Dow Jones 11064.65 +89.81 8:43 am PDT, June 21, 2006 NASDAQ 2138.47 +31.41 For info, visit access.smallcapnetwork.com S & P 500 1252.08 +11.96 Change your subscription status here Russell 2000 687.91 +10.41 VOLUME 06: ISSUE 46 So Bearish, It's Actually Bullish? For weeks now, it seems like investors have been seeking signs of the elusive 'bottom'. After all, the market is anxious to get back to the bullish work begun in October of last year. The challenge has been an overwhelming number of pundits calling the bottom way too soon. Had you listened to all of them, you probably would have made several disappointing long entries between early May and now. At the risk of coming across as part of the same problem instead of part of the solution, today we're going to offer our thoughts on what the bottom will look like, and why we think we're there. Remember the cliché "It's always darkest before dawn?" That's the basic premise behind our market call today. Or to put it into trading terms, things are so bearish, they're actually bullish. The idea probably isn't new to you. The technical term is 'capitulation', but that's just the fancy way of saying investors have collectively given up on stocks...to the point of just dumping them all and waiting for a confirmed recovery. It's an understandable strategy, but let's face it - the sweet spot of any rally is in its early stages, before anybody actually believes it's a rally.  Proof of the Pudding So what makes us think our 'bottom' signal is better than anyone else's? While we'd never say we have the corner on market dynamics, what we're seeing has an impressively accurate track record. When the New York Stock Exchange's 'new low' level hits or exceeds 250 on any given day, it's usually a sign things can't get any worse. In fact, more often than not, an excessive number of stocks hitting new lows marks the point when things finally start to get much better. Some prior instances of this tendency include: October 12th, 2005: There were 321 NYSE-listed stock hitting new lows on the now-memorable date. The next day, the S&P 500 hit a multi-week bottom with a low of 1168.20. After that, the number of new lows started to subside, and the S&P 500 started to rise. Twenty-nine trading days later, the S&P 500 closed at 1265.60, capping off an 8.3% rally, with even more gains on the way. May 10th, 2004: A whopping 845 NYSE stocks hit new lows near the middle of 2004, near the end of a really tough pullback. The S&P 500 traded as low as 1079.63 the same day. Twenty-nine sessions later, the SPX's close of 1144.06 left behind a gain of 5.9%. March 12th, 2003: If the date sounds familiar, it should - it's the day the bear market officially ended. The new bull market was kicked off with 327 new NYSE lows, as the SPX fell to a low of 788.90. Sixty-eight trading days later, the S&P 500 had gained 28.2%. That's one heck of a four-month return. The counter-argument of course is simple...stocks are supposed to go up, so it's not hard to be bullish if given enough time. We couldn't agree more, but that's not part of the study. Just for the sake of argument though, let's put the strategy to the test, in reverse. If a lot of new lows is bullish, shouldn't a lot of new highs be bearish? Absolutely.  Take a look at what happened the last four times the NYSE saw more than 425 of its stocks hit new highs in a single day: May 5th, 2006: On this most recent ill-fated day, there were 439 new NYSE-listed highs, while the S&P 500 reached as high as 1326.53. As of yesterday, the SPX's reading of 1240.12 represents a decline of 6.5% January 27th, 2006: The 470 new NYSE highs made on this day was the most we'd seen since the middle of 2005. The S&P 500 hit 1286.38. Just seven days later, the index closed at 1254.78...2.4% lower in less than two weeks. July 11th, 2005: The 493 new NYSE highs seemed bullish at the time, as the S&P 500 closed at 1219.44 on the heels of a couple days worth of major gains. In fact, the index kept working its way higher, for a while. Thirty-four sessions later, the SPX closed at 1205.10, and 1.1% lower than where it was when all those new highs were hit. December 2nd, 2004: Santa Clause looked like he was well ahead of schedule, giving the NYSE 524 new highs in early December. Thirty-five trading days later, the S&P 500's close of 1163.75 was 2.2% under the close of 1190.33 on December 2nd. In other words, the signals are quite effective in either direction - but especially when it comes to pin-pointing market bottoms. It does a decent job with the short-term tops too. As such, we can't just chalk up these signals to sheer coincidence.  And The Point Is... You see the results, don't you? Too many new highs can lead to bearish problems, while a lot of new lows usually sets up a pretty big bullish move. Although we didn't have the space here to go back further in time, historical results are consistent with the handful of examples we used here. There are a few minor exceptions, but not enough to ignore the tendencies. The 'bottom' signal (too many new lows) is very effective, but even the less-effective 'top' signal (too many new highs) is still worth watching. We're bringing it up now for one key reason - to set the stage for our short-term outlook. With the New York Stock Exchange's 291 new lows made on June 13th, we have to assume it coincided with a short-term bottom stocks. If history repeats itself, as it often does, we could see some really nice gains over the next couple of months. In fact, a full retracement up to this year's highs is a distinct possibility. Is the strategy flawless? Of course not; there's no such thing as a risk-free trade. We'll just say, based on history, the odds of a strong bounce are very good. The advantage our market call has over others is its foundation in something objective, rather than being a subjective opinion without any sound reason. That said, there's also a difference between having faith, and being stubborn. If the market starts to hit new lows for the year, it will clearly be an exception to our model. In that case, exits may need to be made. The potential reward, though, is much greater than the risk.  For a larger longer-term look at how new highs and new lows have indicated market reversals, click here to the image.  By the way, the NYSE new high level of 425 and new low level of 250 aren't magic numbers derived from a secret formula. They were just picked based on observation, with a bias for consistent results. You may find other levels yield different (and perhaps even better) results. Our only mission is to educate investors, or help them make money. Hopefully both goals were achieved today. Either way, you've got a new tool to add to your trading toolbox.   We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Xtreme's 'Challenger' Lives Up To Its Name Xtreme Companies (OTCBB:XTME) notched another small win for its stock by notching a rather big win for one of its boats. OK, it wasn't quite a 'win' in the strictest sense of the word. Last weekend, in the Hollywood Beach (Florida) Super Boat Grand Prix, one of the company's boats finished second in its class. The Challenger DDC-28, made by Xtreme, was driven by Team Gallagher Offshore Racing. Although finishing as the runner-up, it's still high-profile recognition within the niche boating community. The implication for shareholders is pretty straight-forward... anything that helps the company sell more boats is a positive event. That's not to say we're looking for shares to be propelled into outer space on the heels of just one good race. It is, however, some groundwork for bigger and better company results.   Cel-Sci Shares Looking Attractive? Yesterday morning, Cel-Sci's (AMEX:CVM) CEO Geert Kersten released a letter to shareholders. Although we don't want to reprint it in full here, we do want to highlight some important items acknowledged within the letter. In a nutshell, Kersten acknowledged that CVM shares had been pulled down with most other stocks over the last several weeks. Although the selling was frustrating, it wasn't unusual - three out of four stocks move in tandem with the market. Quite frankly, we're not surprised nor overly upset about the downward move. That's just one of those things investors have to be willing to accept. The compelling part of the letter, however, was the discussion about what's going on internally at Cel-Sci. The company's cancer drug Multikine has just been approved for phase III testing in Canada. A good drug? In phase II of clinical testing, patient survival improved between 33% and 40%. So yes, Multikine does indeed have a lot of promise. And considering the patent on the drug's mechanism will last 18 more years, it's just a huge opportunity for Cel-Sci, and CVM shareholders. Even more compelling, though, was a tidbit that was glossed over early in the body of the letter. Rather than panic like a dear caught in headlights when the stock started to sink, Kersten bought 87,600 more shares of CVM. If anybody knows the true value of a stock, it's the CEO. There are a million ways to say it...eating his own cooking, making his own bed, putting his money where his mouth is...call it what you want - we like companies with CEO's that are looking to own more shares of their own company. In this case, we'd take that lead and use the dip as a buying opportunity. The current price of 85 cents could be the beginning of a breakout move. The stock was up by 5% Tuesday, on higher volume. And we saw a bullish volume bump on May 23rd, as well as a small one on June 16th. So, somebody is getting on board here. As for upside potential, shares have already been as high as $1.78 within the last few months. We don't think it's unreasonable to think shares will get there again fairly soon, but we know that 85 cents is a great entry point right now. Subscribe Information is power and timely information is profitable. Become informed and profit from SmallCapDigest Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the SmallCapDigest Email Newsletter on a regular basis. 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To the degrees enumerated herein, SCD should not be regarded as an independent publication.  Click Here or go to http://access.smallcapnetwork.com/compensation_disclosure.html to view our compensation on every company we have ever covered, or visit the following web address: http://www.smallnetwork.net/profile_disclosure.html for our full profiles and http://access.smallcapnetwork.com/short_term_alerts.html for Trading Alerts. TGR Group LLC has been paid a fee of $25,000 cash and 500,000 shares of newly issued restricted stock directly by Xtreme Companies for coverage. The aforementioned shares have become free trading under Rule 144. On March 7, 2006, TGR Group LLC entered into a contract extension whereby TGR could receive as much as $65,000 cash and 1 million, newly issued restricted shares over the next one year period from Xtreme for coverage of the company. To date, TGR has received an additional $20,000 and 250,000 newly issued restricted shares. 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