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Published since 1990
"Equity Strategy Specialist"

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May 9, 2018

"Stocks in the Spotlight's"

A CURRENT UP-DATE

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"THE MARKET"

Looks Like Rough Weather Ahead


Last Week's Closing Indices

52-week Index highs

52 Week Highs 

The Markets Are Moving On What Might Happen

The
markets are telling us there is rough weather ahead making it important we have are sea legs under us. The last 52 week high on any index (except for the Nasdaq) is January 26, 2018. Currently none of the indices are in correction territory (
more than 10% from the 52 week high). Three weeks ago there was 6 indices in correction territory (all the narrow indices) while the other 5 tend to cater to the OTC stocks, which is a bullish sign for the near term.

The main reason the markets are so hard to figure is because they're falling on what might happen and not what is happening. The recent increase in interest rates of 1/4% was expected but the recent "no change" was a surprise. One of the reasons for the falling markets was investors thinking the Feds are going to increase rates too far and too fast, but this is only what might happen.

Another big factor would be the rumors of trade wars because of Pres. Trump's wanting to align the United States with better deals than we've gotten from almost all former presidents. The problem, there is no trade war and there's no guarantee there will be one. Again, this is what might happen.

I've always felt that markets that fall on what might happen will not stay down and end up resuming the bullish stance that positive consumer confidence, lower tax rates and higher employment tend to bring with it. Of course there is also another problem. Many times when consumer confidence is high, as it is now, means  we're near the top of the market.

We also need to be aware of the possibility of imposing tariffs on as much as $60 billion worth of Chinese imports to punish Beijing for the theft of American technology. Why not! China charges the U.S. tariffs, but it hasn't happened yet.

Of course it appears China wants to avoid any trade war and is willing to work with the USA on something both sides can work with.

I believe that once the dust settles investors will like standing up for our products and our workers in the long run. I also believe manufacturing will continue to increase as more products are "Made in America."

I do not believe the bull market is over and I would expect the selling to ease soon. Just announced was a 4th Q GDP of 2.9%, meaning the economy is running strong and best part was the bulk of growth was in capital spending.

The economy has been waiting a long time for companies to start spending and
this renewed spending will only lead to better places for all of us.


I do not believe the average investor is participating in the selling. The giant swings are the institutions, money managers and speculators buying, selling & shorting on a daily basis and not for the weak at heart investor.

I have always said the big correction will come from investor fear of losing years of profits and I just don't see that "fear" in the current activity. Actually the markets seem to be in a trading range and once the rumors take a breather the bull should be in "charge" again.

Will there be a trade war? I doubt it but if so than so be it. China needs the U.S. more than it needs them.

Will inflation continue to climb? Probably, right along with rate increases, but not too far and not too fast, I hope.

Will the tax breaks make a difference? Certainly, all the difference in the World. They are the gift that keeps on giving.

Will there be a War with NOKO? I have no idea and neither does anyone else. We can never let our investing be decided by "if there will be a War or not." It is out of our control. Bet against it and if good news comes out of NOKO the markets will like it.

Will the markets return to climbing? Probably, with all the great economic news how could it not. It has not even started to run the course, therefore it should still have much strength in reserve.

However! There are signs of weakness in the indices, but so far the narrow markets are in a correction and the broad markets are not. One problem for me is the NY index was at correction, down 8.19% from the high, while the VL and the Nasdaq were still down less than 5%, off 4.66% and 4.26%.

Since I believe the big OTC stocks tend to lead the markets this could mean higher ground ahead, but not yet. As long as the VL & Nasdaq fair better than the NY the rally should still be on track. Its when the NY is doing better then the VL & Nasdaq we have to worry.


My rule is: The markets cannot rally very long without the big OTC stocks.


The DOW 30 chart below is an average of all 30 of the Dow Jones industrials and what percentage the total are away from the 52-week high. I use it as a measure of when markets are undervalued, or overvalued, simply because these 30 stocks are carried by just about every fund there is. Keep in mind, since it is a discount, the percentage can never be in positive territory.

The record for the discount to the 52-week high is - 2.87% reached on 1.8.2010. The maximum discount was  -52.76 on 11.20.2008 showing just how far this index can move. Currently the discount rate is -11.61%, meaning there is some "wiggle" room to continue improvement, but the nearer the average of all 30 stocks come to the 52-week high the more overvalued they become. In 2016 there were 24 that reached a new 52-week high, 25 reaching a new high in 2017 and 24 so far in 2018.

This discount had been trading mostly between -7% and -5% from December of 2016 all the way to December 2017, with a breakout to under -4% twice, but recently between
-8% and -14% with a low of -9.97% on 4.17.18.  

Remember, once an index or stock sets a new high the next new high is easier to achieve. It only has to break the current one by 0.01%. Also, Once the previous 52-week high expires it is easier to set a new high. The DOW 30 has set a new high more than 85 times since the election.

The fear of losing profits will be the reason forcing the markets down rapidly, which in an overvalued market is, and should be, expected. Nothing goes up forever, however the new tax cuts for corporations will make a big difference in valuations and provide much fuel for the bull to keep charging.

The trend is our friend and it appears to be leading the markets to roller coaster ride through the last few weeks of the first Q and continuing this month. The markets could continue this way all the way to the November elections but if the demo's win Congress get out because the drop will be hard.

We need to keep our cautious shoes on and tread through the bargains. Look for the deals and look at newer and start up companies and do the homework.

A best bet might be a small stock that reads good and offers a decent chance.
Small stocks tend to trade on their own and are not a sensitive to the overall market. It needs to be trading near the low-end but with a reason to climb.  Again, they are out there. We just have to search hard to find them.

Good Luck!

JR Budke


"SMALL STOCKS"

Maybe The Best Place To Be



  The Small Stock Arena tends to be strong over the next 3 months.
Considering the markets are so overvalued Small Stocks might be the better bet!


I am currently looking at several small stocks and as soon as I come
up with what I think is a "bargain" I will let you know

UPDATES
From $0.30 to $5.00
Powin Energy - (OTC-BB) (PWON) (52 week range 0.30 - 5.00 )now at $1.76.

Powin Energy Corporation (PWON), a leading manufacturer of fully integrated energy storage solutions, has sold over 110MWh of select project assets and contracted pipeline to esVolta. esVolta recently received a large financial commitment from Blue Sky Alternative Investments LLC to accelerate its growth in the North American utility-scale energy storage market. Powin Energy will be esVolta’s exclusive provider of energy storage systems through 2022.

News:
Powin Energy Sells 110MWh of Operating Projects and Pipeline to esVolta
Clicking on the headlines will take you to the article.The link will open in a new page)


Powin
h
as the right industry, the right time and the right product, a recipe for a much higher price on the stock. Its hard to convince you to buy such a slow mover, but when it moves it may be a big move and too late to get in.

The problem is not very many shares are available anywhere, and the stock trades by appointment making anything under $3 a steal.

Buy Here!


From $1.75 to over $15.65
Advanced Micro Devices (AMD) (52 week range 7.77 - 15.65 )now at $11.92.

AMD has been caught in a battle with NVIDIA with both working on new chips.

AMD increased estimates for the Q as the company's new Ryzen Desktop CPU, Vega, GPU and Epyc server CPU are gaining traction within their various markets as the new chips could take a big share from its competitors.

Entry OK here but the stock has been following the market therefore if the markets continue to back off we could see under $10 again. Learn as much as possible and be ready when it trades lower. We could easily see over $20 in 2018.


Best if in under $10.00!

From $0.27 (4.16.2007)  to over $33

Fonar Corp. (
FONR ) (52 week range 17.20 - 33.90), now at $29.20. I first started following Fonar in 1982 and have followed it every day since. Great products would be the reason to own this stock. The current PE is only 10.21.

Fonar has been a favorite of mine for over 30 years. My buy at $.27 in 2007 led to over $27 before falling back to the $9 area but once there the stock moved up and over the $33 area last November but fell hard again hitting a low of $22.65 a week later.

Fonar recently announced an increase in revenues & earnings and the stock moved up to over $29 and too high to buy.

No matter how much I like the stock entry is best if under $20. Lighten up when over $30.

Best entry is under $20 !



Up From $22.10 to over $30 since February

Comtech Telecommunications ( CMTL ) (52 week range 13.11 - 31.40), now at $30.30. Our original buy under $4, in 2003, carried all the way to over $50 and split twice along the way. CMTL is a stock to own for the long term.

Our buy under $10 last November has worked quite well, however in lieu of the overvalued markets taking some profits might not be a bad idea, but hold the rest for the long term. The current PE is high at 28.06.



In closing I would like to mention that one of the worst things we can do is buy stock in a young penny stock company that has already issued, or is going to issue too many shares too low in price.

The market makers love too many shares as it keeps the price low making it possible to short millions of shares, which prevents the stock from moving.

Finding a quality small stock "to buy" with not too many shares owned, near the low, will be very hard but once found the rewards can be plentiful.

If you have a situation, or questions, please feel free to contact me.

I wish you all good luck!

Remember, if in the right stock at the right time
the market direction will mean little!

I'm J.R. Budke and this is my opinion!

Stocks in the Spotlight
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J.R. Budke became a stock broker in 1981, an options principle in 1982 and a branch office manager in 1987 and a National Sales Manager over 150 stockbrokers. He is currently inactive as a stockbroker as of 12/31/99. J.R. writes the articles and opinions for the Stocks in the Spotlight. The stories and stocks found on this site, or any "Stocks in the Spotlight" written material, are the opinions of J.R. Budke unless other wise stated, and should not be considered as advice. You should not purchase any stocks solely on the opinions found on the "Stocks in the Spotlight's" web site or in any of its written material. You should also be aware that options are not for everybody and carry a high degree of risk.

The "Stocks in the Spotlight" provides information only, this is not meant to be a recommendation to buy or sell the profiled security, nor is this an offer to buy or sell the security.
The publishers of "Stocks in the Spotlight" are not investment advisors and are not acting in any way to influence the purchase or sale of the security. Before purchasing or selling any security profiled, it is encouraged and recommended that you consult a stockbroker or other registered financial advisor. The reader must understand that the companies we select may involve a high degree of investment risk. Potential investors must understand that they may lose all or a portion of their investment due to the risk involved.



The recommendations and updates in this "Current Up-Date" may include "forward- looking" statements as that term is defined in the Private Security Reform Act of 1995, & therefore are subject to various risks & uncertainties. There can be no assurance that actual results, business conditions, business developments, losses & contingencies, and local & foreign factors will not differ materially from those suggested in the "forward-looking" statements as a result of various factors, including market conditions, competition, advances in technology, acquisitions, potential litigation, personnel changes, capital availability, and all sorts of other factors.