Worst Week For Stocks in Months - Time To Buy?

Ouch! Friday was quite a blow, huh? The week was even worse. In fact, it was such a strangely bearish week I decided to postpone what I originally planned on looking at today, and instead focus on something much more relevant to all of us right now...what's next for stocks?

Just for perspective, the S&P 500 closed 4.5% lower for the week, 2.4% of which was suffered on Friday alone. It was the biggest single-week hit the market has taken since July of 2007. You know what though? Personally, I feel much better about being a buyer than a seller here. 

My bullish reasoning stems from several observations. Some are more speculative than others, but given that the current market environment has favored recoveries more than following through on pullbacks, I feel the odds still suggest buying on a dip - when you see certain signals. Some of those hints include... 

1) Too many new NYSE lows. Those of you who've been reading for a while may recall we dust this tool off every now and then. We can't look at it too often, because it's usually not telling us much of anything. However, when we do see those rare extremes in the NYSE's new highs or new lows, it's often at a bottom or top. The tool nailed the bottom we discussed back on August 18th, as well as the recovery move we called for on June 21st of '06. 

Well, on Friday, the NYSE reported that 498 of their stocks had hit new lows, and only 22 had hit new highs. We saw the new NYSE low reading higher than that a couple of times in November, and we saw a peak of 1180 new lows in August. However, from a historical perspective, 498 new lows is still a huge number...one often associated with at least a short-term capitulation. 

The one thing I've started to like less and less about this tool is that it seems to lack precision. By that I just mean we don't necessarily see a peak in new lows on the exact day of the bottom. Still though, I think it gets us pretty close to finding the bottom, so I'm at least willing to start to fishing. 

2) ISE Sentiment Index. We've looked at this one before too. In a nutshell, it measures investors' bullish or bearish opinion based on option (put and call) positions held via the ISE Exchange. It's considered a contrarian tool, in that it assumes things are bearish when investors appear to be most bullish (and vice versa). 

Anyway, yesterday's ISE Sentiment Index reading of 93 was the lowest reading we've seen since November 16th. That's also well on the low side of the 'normal' range for this indicator. Yes, it can always go lower (and it still might now), but fortune has generally favored those who've been willing to buy when everybody else seemed to be bailing out. 

My only issue with the ISE Sentiment Index is the same as with the NYSE's new low strategy...it's not precise down to the day. In this case, we're not even yet at the lower Bollinger band, which has been the reversal point for all the major bounces. So, we may need to see the index sink all the way to 79 before it's all said and done. It's still been a good tool for me though, telling me when to bother looking for an entry point or not. 

So what will the coming week bring? It wouldn't surprise me a bit to see the sellers pick up where they left off on Friday...for a few moments. So, don't be shell-shocked if things get off to a bad start on Monday. I'm really more interested in how we finish the day - are the bulls fighting back, or have they just passed the torch to the sellers? 

The hammer-shaped bars (all indices) from August 16th explain what I mean. We opened that day even lower than the previous day, and further extended what were already significant losses. By the end of the day though, the day's intra-day losses had been recovered (in spades), and it ended up being a nice, investable bottom. 

With the market hitting the panic levels it did around then, I tend to think the fear-based selling is overblown. Plus, the Fed is probably going to need to be as market-friendly as possible following a terrible start to the year (unemployment is at two-year highs, and stocks have thus far been trashed). When investors realize the world's not falling apart at the seams, I expect them to trickle back in. 

That said, here's my bottom line - I don't know that we're actually at a bottom yet. Monday will tell me a lot. I think we're close if we're not there yet, and the pump is primed. Stay tuned - I'm sure we'll have more to discuss early next week.
 

	A Clearer Picture of Imaging3

Wow! It didn't take long for Thursday's blog comments on small cap medical-diagnostic manufacturer Imaging3 (OTCBB: IMGG) to create a buzz among our reader base. In fact, the interest has been so strong that we decided to gather more of the story.

Like we mentioned on Thursday, Imaging3 makes a device that can take a 3-dimensional picture of a patient's 'insides', like bones, organs, and anything else found under the skin. If you missed the blog, click here to get the whole scoop. Or, read on for the thumbnail sketch...

Imaging3's scanner may be superior though, as it lets doctors create 3-dimensional image of any part of the body within a matter of seconds.

Current comparable machines (like C-arms, CT scanners, x-rays, etc.) can take minutes, if not hours, to do the same. As such, Imaging3's machine may have a practical application during a surgical procedure. It's also portable, and uses considerably less radiation than comparable devices. All those factors are compelling to healthcare providers, and by extension, to investors.

OK, so far so good, but you're probably thinking what I'm thinking - what's the investment potential? Here's where things get really interesting.

In the United States there are 13,000 hospitals and 1400 surgery centers, many of which have multiple imaging devices. These 14,000+ facilities end up buying a total of about 6000 CT (scanning) devices every year....a lot more than I would have guessed.

As far as pricing is concerned, I was surprised to learn these things can easily cost a few hundred thousand to more than a million dollars each. I couldn't get an exact bead on how much Imaging3's version was going to cost (they'll have more than one), but I think they'll range somewhere between $300K and $500K. For math purposes, let's just say they sell them for an average price of $400K.

By my estimates, a 5% penetration means about $120 million in sales. A 20% penetration means roughly $480 million per year.

Of course, that brings up the real question...how well can the company acquire market share? That's ultimately up to you to decide. You read the description of their technology, so that's really what you're measuring here...what's the demand, as measured by future capital spending on diagnostic equipment of this caliber? It looks great to me, but I'm not in the market for a CT scanner. Someone else will be answering that question with dollars.

Or, look at it like this: If you were a doctor, would you want Imaging3's speed, functionality, and lower doses of radiation when lives are on the line? 

It's an interesting company with a lot of potential, at least in my opinion. I think I'll put it on my radar and see how things unfold. They've really started to stir the pot lately in terms of patents, the FDA, and showcasing their wares to the industry. When a company gets that excited about itself, something big could be going on. I may follow up on IMGG again in the newsletter or blog.

By the way, we have a reader to thank for bringing IMGG to our attention. If you know of, or have come across, an interesting small cap company with a good story, feel free to drop us a line in the blog or via e-mail...we may share it with our readers. We're not interested in pumping up your random stock picks - we're just looking for interesting small companies that deserve some attention but can't get it through the mainstream media.
 

We Value Your Feedback

Got comments, questions or suggestions? Send 'em on over: Email the Editor 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

Subscribe

Note: Your email address will be kept strictly confidential, and will not be shared with any other entity for any purpose at any time. If you no longer wish to receive the Small Cap Network Newsletter, simply follow the instructions located at the bottom of every Small Cap Network Newsletter Edition.

Click Here or go to http://www.smallcapnetwork.com/compensation_disclosure.html to view our compensation on every company we have ever covered, or visit the following web address: http://www.smallcapnetwork.com/profile_disclosure.html for our full profiles and http://www.smallcapnetwork.com/short_term_alerts.html for Trading Alerts. 

From time to time TGR sells shares received as compensation for coverage of client companies. Shares received are sold in the open market. Since the shares are received as compensation for services as previously disclosed, and not for investment purposes, TGR does not view the sale of the shares as contradictory to any opinions delivered in the content. This should be viewed as a conflict of interest by shareholders or prospective shareholders of the client companies. 

TGR, its Members and Members' families, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed. 

All statements and expressions are the sole opinions of TGR and are subject to change without notice. A profile, description, or other mention of a company within SCN is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. 

The profiles, critiques, and other editorial content of SCN may contain statements that appear foward relating to the expected capabilities of the companies mentioned herein. 

THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF TGR. 

We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm. Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.