Dow Jones 12207.17 -171.44 12:32 pm PST, January 26, 2008 NASDAQ 2326.20 -34.72 For info, visit access.smallcapnetwork.com S & P 500 1330.61 -21.46 Change your subscription status here Russell 2000 688.60 -4.12 VOLUME 08 : ISSUE 8 Short-Term Bottom, But Recessionary Backdrop? Round and round the market goes, and where she stops, nobody knows. Anybody else feel like that? The last few days have been like the prior forty days...lots of volatility - most of it bearish. Though I've seen several pieces of evidence that a bottom was made, I've yet to actually see the bottom. So, it's with a little reluctance that I'm adding another layer of evidence today. Nonetheless...  We'll look at the idea in detail below, as well as some recession data. First though, a quick note about strangely-undervalued Titan Global.    Temporary Ticker Switch For Titan We've gotten a few questions about this, but odds are more of you were wondering. So... If you can't find any quotes or information for Titan Global by using the ticker 'TTGL', it's because those shares are currently trading under the symbol 'TTGLE'. It's a temporary ticker change. What's the extra 'E' mean? It's something the exchanges do to let you know there's either a filing or piece of information that is late, or incomplete.  In Titan's case, they were supposed to file Q1 results (for fiscal 2008) a couple of days ago. They haven't yet, so the exchange notifies the market by using the ticker change. While it's not the hottest of moves in terms of credibility, it's also not that big of a big deal. It happens more often than you might think, and often for very legitimate reasons. We're not particularly concerned about the late filings...not nearly as concerned as we are about the plummeting stock. All that being said, the company still announced what they'd be reporting once they got their official filings submitted. They'll report record revenues of $122 million for the first quarter ending November 30, 2007, representing a $92 million or 307% increase from the Company's $30 million in revenues for the same period the previous year. Not too shabby.  So what's so strange about Titan's valuation? Simply annualizing last quarter's results (which actually understates what they're likely to achieve this year), I come up with annual sales of $488 million. The current market cap is only $54 million. Just crazy.   Zoom Out For A Clear View You know, sometimes we get so bogged down by the day to day stuff - and responding to it - it's easy to forget the bigger picture. I think the last several days are an augmented example of the idea. The media kept dropping bomb after bomb on investors, and most of us were busy trying to figure out when it would end. Very few were taking a step back to take a look at what was really going on. With that in mind, I'm glad I took some time a couple of days ago to glance at the market's monthly (yes, monthly) charts. It was a real eye-opener. We've looks at Fibonacci lines before. For anybody new to them though, here's the Q&D lesson. Fibonacci theorists assume there are naturally recurring patterns in nature, science, and yes, even stock charts. In terms of stocks, the key patterns to watch for (expect?) are 38.2% and 61.8% retracements of prior trends, whether they be from highs to lows, or lows to highs. Or, Fibonacci lines also suggest extensions beyond major highs and lows, again by 38.2%, 61.8%, or some multiple thereof.  Does every high or low point on a chart have significance relative to Fibonacci lines? No. However, way too many of the major ones fall within this framework to just ignore the idea. Take a look at the nearby monthly chart of the NASDAQ Composite. Going back from October's peak of 2861 to the October 2002 low of 1108, you have a 1753 point span. Now take a look at the 659 point dip (from peak to trough) we've been through over the last three months. It was almost a perfect 38.2% retracement of the 1753 point run. Can you chalk it up to coincidence? Sure, you can make all kinds of assumptions. And truth be told, the recent pullback wasn't exactly a 38.2% retracement. However, a 37.6% retracement is pretty darn close, and really makes me think the market has some sort of psychological threshold that's not likely to be crossed. (On the other hand, I want to come back to that missing 0.6% below.) Now, had it just been the monthly chart's Fibonacci lines that got my attention, I may not even have brought it up. But, take a look at the nearby weekly chart.  Between the August 2004 low of 1750 and this past October's peak of 2861, we've come quite close to a full 61.8% retracement of that move. There's technically still 30 points between the recent low and that Fib line, which brings up a key point... As tempting as it would be look at the chart and say 'yep, that was the bottom', at this point we may actually need to sink a hair under those major Fibonacci lines to really flush everything and everyone out. We've had some mini capitulations, but I'm not convinced we've had an all-out blowout. We may need to see the NASDAQ plunge under 2172 to totally wipe the slate clean.  My rationale for thinking the worst might not be over? The market has closed 18 straight days under its 10 day moving average line...an extremely rare occurrence. Though overdue for a rebound (even if only a dead-cat bounce), Friday's attempt to finally get back above the 10 day line was met with extreme prejudice...and no indecision. In all fairness though, I'm not totally sold on that possibility that we have more Fibonacci retracement ground - somewhere around 0.6% worth - to give up. We may have already suffered a sufficient amount of pain to make a bottom. Only the next few days will really tell. I think the 10 day lines, and the 20 day lines, will be the key. Anyway, if you want to see the Fibonacci lines for the other major indices (though they tell the same basic story), click here for the Dow's, click here for the S&P 500's, and click here for the Russell 2000's. We plotted the long-term Fib lines as well as the not-quite-as-long-term Fibonacci lines on each chart. And yes, we'll be monitoring these charts in the blog as well as upcoming newsletters.   What, No Recession Chat? I know in the last newsletter I said I'd be discussing some recession-proof sectors in the next edition. After watching the rest of the week unfold though, I thought today's discussion was more pressing. I still plan on getting those ideas out to you very soon.  Between then and now, however, I've also decided something else. Don't freak out because it's not actually something to fear, but I think we're already in a recession. No, nobody has said so yet, which means I'm really sticking my neck out here. However, I'm only basing my opinion on facts. The facts are (1) unemployment is trending higher, (2) inflation is trending higher, (3) the Fed Funds rate is trending lower (meaning the Fed is desperate), and (4) capacity utilization is trending lower. All four of those are symptoms we've seen occur simultaneously during past recessions. And, all four trends have been place for a few months. So why doesn't the National Bureau of Economic Research (the folks charged with determining whether or not we're actually in a recession) agree? Bless their hearts, but they generally don't announce we're in a recession until we're several months into it. Some help, huh? Here's the 'more stupider' part - they also don't announce a recession is over until it's been over for months. Again, thanks for the early warning. The reason a technical recession doesn't really bother me as an investor? There are actually two reasons. The first is, it doesn't inherently mean all stocks are going to lose ground (some stocks actually thrive in the environment). The second reason is, stocks almost always hit a major bottom in the middle of a recession, and start to recover well before it's technically over.  I hope you're thinking what I'm thinking...any recession-based pullback is actually a long-term buying opportunity. Sure it changes the short-term game, but the Fed - though habitually late to get started - generally keeps the lull to a minimum. Anyway, look for the recession/sector edition soon.  Does this also mean we're looking for a bear market? Not necessarily, but we'll have that discussion at another time. By the way, it looks like we may have a new small cap company to start covering next week or the following week. No details just yet, but I think you're gonna' like the diversity this name could bring to your portfolio.     We Value Your Feedback   Got comments, questions or suggestions? 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