Everywhere you go, whether it’s a Little League game or a cookout, people are whining and moaning about the market. It is especially true of the casual investor. Many of this group is also predicting some sort of crash or sharp fall in the market in the near term. My memory tells me that some of these same people were very upbeat during the monster tech rally of the late 1990′s. Others in this group also felt comfortable buying stocks and mutual funds when the market already rallied off of the bottom during our last big decline in 2009.
So what is this telling us ? It obviously shows that people are scared. It has become evident on the OTCBB, where with the exception of a few hot penny stocks, the volume has been weak at best. A stock like Distribution Management Services (DMGM.PK) may have risen more than 75% yesterday, but many other stocks recommended by some of the top penny stock newsletters traded relatively light volume. In other words you have had to be spot on to make money on the long side in this market.
On the large cap side there is a better rationale for the weak volume. Every year people are somehow baffled when the action is light in August. Did I miss something. Did PM’s and hedge fund traders all of a sudden stop vacationing in the late summer. Vacation isn’t the whole reason for the tepid trading, but it has certainly contributed to the absence of buyers.
On the other hand, major corporations are doing the exact opposite. Stock buybacks are happening on a frequent basis and M&A activity is already above the rate of the prior two years. Just keep in mind that if S&P 500 companies are willing to invest at these levels things probably are not as bad as they seem.
This morning people woke up to shares of Genzyme Corp. (NASDAQ:GENZ) trading sharply higher in pre-market trading. On Sunday, Genzyme received an $18.5 billion offer from Sanofi-Aventis (NYSE:SNY) which comes to $69 per share.
The bid was rejected by the Genzyme Board despite their recent manufacturing issues. This decision could send a sign that many bio pharma stocks, including Genzyme are undervalued. We will probably see some increased volume and news flow early in the week from this sector. Especially with the mid and large cap names.
This M&A activity also bodes well for some of the unknown and under followed names on the OTCBB. Unlike most other sectors, excluding mining penny stocks, tiny microcap biotech and bio pharma stocks do get funding from larger companies from time to time.
For instance, giving a potential hot biotech penny stock $5 or $10 million dollars in R&D money is a small risk to take for a multi-billion dollar corporation looking for a new drug that could potentially become part of their pipeline.
While I can’t say for sure, it is probably safe to say that you will see some of the top penny stock newsletters writing about this trend in the next few weeks. Please keep in mind that the vast majority of biotech and biopharma stocks are very risky, and shouldn’t be owned by the feint of heart. However, this group has offered some investors some of the most massive gains.
So if you decide to buy one these biotech names of of a penny stock list, make sure you invest small. Also, when investing in a biotech always check their cash position and burn rate. These two numbers will tell you how much money the company has and how quickly they go through it.
Yesterday U.S. markets traded down and world markets followed suit this morning. Both traders and investors are awaiting Fed Chairman Ben Bernanke’s speech from Jackson Hole. This will surely be the catalyst for Friday’s trading and tape action should be volatile
Now there are different ways to approach buying before the Fed Chairman speaks. It is probably safe to say that Mr. Bernanke has usually been clearer with his words than his predecessor Alan Greenspan. But the problem remains trying to anticipate what their message is. Experience tells me that is a losing battle unless you have a crystal ball. Trying to go either long or short before such an important speech tend not to work because of the choppiness of the market. Many traders get stopped out and then have to watch their former position trade to their initial profit target. Without them in it.
Now you have read recent blogs here about takeovers and market bottoms. However, those market trends apply to investors not traders. For instance, if you had an urge to buy a penny stock like China BTC Pharmacy (OTCBB: CNBI.OB) in the 4 dollar range as a long term hold, it may or may not be wise. However, if you had a 2-3 year window and a price target of 10, a fluctuation of 40 or 50 cents really isn’t an issue. On the other hand, if you were buying this micro-cap name as a momentum play for a short term pop, you often are gambling on Bernanke and market direction. Yes, hot penny stocks sometimes do trade in sympathy with the broader markets.
The age old question of trading before Bernanke especially applies to large cap names, which are obviously more sensitive to the Fed, than OTCBB stocks. But the same philosophy applies. If you are comfortable buying a name like Bank of America (NYSE: BAC) and have a long term investment philosophy,by all means buy the stock. But if you are a short term trader, you must remember that many good ideas turn into losses when the Fed is involved. This is why it is often best, to put the trading ideas on hold. Being impatient in the market is often a recipe for disaster.
Stock Futures are up this AM, due to jobless claims falling to 473000. This number wasn’t great, but it was much better than the week before, when claims were over 500000.
To put this number in perspective, claims rose to the 650000 range last year and a claim number in the 350000-400000 range is generally viewed as a positive for the economy. My sense is that the downfall this week was in anticipation of a disastrous number. Well, it looks like short sellers may be disappointed and a bounce potentially could be near.
Keep in mind that we have some other factors that could be used a rationale for a bounce. First, we have poor investor sentiment, which has led to anemic volume, all the way from the NYSE down to the penny stock market. We also, have see takeover fever. Large cap companies are going on a buying spree and using cash a the vehicle. Companies like Dell , BHP Billiton and Intel obviously see value at these levels. Lastly, this morning’s number could be pointing to the fact that the economy may not be good, but at the same time isn’t as bad as people think.
Hopefully, this leads to some bottom fishing in the near term. Many of us own blue chip stocks that are down. Some of us also own once hot penny stocks that have lost the interest of investors. My advice is to re-evaluate your portfolio and add to some fallen positions if it makes sense. After you compile your blue chip and penny stock lists. Review each position and see if anything has changed fundamentally. Now if your current losses in the position are not that big, it may may sense to average down.
Adding new positions also might make sense if you have the liquidity. Especially since we may have seen the bottom already in oil prices. A bounce in oil has recently seemed to be a catalyst to the market and could rally the larger exchanges and make quality commodity based penny stocks look attractive.
Whatever you decide to do, make sure it is done relatively small. While we may turn higher from here looking for bounces and bottoms doesn’t always work.
Every market has a bubble. Those bubbles exist, whether the market goes up or down. Because we have all heard the saying that “There is a bull market somewhere”. Right now that bull market is in the bond market. Investors have been drawn to this asset class for many different reasons. For some it was the “flash crash” for others it’s been poor returns in equities. The poor economy, and high unemployment are other factors in the interest
in debt market.
This interest is so evident that it’s basically flattening the yield curve and the 10 year yield is nearing the January, 2009 low. Investors are also pouring money into debt mutual funds at alarming rates. My sense is that this could signal a bottom in the equity market. History has shown us time and time again that when retail investors pile into a sector or an asset class, it’s probably near or at the top. It doesn’t matter whether it’s municipal bonds or mining penny stocks. If Joe Public is over weighted a shift the other way has usually been around the corner.
Now why could this be a contrarian indicator to go long microcap stocks ? Well it’s simple. Part of the reason for the light volume in the market has been the shift to bonds. For example if Investor A buy an equity mutual fund. That mutual fund will trade and add volume to different exchanges. Now if that same investor moves those equity funds that were reserved for risk into a high yield bond fund for instance.That simply takes volume away from exchanges like the NYSE and that lack of volume trickles down to the OTCBB. It’s simple macroeconomics.
Since many of us have lived through the internet bubble and others too. You probably get the drift. If history repeats itself, investors will not see the returns that they are looking for in bonds. As evidenced in the past, many of these same investors will eventually shift this money back into the equity market. To me this provides some buying opportunities in the area of penny stocks. The lull in volume has impacted many of these tiny companies. Some have become relativly cheap based on nothing other than lack of interest. Keep in mind that heavy volume is the way low priced companies turn into hot penny stocks. Unfortunately, some of the funds that provide that volume are tied up in bonds. This call might be a little early, but eventually, those funds should come back to stocks. Just be patient.
As we have mentioned many times in previous blogs, takeover fever is back. Potash and McAfee lead the headlines and HP jumped right over Dell’s previous bid for 3Par. The common denominator in all of these deals and for that matter proposed deals, was the cash takeover.
Many companies often prefer to acquire other corporations in stock deals. Basically, the prospective buyer uses their own stock as currency in the transaction. This is often done because the acquiring company often feels that their stock is either fully valued or inflated. This past few deals have been different because the premium paid was all cash. Potentially signaling to the market that the acquirer feels that there own companies share price is too cheap.
Now this seems to be a positive for the market because if S&P 500 companies would rather part with cash, this tells us they are confident going forward. Small and microcap stocks often don’t have the luxury of large cash positions and have no other choice other than using stock to make these deals. For example, even the most promising microcap or penny stock, usually uses a rising stock price to for buyouts. Simply because they are growth stories with little cash. However, the big boys can do either. Hopefully this vote of confidence will trickle down from the NYSE to the OTCBB.
So if you ever see a penny stock participate in an all cash buyout, you are getting a signal from management that things are good. Most times reading signs from companies is much more accurate than trading reports, brokerage analysts or penny stock newsletters. But, you have to sometimes read between the lines. So do your home work and prepare your large cap and penny stock lists.
Today a news story came out that was somewhat disturbing. Mutual fund giant, Fidelity Investments reported that a record number of hardship withdrawals were made from retirement accounts. Also investors who borrowed from account hit a 10 year high.
Now what does that tell us ? Some can analyze this news in a gloomy fashion. Others may look at it as a tremendous buying opportunity. Many of us remember the go-go bulls markets of the 80′s and 90′s where excess ran rampant. Some of us knew ordinary people who somehow accumulated high 6 figure and even 7 figure accounts, due inflated gains in the market.
In both of those bull markets it seemed easy to make money. Everything from blue chips to penny stocks seemed to work. Even when positions were in the red, it seemed that in time they would turn around. And for a time that strategy worked. Until of course, the optimism became too high. Shortly after the two huge runs, we saw the Crash of 1987 and the Internet Bubble burst.
Right now we may be seeing the polar opposite. Although we are currently seeing decreased market volume due to summer doldrums, there is another factor attributed to the light trading. It’s a sad one too. Many retail investors have simply thrown in the towel.
Historically this has been a buying opportunity and could be lucrative for those who are liquid. Sir John Templeton always wanted to buy in times of turmoil and sell in rallies. By no means am I saying to jump in with two feet, but a legitimate look at this market should be taken on a long term basis. Even if it’s seems to be a little early. This means taking a look at everything from the NYSE to the OTCBB.
However, you must be prudent. Sadly enough many of the above mentioned who borrowed versus 401k plans simply fell on hard times. Others, though simply overextended themselves. Either in their lifestyle or by trading to aggressively. These stories range all the way from somebody who lost their job all the way down to somebody losing a substantial amount on a mining penny stock.
This is why you never invest what you can’t afford to lose. For instance, right now we are seeing major consolidation in the Ag space. This M&A activity does merit a look at the sector and it wouldn’t be unreasonable to commit trading money into one of the names.
However, the amount of the investment has to be prudent. Just in case it doesn’t work. So if you want to take a contrarian view on the negative investor sentiment. Do so wisely. For instance never commit 30 or 40 percent of your portfolio to a stock. It doesn’t matter if it is a dividend paying blue chip or a hot penny stock. Also don’t trade on margin. Even if you can afford to. Lastly, and most important. limit your losses. Don’t be afraid to lose 10% on a trade. Preservation of capital is more important than missing out on a winning trade. So if you buy into this contrarian market view, be smart and not greedy.
Last night’s Mad Money show was a keeper. Especially for traders and investors who are currently long.
Cramer opened the show with a theory about how the recent takeovers bids like BHP Billiton (NYSE:BHP) for Potash (NYSE:POT) show that some people still feel this market is too cheap. Cramer mentioned that mergers are up this year in relation to 2008 and 2009.
He also spoke of the “old days”. Which happened to be right after the Crash of 1987. Back then, stocks were so cheap, that many of them were acquired by other companies. I took his remarks in a pretty simple fashion. If the big boys are willing to buy entire companies. Maybe it is time to step in.
Cramer also mentioned that despite some of the positive earnings, many investors failed to be enticed. Now here is the good part, Cramer mentioned that investors may be lured back to the market due to this increases M&A activity.
My sense is that if Cramer is correct, we could see major activity with penny stocks this fall. From my experience, I have noticed that retail investors who speculate, do not have much of a problem buying a stock like Mosiac (NYSE:MOS) and then turning around the next day and allocating five or ten thousand dollars into something they perceive to be a hot penny stock.
Although M&A activity on the OTCBB is usually sparse at best, some microcaps on the AMEX could eventually be in play in the rumor mill. Keep in mind that a rising tide lifts all boats and the return of speculative buyers to the market could make things interesting soon. Hopefully we have not missed it and Cramer is early with his theory. I would venture to guess that he is, and that many large cap and penny stock newsletters will try to jump on this trend. So read up !
This summer was an interesting one for crude prices. We didn’t see the usual summer price surge in gasoline prices that we often see during the vacation months. Think about it. Have you really heard anyone going crazy about gas prices recently ? Probably not, and you may not since many people have become accustomed to paying under $3 a gallon for gas.
Well, the market has a different agenda. Within the last year we have often seen a correlation between crude futures and the S&P 500. On Wednesday crude dipped below $75 on news that U.S supplies had risen. Gas inventories also rose. Both declines point to a lack of demand which raises questions about the future of the U.S economy.
The economics of the recent falling gas prices are simple. People are not driving as much. It could be from unemployment or the lack of taking a vacation. Both bode poorly for exchanges. From the NYSE to the OTCBB, energy related stocks seem to be stuck in a trading range. Many of you have heard this on the news or maybe even read about it in large cap or penny stock newsletters.
Now here are two questions. Would you rather pay a few more cents at the pump and have you stock portfolio and 401K go up in value. Or, would you rather pay $2 a gallon for gas and have your portfolio decline. I know most would chose the first. This is why longs need cruse to stay above $80.
The good news is this negative sentiment can change on a dime. A world event, an economic report or simply some short covering in oil futures can move the commodity sharply higher within a few days. My sense is that we will see some rally back to $80.
Now how can we take advantage of a short term bottom in oil. On the large cap side you can play it safe you can buy Exxon Mobile (NYSE:XOM). If you want to be a little more aggressive take a peek at some of the drillers. But be careful. The drillers sometimes are almost as volatile penny stocks.
Now how does a penny stock traders and investors play this. My advice is to look at the AMEX for these drilling penny stocks. There are tons of microcap energy stocks trading on this exchange. Some of these former hot penny stocks have decent liquidity too. So do your research now and compile your penny stock list. Also, remember that if your wrong take your losses quickly. Preservation of capital is the key.
Many political pundits and pollsters expect the Republicans to at least take back the house, and possible the senate this November. Some are even calling for a repeat of the “Republican Revolution” that happened in 1994, where republicans steamrolled the democrats with anti-Clinton fervor. However, some say this drove the left leaning Clinton administration to the middle and set the groundwork for the historic market rally of the late 1990′s.
Could a republican house move Obama to the center ? In theory, yes. Recently, Obama has had problems getting his own party on board to vote on key issues, especially moderate to conservative democrats in swing states or conservative voting districts.. He has often relied on picking off the few remaining northeast republican left to pass bills. A republican victory in either the house or senate would halt many of Obama’s iniatiatives, which much of Wall St. calls big goverment programs. This may bode well for large caps and even penny stocks.
Many also can remember that the republicans at times held both the house and senate under President George W. Bush. That period led to a major downturn in the market that most of us still remember. This is why historically, the market has done better when we have gridlock in Washington. It doesn’t matter whether the democrats or republicans are running things, Wall St. essentially likes neither party to make the decisions.
Many experts feel that the market will rally if the democrats lose the house. Generally, there are specific sectors to watch when a political event happens. This is different, in the late 1990′s, technology stocks outperformed the stodgy old blue chips, but those blue chip names like General Electric (NYSE: GE) still did well. In other words, gridlock leads to broad based rallies and investors who are up in there core stock and mutual fund positions tend to become traders when they have gains. This could lead to the emergence of several hot penny stocks on the OTCBB.
Right now it is too early to tell which microcaps will emerge if the gridlock theory comes to fruition. But it is never too early to prepare. Right now is a great time to research this theory and you have until November to do so. As of now just scan the internet, watch cable news and read as many large cap and penny stock newsletters as you can find. Remember to stay tuned to our blogs and penny stock alerts, because being informed is the key.
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Everywhere you go, whether it’s a Little League game or a cookout, people are whining and moaning about the market. It is especially true of the casual investor. Many of this group is also predicting some sort of crash or sharp fall in the market in the near term. My memory tells me that some of these same people were very upbeat during the monster tech rally of the late 1990′s. Others in this group also felt comfortable buying stocks and mutual funds when the market already rallied off of the bottom during our last big decline in 2009.
This morning people woke up to shares of Genzyme Corp. (NASDAQ:GENZ) trading sharply higher in pre-market trading. On Sunday, Genzyme received an $18.5 billion offer from Sanofi-Aventis (NYSE:SNY) which comes to $69 per share.
Stock Futures are up this AM, due to jobless claims falling to 473000. This number wasn’t great, but it was much better than the week before, when claims were over 500000.
Every market has a bubble. Those bubbles exist, whether the market goes up or down. Because we have all heard the saying that “There is a bull market somewhere”. Right now that bull market is in the bond market. Investors have been drawn to this asset class for many different reasons. For some it was the “flash crash” for others it’s been poor returns in equities. The poor economy, and high unemployment are other factors in the interest
As we have mentioned many times in previous blogs, takeover fever is back. Potash and McAfee lead the headlines and HP jumped right over Dell’s previous bid for 3Par. The common denominator in all of these deals and for that matter proposed deals, was the cash takeover.
Today a news story came out that was somewhat disturbing. Mutual fund giant, Fidelity Investments reported that a record number of hardship withdrawals were made from retirement accounts. Also investors who borrowed from account hit a 10 year high.
This summer was an interesting one for crude prices. We didn’t see the usual summer price surge in gasoline prices that we often see during the vacation months. Think about it. Have you really heard anyone going crazy about gas prices recently ? Probably not, and you may not since many people have become accustomed to paying under $3 a gallon for gas.
Many political pundits and pollsters expect the Republicans to at least take back the house, and possible the senate this November. Some are even calling for a repeat of the “Republican Revolution” that happened in 1994, where republicans steamrolled the democrats with anti-Clinton fervor. However, some say this drove the left leaning Clinton administration to the middle and set the groundwork for the historic market rally of the late 1990′s.
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