As for the market, I already mentioned that we’re on the verge of a new buy signal, and if we get one, I’ll be putting some money to work. However, right now is one of those times when I don’t have a super-strong conviction about what’s likely to come.
On one hand, the market has built a decent-looking bottom during the past few weeks, and there are a few dozen potential leading stocks with good growth stories that resisted the market’s May-June correction.
On the other hand, the broad market and even the charts of the major indexes are in rough shape, and this latest upmove has come on super light volume; even the biggest volume day (last Tuesday, June 15) saw the Nasdaq’s total volume 12% below average. So it’s hard to really have faith that big investors are piling into stocks.
So what do you do? First, you follow the system–as I said, if our Cabot Tides turn bullish, I’ll be putting some money to work. However, I think taking a gradual approach is the best course of action. That means buying two or three small positions … maybe half your normal investment, dollar-wise.
Then, over a few days, if the market is acting well and your stocks are making you money, you can buy a little more, either of your current holdings, or new purchases. After two or three weeks, if all goes well, you’ll be heavily invested in some strong stocks. Of course, if the rally peters out (failures usually occur quickly and violently, so it won’t be hard to notice), you won’t get heavily invested; you’ll stop buying if your stocks aren’t showing you a profit.
One tiny company I’m keeping my eye on is Rubicon Technology (RBCN), which isn’t a household name, but is helping to lead the way forward in the LED industry. Here’s what I wrote about the firm in Cabot Top Ten Report earlier this month:
“If MEMC Electronic Materials was the raw material supplier (silicon) that benefited greatly from the solar and chip boom of the 2005-2007 period, then Rubicon looks like the winner in supplying raw materials (in this case, sapphire substrates) for the current and upcoming LED boom. The company is a leader in producing these substrates in the Western hemisphere, and is the world leader in larger sapphire wafers, which the industry is moving toward (and which have significantly higher barriers to entry than smaller wafers). The stock is strong today because demand is miles ahead of supply–LEDs in notebooks, networks, LED monitors and TVs are using more and more LEDs, and the industry is racing to expand capacity to meet that demand. That, indirectly, is pushing prices for Rubicon’s wafers up; prices roared ahead 20% sequentially in the first quarter, and management sees higher prices going ahead. Revenues have soared the past couple of quarters and the firm just booked its first profitable quarter in two years. Eventually, this industry will over-expand and prices will fall … but management believes that’s at least a couple of years off. In the meantime, we see major growth ahead.”
Since that time RBCN has broken out powerfully from a choppy base, successfully completed a share offering and, importantly, has refused to give up ground during this week’s slide in the market. The stock is relatively thinly traded, but business is picking up in a big way, and if the LED trend continues for a few more quarters, Rubicon will have a bright future. I think a little could be bought around here, or preferably, on a pullback toward 30.