E-motions: Vol. No. 1, Issue No. 27 Brought to you by California News Tech (OTC BB: CNTE)

By: Tai Nicolopoulos E-Motions Writer 05/26/2006

Soft Market, Weak Earnings, Plus Quarterly Surprises Create Panic

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1. Emotions in Focus: Smaller Problems Multiply, Magnify Reasons for Anxiety

    Recently, the Federal Reserve has sent some mixed messages about rate hikes to control inflation. Many economists and analysts make arguments that rising energy costs have yet to hurt the overall economy. Nonetheless, recent reports from the Federal Reserve, which to some, hinted at rising interest rates, hurt the stock market during mid May. In some cases, stocks that released only slightly weakened earnings dropped precipitously. Why would economic news that may or may not be negative, and slightly weaker earnings make stocks drop between 15% and 20% in one day?

    The reality is that risk-averse investors do not always accurately weigh the importance of negative news. People often over estimate the impact of negative, as opposed to positive news. Likewise, a series of sequential, albeit largely unrelated events, can be perceived not as the isolated incidents they are, but rather as a continuing escalation of related problems for a company. Consequently, a soft market, weak earnings and any other sort of surprise at the end of the quarter can drive investors into a panic. Check out Heads Up’s big movers to learn what kinds of earning’s time surprises can send stocks into a tailspin and whether or not you should follow other investors’ lead.

2. The Big Movers and Why

    Are you missing out on potential profits from Heads UpTM recommendations? Last week, MediaSentimentTM subscribers using Heads UpTM for Thumbs Up / Thumbs Down recommendations for publicly traded companies were able to take advantage of these Big Movers, moving 15% or more in their recommended directions, after they released earnings.

Big Movers in the Spot light:

    On Tuesday, May 9th, two stocks suffered negative attention after multiple pieces of bad news. The first stock, Glenayre Technologies, Inc. (Nasdaq NM: GEMS), which operates as a communications and entertainment company primarily in the United States, went down 41.85% after a Thumbs Down Heads Up™ recommendation. Meanwhile, Biolase Technology, Inc., (Nasdaq NM: BLTI) a medical technology company, which engages in the design, manufacture, and marketing of advanced dental, cosmetic, and surgical lasers and related products, also was down, 26.82%, after a Thumbs Down Heads Up™ recommendation. On Thursday, Expedia, Inc.(Nasdaq NM: EXPE), which provides travel products and services to leisure and corporate travelers in the United States and internationally, went down 26.91% after a Thumbs Down Heads Up™ recommendation.

    All three of these stocks suffered from a softening market and weak earnings, but each company presented a different surprise at earnings time. In the case of GEMS, the company lost an important contract with mobile communication giant Sprint Nextel. Meanwhile, BLTI’s Chief Executive Robert E. Grant resigned, and some analysts lowered estimates. In the case of EXPE, investors ran scared over a series of law suits aimed at online travel agents, Expedia was one among many, for unpaid hotel taxes to cities including San Antonio, Los Angeles, San Diego, Philadelphia, Atlanta and Chicago. Even more cities are now considering legal action.

Other Big Movers:

    Monday, May 8, 2006

United Industrial Corp. (NYSE: UIC), which engages in the design, production, and support of defense systems, went down 20.75% after a Thumbs Down Heads Up™ recommendation.

    Tuesday, May 9, 2006

OM Group, Inc.(NYSE: OMG), which engages in developing, processing, manufacturing, and marketing specialty chemicals, powders, metals, and related products from various base metals feeds, primarily cobalt and nickel, went up 15.68% after a Thumbs Up Heads Up™ recommendation.

Air Methods Corp. (Nasdaq NM: AIRM), which provides air medical transportation services and systems in the United States, went down 20.79% after a Thumbs Down Heads Up™ recommendation.

    Wednesday, May 10, 2006

Giga-tronics Inc. (Nasdaq NM: GIGA), which engages in the design, manufacture, and marketing of test and measurement equipment used in the development, testing, and maintenance of wireless communications products and systems, flight navigational equipment, electronic defense systems, and automatic testing systems, went down 17.98% after a Thumbs Down Heads Up™ recommendation.

Digital Music Group, Inc. (Nasdaq NM: DMGI), which provides digital music recordings to online music stores, went down 15.68% percent after a Thumbs Down Heads Up™ recommendation.

    Friday, May 12, 2006

Magnetek, Inc. (NYSE: MAG), which supplies digital power products used primarily in information technology, telecommunications, consumer products, transportation, industrial automation, and energy markets in North America, Europe, and Asia, went down 29.81% after a Thumbs Down Heads Up™ recommendation.

All figures reflect all MediaSentiment Heads UpTM recommendations between Monday, May 8, 2006 and Friday, May 12, 2006, rating companies on the day of their quarterly earnings releases correlated with their stock highs and lows for the subsequent day.

3. How to Use the News

The idea of irrational pessimism about stocks with negative press suggests buying opportunities to some investors. This can indeed be the case when companies have largely put their problems behind them and their fundamentals remain strong. In other cases, however, pessimism about a particular company may seem unfounded, and yet the public sentiment actually reflects larger problems with an industry, sector, or economic climate. If a company loses a major client it may be because the way a whole industry does business is changing. Likewise, bad public image can hurt the bottom line for a company far more than the initial cost of a lawsuit or unfavorable tax law. Overall, when looking for buying opportunities in a pool of distressed stocks, it is important to decide whether or not a given company still has the potential for strength, and whether or not it will eventually regain favor with panicky investors.

4. Links you can use

Stocks Mixed as Inflation Worries Persist
Major Cities Sue Online Travel Agents
Glenayre Shares Plunge on Sprint Exclusion, Q1 Results

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