Fraudulent newsletter which hyped stocks like Great White Marine (JAWS) speaks out on shortsellers.
Subj: Where's The Bottom?
Date: 3/17/01 10:35:42 AM Eastern Standard Time
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[Image]March 17, 2001[Image] [Image]Volume IV, Issue 27[Image]
Email : info@otcjournal.com
URL : otcjournal.com
To OTC Journal Members:
[Image] Where's The Bottom?
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.
[Image]The Good News[Image]
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.
[Image] 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.
[Image]Some Perspective[Image]
There is a very simple way to view this market. Think of the NASDAQ
over the past twelve months like this:
* The drop from 5,000 to 3,000 eliminated the irrational
exuberance.
* The drop from 3,000 to 2,000 correctly reflects slowing economic
conditions.
* 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.
[Image]OTC Journal Favorites[Image]
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.
[Image]Conclusion[Image]
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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