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"Stocks in the Spotlight"

Published since 1990
"Equity Strategy Specialist"

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January 25, 2018

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WOW! What a Rally and it does not want to stop

Last Week's Closing Indices

52-week Index highs

52 Week Highs 

The DOW 30 -Over 26,000 ???

I have said many times before! Do not buy at the top. When the bull keeps running many of us feel left behind and end up jumping in months, or possibly years, too late. We get caught up in the stock of the day, or week or even the year (Apple comes to mind). But (as the saying goes) all good things come to an end, someday.

The above table shows the 9 of the indices reaching new all time highs in the last week. Ten in the week before that. Also, 10 out of 11 indices set a new high (excluding only the Utilities) at year end.

The biggest problem an investor has today is there is no telling when this market will decide to end this longterm rally, but it will and you can bank on it. I would love to be able to tell you but even my crystal ball is cloudy and hard to read.

Just in the last few weeks I witnessed a divergence that I have not seen for a long time. This divergence has to do with the New York index continuing to set new highs and the Nasdaq & Value Line not as often. If the NY keeps this up it will be telling us the big OTC stocks are being quietly sold, a 1st sign of a possible correction.

The problem with this market is it has climbed to the moon on basically a few stocks but when the bear comes out of hibernation it will attack all stocks, winners or not. This is not good if we happen to be in a losing stock because a "best guess" says it will lose more.

If we have a loser in this market our best bet would be to sell it and find a bargain. At the least we will be back in the market and not following a loser everyday. We need to remember, the game is no fun if we don't get to play.

As far as how much longer the bull will keep charging? There will be no way of knowing until a correction has already started. The main reason I believe the markets will continue is two-fold. The very strong consumer confidence along with the very strong tax cuts.  The end result will be increased earnings per share, which will lower the average PE and increase the value of stocks.

When the markets do run out of steam I believe they will fall hard because the rally for the last few years has mostly been because of a small basket of stocks, therefore it will not take much to scare investors out. However the timing depends on how well the economy is growing and it is growing quite well. At the current rate of growth the markets may not correct for another year.

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

When a big correction starts it will be led by the big OTC stocks, however, the markets are not acting like a correction will happen anytime soon.

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.

DOW 30 stocks discounted from the 52 week high

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 11.20.08 showing just how far this index can move. Currently the discount rate is -3.52%, 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 18 in the first 3 weeks of 2018.

This chart had been trading mostly between -7% and -5% from December of 2016 all the way to December, with a breakout to under -4% twice.  

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 higher ground and this higher ground could go all the way through the first Q. 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.

The other best bet would be a small stock that reads good and offers a decent chance. 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

Knowledge of History = Money"

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!

Knowing the history of a small stock is necessary if wishing to be able to sell a stock we have already bought. The easiest thing we can do when playing the small stock market (SSM) is to "BUY". Easy as pie!

It can be a whole different ballgame when we want to sell if we did not know the history when we bought.

Supply & Demand are two of the most important  parts of the SSM and having some answers can mean all the difference in making money or losing it.

What I am talking about is knowing how many shares are trading, when the last time shares were issued and at what price and knowing how many shares have traded when near the current low-end of the trading range.

Our concern is the "Pump & Dump" and how to find it and how to use it to our advantage. There are 2 methods of pumping and dumping. One is where the company has a "Private Offering" of shares dirt cheap to a select group of investors.

These same investors will spend big bucks promoting the stock so they can sell when it runs up. Once done no more promotion with the only thing left is sellers and right back down she goes. This is the crooked form of moving a stock.

The next method has nothing to do with offering shares to Private Investors. This one is all about a company, with a stock price near the low, wanting to get action in the stock by hiring a firm that will promote the stock.

This method is the worst thing a small stock company can do. Why? Because the company gets no money (no private placement) but the IR/PR firm will bring in their investors (the big one's first) that will "Pump" the stock because they bring them in all at once.

This causes the stock price to climb as the promotion is on-going and these select investors "Dump" their shares at the top (can't blame them with 500% profit), which in turn drives the stock price right back down again. There is no shareholder loyalty because these select investors only bought for the quick profits.

We can avoid getting caught up in the DUMP if we know a few things before buying. We need to look a old news in search of the last private offering. In the USA a "Private" investor has to hold "Private Offering" shares for 6 months (Canada - 4 months) before being able to sell.

We also need to look at the price of the offering.The stock might be over the 10 cent mark but these private investors might buy at 0.05. If we find an offering 5 months ago and the current price of the stock is near that offering price we might want to jump on the wagon for the quick ride.

If the offering was 7 months ago, and the stock has already climbed we want to run away because we already missed the boat.

Unfortunately, we can never buy long term on a company that issues millions of shares near the low. They will eventually catch us in a big selling campaign and odds are we lose.

The main reason I always say "under a quarter" has to do with the market makers. When the price of the stock is less than a quarter market makers have no fear. They can short until they're blue in the face and it won't bother them because they are setting on a million dollar book with a reserve of around 30%.

With 70% discount on the short position they can actually short three times as many shares or $3 million worth. That's a lot of shares on a five cent stock. What this means is 100,000 shares shorted at .05 is $5000. 30% of that is only $1500, meaning it only cost them $1500 to short $5,000 of stock, or the entire 100,000 shares.

If we take 10 market makers and they all short 100,000 shares we end up with a million shares short and they have a limited risk, making it almost impossible for stock to go up and stay up. The point being is the more expensive the stock the fewer the shares market makers will short and the reason a quarter is better.

MM's only care about "supply and demand" and with too many
shares trading there will always be a supply.

We need to remember that, traders (MM's) do not read the news, that too many shares trading is not good and the story has to make sense.

I wish all good luck on your trading

From $0.30 to $5.00
Powin Energy - (OTC-BB) (PWON) (52 week range 0.30 - 5.00 )now at $2.05.

NEWS -- 12.11.17 --

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 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.

as landed about 3 deals in the last year and each one is bigger than the one before. Do not underestimate this one. The right industry, the right time and the right product is a recipe for a much higher price on the stock.

The problem is not very many shares are available anywhere under $??, making anything under $3 a steal. Low float and no one wanting to sell are the reasons for the recent big jump to $5. Use the backing back to the $2 level as a reason to jump on this band wagon, the one heading to the bank. My best guess is a much higher price in the next 18 months.

Buy Here!

From $1.75 to over $15.65
Advanced Micro Devices (AMD) (52 week range 7.77 - 15.65 )now at $12.45.

AMD has been caught in a battle between Intel and NVIDIA with all three working on new chips. Is there enough to go around? AMD is in the news often and had backed off a bit, but recent news of hacking problems with Intel's new chip and AMD's statement that tells us the hack does not effect AMD's chip has moved the stock back up

My problem now is the stock did climb quite high before backing, therefore I recommend waiting until we have a lower entry level.

Continue to hold but learn as much as possible and be ready when it trades lower. We could easily see over $20 in 2018, but possibly under $9 first.

From $0.27 (4.16.2007)  to over $33

Fonar Corp. (
FONR ) (52 week range 17.20 - 33.90), now at $24.20. 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 8.29.

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 overnight hitting a low of $22.65 a week later.

Fonar recently announced an increase in revenues & earnings and the stock fell. No news and no reason.

No matter how much I like the stock it may still be too high to buy. Entry is best if under $20. Lighten up when over near $30.

Best entry is under $20 !

From $9.50 to over $19

Comtech Telecommunications ( CMTL ) (52 week range 10.51 - 23.90), now at $21.35. 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.

A few months back the company had a public offering at a price of $14 per share,
which made anything under $14 a steal.

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 31.13.

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 for 2017!

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.