Security Securities (WSGI,OLN)

 

There are a lot of people out there worried about the state of the union. Just listen to the Republican debates and you’ll get an idea.

 

Whether it’s immigration or conflicts overseas or homefront security or war games or multi-state military exercises or excessive surveillance, excessive police force, a dictatorial executive, an invasive tax regime, or a politicized judiciary, the state, many believe has arrogated to itself far too much power. That’s not what was intended by our founding fathers, they say, and that’s not right, they say.

 

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Now, we’re not here to take sides, nor to churn the waters any more than they already are. We’re an investment advisory – and a damned good one, at that. With a wicked sense of humor and bulbous calves. So all this political stuff is little more than theater to us.

 

That said, we have to admit that all the noise is not without cause. And a look at the markets and the types of products that are being consumed en masse by companies that serve the government and law enforcement and bureaucracies from the local to the federal level, make it clear that the so-called ‘anti-state’ cohort is on to something.

 

Consider the following –

 

The best selling stock over the last three months in the Aerospace and Defence sector is a company with a name that you won’t believe. Do an open ended search on any stock filter you like and you’ll find World Surveillance Group (OTC:WSGI) led the pack this last quarter with a 100% gain.

 

Of course, the nature of the beast is important here – WSGI is a penny stock. Actually, not even that. It trades for just $0.0012 per share, up from an infinitesimal $0.0006 back in mid-August. And that’s a double.

 

What the hell kind of joke is this, Huey?

 

No joke, friends.

 

We understand that penny stocks weeble and wobble and make million percent gains and losses every day – so why pay attention to this little skitter, and why attach any meaning or significance to it? After all, it’s barely a company. It only has a market cap of $885,000. Hardly worth the trouble right?

 

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Certainly.

 

But then one would have to ask why Goldman Sachs, Scotiabank, Credit Suisse, Zacks Investment Research, and many others have assigned analysts to cover this apparent ‘fly’ of the investment universe.

 

Strange, No?

 

Well, well, well, won’t you be surprised to learn that the folks at World Surveillance are very serious about their work, having created what they refer to as “autonomous lighter-than-air (LTA) unmanned aerial systems.”

 

What they mean by that is high-in-the-sky spyware that permits them to peek in on absolutely anyone they want without their knowledge.

 

One of their offerings, the company’s Stratellite UAV (an embarrassingly penile-looking contraption) boasts of being

 

“The Hoy Grail of Communications platforms, where the weather is calm and the line of sight is the size of Texas.”

 

Texas.

 

Scared yet?

 

Think it’s still a far cry from the hootin’ and hollerin’ of Ted Cruz, Donald Trump, Ben Carson and the rest? Think it’s just a bowell-valve whistlin’ Dixie?

 

Then consider this –

 

This private company’s offices are located at the Kennedy Space Center in Florida!

 

Alright, alright, so what, then?

 

So follow along. There exists a business segment that will increasingly receive government funding to perform work that has become increasingly the work of government, and that is – spying on, codifying and databasing information on its citizens.

 

Those funds will lift the likes of companies like World Surveillance as well as traditional drone-makers like Northrop Grumman (NYSE:NOC) and General Dynamics (NYSE:GD). It will assist the bureaucratic data managers like Tyler Technologies (NYSE:TYL), as well as indirect gatherers of government-desired data like Facebook (NASDAQ:FB) and Google (NYSE:GOOG), now known as Alphabet Inc.

 

And it will likely push higher the stocks of small arms manufacturers like Smith and Wesson (NYSE:SWHG) and Sturm Ruger (NYSE:RGR), as well.

 

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Call it the ‘Republican BlowBack Trade’

 

Why small arms?

 

There are many who believe that owning a firearm (obtained by legal means only!) has now become a bread and butter issue of necessity. Without clamoring over all the reasons why, let it be said that gun ownership is on the rise exponentially and will very likely continue until either the law or your wife forbids it.

 

All of which leads us to believe that not only will gun manufacturers prosper in the coming months and years, but those who make the ammunition for small arms should also see a faster business.

 

Our favorite company in this realm has long been Olin Corp. (NYSE:OLN), an outfit with two distinct lines of business, the development of chlor alkali products (like chlorine and bleach) and the production and distribution of the world famous Winchester brand of small arms ammo.

 

As the chart below shows, Olin has been in a freefall for the last half year. But it appears the time has now arrived to buy.

 

Have a look –

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After bottoming just below $16 in late September, shares of OLN have bounced to better than $20, and the technicals are pointing to even further upside.

 

  • Three sub-20 readings from RSI (in green) mean the stock was oversold in the extreme for the better part of two months. Moreover, the bounce has since brought both RSI and MACD above their respective waterlines (black squares), with MACD confirming less than three weeks ago that the bull move was for real.
  • Add to that a pennant formation (in red), which technicians understand to be a continuation pattern, and, most importantly
  • A tremendous turnover of Olin shares in the last ten weeks (blue square), and you have a crystal clear, get-up-and-boogie sign that the stock is moving higher.

 

That last point cannot be emphasized enough. Average daily share turnover rose from less than one million shares to five million as the bottom was forming. This is what’s called ‘accumulation’ – new and stronger hands moving in to take advantage of a clearly oversold condition.

 

For that reason we’re initiating a synthetic long position on OLN using the following options –

Here is how to play it and profit:

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Wall Street Elite recommends you consider the purchase of the OLN May 21 CALL for $2.20 and the sale of the OLN May 21PUT for $2.30. Total credit on the trade is $0.10.

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Wall Street Elite recommends you consider the purchase of the OLN May 21 CALL for $2.20 and the sale of the OLN May 21PUT for $2.30. Total credit on the trade is $0.10.

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With kind regards,

 

Hugh L. O’Haynew

 

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