation was rampant.
The prime rate was 18%, business expansion was at a stand still, and the
market was dead.
Gold was trading in the $600 per
ounce range, and analysts believed oil would eventually go to $100 per
barrel. In this climate investors developed a healthy appetite for small
North American based natural resource companies, and the penny stock market
boomed in Salt Lake City, Denver and Vancouver.
The 80's penny stock boom eventually
led to the same kinds of excesses and abuses we read about in the news
every day during the late 90's bull market. 1980's investors should remember
the high profile demise of penny stock firms First Jersey Securities and
Blinder Robinson, followed by many other small names as regulators and
law suits forced them out of business. Amazing how the more things change,
the more they remain the same.
We believe a Bull Market is coming
for good old fashioned penny stocks, but it will be different than the
penny stock market of the 1980s. This time it will be focused on technology
companies, not natural resources companies.
Gold is trending up right now, but
we believe it will probably be short lived. Inflation usually fuels a bull
market for gold, and inflation is completely MIA (missing in action) in
today's economy. Oil seems to be capped at $30 a barrel, which rules out
a major boom cycle for small oil and gas stocks.
However, there are hundreds of technology
companies positioned to take advantage of the next technology growth cycle.
Many have substantial treasuries and little or no debt. Many have great
proprietary technology, but were over priced at the valuations of the late
90's.
These stocks have all corrected down
to levels where signs of increasing top line growth will yield substantial
moves in price to the upside. Some are trading at less per share than the
cash they have in the bank, and most are trading below book value.
Another cycle of new technology expansion
is inevitable, and with it many of these oversold stocks will appreciate
dramatically. We are working on a list of ideas, and hope to publish it
by next weekend.
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A
New Penny Stock Exchange Will Emerge Next Year |
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Early next year a new market, known
as the BBXchange will begin
trading penny stocks. OTC Bulletin Board stocks will be able to trade on
this new exchange after meeting several simple regulatory requirements.
This electronic exchange will allow
buyers and sellers to match up electronically, similar to the way Select
Net works on the NASDAQ. Bulletin Board stocks will trade more efficiently
in this new environment.
Here is an excerpt from their web
site, found at www.bbxchange.com:
| In 2003, a new market, the
Bulletin Board ExchangeSM (BBXSM), will be launched. The BBX will eventually
take the place of the OTC Bulletin Board ® (OTCBB), which will be phased
out. The BBX will appeal to many of the same companies that are currently
quoted on the OTCBB, but will be a higher quality market.
The BBX will have qualitative
listing standards, but no minimum share price, income, or asset requirements.
In addition, the BBX will have an electronic trading system to allow order
negotiation and automatic execution. This is a major improvement over the
current OTCBB system, where market participants must execute customer orders
using the telephone. The BBX’s new system will bring increased speed and
reliability to trade executions, as well as improve the overall transparency
of the marketplace. |
This should improve the trading patterns
of these more thinly traded issues as Market Makers often stand to gain
by moving pricing in their favor, sometimes against the best interests
of shareholders in the short term.
The new exchange will allow online
traders to enjoy better executions, and may help enhance volume on the
Bulletin Board.
Overfinanced technology companies
of the late 90's have become lean and mean, written down inventories, and
reduced overhead. Their stocks are decimated, but the companies are poised
to grow as the next cycle of technology spending eventually arrives.
Stand by for a list of ideas worth
looking at right now, which will of course include Calypte Biomed and
XML Global Technologies. We hope to publish it next weekend.
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Final
Thought- The Risks in Penny Stocks |
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If you like penny stocks you should
be prepared for the following risk level: Any time you invest in
a penny stock, assume you could lose all your money. Be able to
absorb the loss or stay out. This end of the market is not for you.
These are small, unproven companies
and the failure rate will be high.
The OTC Journal intends to
focus most of its energy on Penny Stocks until the main stream markets
show some signs of life. If the risk associated with this area is not for
you, feel free to use our unsubscribe link at the bottom of each edition.
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Cross
Media Marketing (AMEX: XMM)- An Undisclosed Disaster Comes to Light |
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We can't even begin to describe the
horror we felt when we listened to Cross Media's conference call
replay, which was held just prior to the open yesterday. To hear a replay,
go to Cross Media's home page at www.xmmcorp.com
and listen to the Q2 earnings guidance web cast.
We didn't know what was happening,
but somebody did. The stock has dropped from $10 to $2.71
in the last 10 trading days, and the company let the cat out of the bag
yesterday.
We are making an effort to contact
management with some questions, and plan to publish our views in our next
edition- probably on Tuesday. When you read some of the excerpts from our
June 15th interview with Ron Altbach, Chairman and CEO, you will be astounded.
Unfortunately, it is too late to
do anything about the stock price.
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