Tactical Investor Newsletter 

March 20, 2005

Small caps have traditionally always performed better than large caps. The problem however is identifying the right companies and right sectors and then taking key positions in those stocks. Furthermore one has to know when to sell and when to hold, sometimes extreme volatility is mistaken for a crash and huge profits are foregone because fear replaces logic.  This article illustrates this point rather well 

Last year, for instance, small caps clearly led. The S&P Small Cap 600 rose 21.6% in 2004 compared with a 9% advance for the S&P 500. Buying small caps likely proffered the biggest gains.

If you look at all the strong sectors you will notice one recurrent theme again and again; small cap stocks trounce the big cap names.  Lets look at  several sectors. 

the Gold Sector. Those that took positions in Stocks like GSS,MNG,BGO,CBJ, CDE, ETC   from Nov 2002 to about April 2003 made gains of up to 600% if they closed half their positions around Nov-Dec 2003. 

The Oil Sector. Stocks like TPE,PYR,TGA,ABP ETC  gained in excess of 400% in some cases. Positions should have been taken from the middle of last year and early this year. 

Nanotech Sector stock such as ALTI,NGEN, JMAR, ETC gained in excess of 200% in a few months from June 2004 to Nov 2004.  ALTI just generated another huge win and we will talk about this in more detail below.  One has to understand the basic principles of Trend Analysis in order to be able to plan ones entry and exits. Nothing good in life comes easy. 

 Lets look at a real life example.  In later 2003 we took key position in ALTI, then closed out these positions in 2-3 months for gains of 100% plus. We then took 1/2 positions in 2004 (we held onto the other half of money and deployed it latter so that our average price came down to 2.25).  We got in at 2.60 and watched the prices drop all the way to below 1.15 but we still held. We noticed that the stock kept selling of on low volume and the heaviest part of the sell off to place on the lowest volume ( look at the two charts below taken from a Past market update). Once the bottom was put and the stock turned around we took additional positions. well to make a long story short we took profits in the 4.80-6.50 ranges when ALTI took of like a rocket from hell on the news that they come up with new ingredients to make a longer lasting rechargeable batteries. 

 You can see that the whole correction has taken place on very low volume when you compare it to the rally phase 

Another very interesting phenomenon is that the steepest part of the correction took place on the lowest volume; this is very bullish. In addition notice that we have 4 branches of the main trend line (an unusual situation). Normally all it takes is 3 to bring about an imminent reversal, the fact that we have 4 states that all the wrong hands have been dumping this stock and they most likely will have done so at or close to the bottom. From Interim Market update August 15, 2004

The masses have jumped onto the bullish bandwagon a bit to fast and so we think that some sort of pull back is in the works, probably in the order of 300-500 points.  This pull back will drive the fear of God into the new eager bulls and provide those who are willing to take a risk one last time to get on board before we kiss the 10k range good bye for several months. November 2004 Newsletter  

Gold

We have stayed out of gold since Nov-Dec 2003 when we sold half our positions.  Since then we have been playing the energy sector, Nanotech sector ( ALTI was our latest home run, we won twice on this one) with great success. We are now monitoring the Gold sector closely and watching for specific stocks that might issue buy signals.  The strongest stocks will start flashing buy signals first, while the weaker ones will fall much more. 

Palladium 

We believe that this will be one of the top performing sectors in the next 1-2 years.  Palladium is the only metal that has not experienced some sort of extended bull run. we believe that its going to play catch up with the rest of its peers and when it starts to move the move is going to be very powerful. One stock in this sector has given of all the necessary signals and we have been accumulating positions in it. 

Uranium 

Is currently in an extended bull phase and a pull back is needed before any new positions are taken in this sector

 Platinum 

Is putting in series of lower highs, a bearish formation that usually leads to huge price moves. Once the correction is complete it will provide a lovely opportunity to open up new longs in this sector.

All Charts were provided courtesy of www.prophetfiance.com