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June 14, 2003
Volume VI, Issue 57
Email : [email protected]

To OTC Journal Members:

How Big Is Harry Potter? Apparently Huge For Barnes& (NASDAQ: BNBN) 

I was doing research for the weekend edition Friday morning when I got a call from a friend with whom I swap trading ideas. He told me to watch Barnes& Technical breakout he claimed. The edition on the Bullish Case for the markets will have to wait for another day.

I spent three hours bidding for the stock, hoping for it to come down to my price. It ran from $1.80 to $2, and I threw in the towel and bought at the market.

Does anybody know why Barnes& traded more than 10 times its average volume and was up 19% Friday? I don't, but I can guess.

Friday morning Barnes& announced it will begin shipping the new Harry Potter book next Friday. Barnes&Noble expects Harry Potter and the Order of the Phoenix to be its best selling book in history. They expect to sell one million copies the first week. Barnes&Noble has already received 1755 tons of the book (I have no idea how many copies that is), and will begin sales next Friday night at midnight.

As you can see from the volume bars at the bottom of the chart, activity exploded on Friday. Barnes& ended up trading nearly 3 million shares vs a 90 day average of 267,000 shares per day. The stock looks like it wants to eclipse it's 2002 high of $2.20, in which case it would be in solid breakout mode. It broke cleanly out of its three month trading range. More shares changed hands on Friday than any single day since 2001.

The Harry Potter book could be driving the interest, or it could be something more. I don't know. I do know the "Dot-Coms" which had been given up for dead have climbing into the heavens since last October, and Barnes& had not really joined the party. Therefore, I'll take the leap of faith there is more upside in the stock from here despite this company having lived in the shadow of online book selling behemoth

This idea is reminiscent of the April Trading Alert on Lending Tree (NASDAQ: TREE), which ended up being acquired by USA Interactive. That idea yielded an 82% return for OTC Journal members. Lending Tree was another overlooked dot-com, albeit with better fundamentals.

Here's what I'm looking for out of this idea:

  • Buy BNBN up to $2.20 (don't buy it if it gaps open on Monday for at least one-half hour: wait for a pullback)
  • I'm looking to $2.75 to $3.50 as a Target Price over the next week or two
  • Stop Loss- $1.75 or whatever your risk tolerance is.
One negative- this stock has made two other high volume surges in the last eighteen months. Each was short lived and culminated with the stock retreating into coma mode. You might want to stay light on your feet with this idea. 

Disclosure- One of our editors bought 10,000 shares of BNBN in the open market at $2.03 on Friday. Another affiliate purchased about 2500 at about the same price. We can buy or sell the shares anytime at our own discretion. This should be viewed as a potential conflict of interest.

Members' Forum

David B- SHEP Technologies (STLOF) went absolutely crazy this past week. The news on an AIM listing didn't seem like that big of a deal. Do you know of any explanation for the dramatic surge in price and volume?

OTC Journal Response: SHEP did go crazy this past week out of the blue. Since the company has no revenues, no hard assets, limited capital, no sales, and has a fairly high market capitalization, I believe the stock had been heavily shorted for the last months. I believe this past week's action may have been a "short squeeze"- Much of the buying may have come in from short sellers who were forced to cover. I love the technology and believe it could be huge down the road. Despite the action in the stock,  I still believe you should not have invested more than 25% of the capital you have allocated for the stock. Let's wait for the stock to quiet down and more fundamental progress before investing the second 25%.

Joe L Contributes- On QT5 (QTFV) - Yes, the product is still on the shelves being sold but not advertised as before the bombshell. Thank you for your insights.

OTC Journal Response: I know the QT5 idea was a disappointment. The negative publicity from this obscure state senator out of Maine simply derailed the momentum. Put it in the category of S**t happens. At least we know the product is still on the shelves in the Northeast. Perhaps if the stock gets a lot cheaper we can use this knowledge to our advantage. Thank you for the detective work.

Roy D. - My question, is there a brokerage out there that allows stop loses or trailing limit orders on microcaps?  I trade microcap in my Roth IRA and Ameritrade does not allow you to use stop loses on OTC stocks.  Trailing limit orders seem to be trailor made for the microcap stocks.  What is your opinion on them?

OTC Journal Response: No- there is on mechanism for placing a formal stop loss on a microcap stock. You just have to watch the stock and sell if it drops to your level. I don't use them, but I do get very positive feedback on Ameritrade for competitive prices and good executions in microcap stocks.

Rita M- On Family Room (FMLY) - I'm looking for guidance on this stock.  I bought it based on your recommendation. What's happening with this company?

OTC Journal: Rita- good question. As I have said many times in the past, I believe Family Room has biotech like upside without biotech overhead. One hit movie that is either profitable or offers a percentage of the gross offers potentially millions in profits. They are closer than ever. The stock has been very quiet lately waiting for some clues on future projects, which is a great time to accumulate for the high risk end of your portfolio.

Anthony J- On Irvine Sensors (IRSN)-  thanks for the update on Nicowater. I am still waiting for a bounce from  Irvine Sensors (IRSN), any thoughts?

OTC Journal Response: Irvine Sensors has been very quiet this last past month. A word to the wise- this could prove to be the calm before the storm. The company is making substantial progress on the military and homeland security side of their business. I'm looking and hoping for significant progress on the private sector side in with their unique proprietary chip stacking technology. Accumulate while it is quiet and there is little interest.


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