Trader's Corner

Are you a chicken trader? You’ve got mail.

Although the broader markets have continued to grind higher of late, contrary to many, I’m not so sure the better trading opportunities exist within our large cap brethren over the near term. Therefore, I’ve identified what I believe to be a couple of excellent trading opportunities in the small cap arena, which has been largely ignored of late. Both of these swing plays technically appear quite compelling and ripe for potentially profitable trades to the long side. And, I challenge anyone to find a more contrasting duo than the two I’m about to share here.

Ready? Chickens and email. Yes, you read it correctly. Think I’m crazy? You wouldn’t be the first. However, it should satisfy the thirst for diversity so often suggested by Wall Street’s pundits.

Sanderson Farms, (NASDAQ: SAFM), has made a stealth like move over the last few months, one I’ve played to profits on a few different occasions (before my article here existed), and I think it may be in for another decent move to the upside. After hitting bottom back in August of this year, the chicken producer rocketed up the charts topping out at just over $35 bucks in mid September. The stock has since pulled back to a couple of critical Fibonacci retracement levels, the 3/8 of the complete leg up that started in August, and 5/8 of the big move that started on August 29th. The reason you see blur with the numbers in the chart displayed here is actually a good thing in my opinion. I call it a “confluence area”. In other words, the 3/8 and 5/8 retracements levels I’ve mentioned coincide perfectly with each other at roughly the same price level ($30 and change). Hence, an excellent risk/reward entry point at current levels.

I’m in for 1000 shares with an average cost basis around $30 and change w/ a suggested stop at $29 bucks just in case the market wants to clean up all the stops sitting at $30. A target? $38, which would be the 5/8 retracement from its complete bird flu scare sell off that started back in June of last year.

Incredimail, (NASDAQ: MAIL), much like its chicken partner has also been moving nicely up the charts in recent months, however, MAIL paints a bit of a different picture than the chickens. A much simpler explanation of my MAIL trade goes like this…every time MAIL has pulled back to the 3x3 since July, it has represented an excellent trading opportunity if one was savvy enough to sell into the runaway rallies. Well, here we are again. A break of the 3x3 three days ago presents what I believe to be an excellent entry point. What makes this trade even more exciting for me is the volume has been picking up of late, as well as the daily bars have getting a bit more volatile. Is this a sign of a major breakout in the near future? We’ll see. I like the chances. However, I will give this a bit more breathing room (than the chickens) to get pushed around since liquidity is a bit of an issue, so I’ll set the stop loss at $5.35. I’m in for $2500 shares with an average cost basis of $6 and change. Should MAIL decide to take off like I think it’s capable of, I think it’s all-time high of just under $9 bucks is not out of the question. I’ll peg my short-term target there.

Although this column is dedicated to trading opportunities, I think one may want to have a long look at possibly adding SAFM or MAIL to their longer-term investment portfolio (after doing the important and tedious exercise of due diligence of course) because they are both companies I think are major players in their respective industries. Something I like to see in smaller cap stocks, big industry players with good room for market cap growth left.

Sanderson Farms is one of the largest producers and distributors of chicken to our local grocers throughout the country. Tyson of course being the other. If you think chicken is going away, think again. It always has and still remain a staple of our diet. As a matter of fact, just listen to all of the diteticians out there raving about the health advantages of chicken over beef.

Bird flu or no bird flu. Bird flu just gives the savvy long-term investor an opportunity to pick up some chicken farms at a discount to the market. I digress.

IncrediMail, Ltd. engages in the design, development, and marketing of an integrated suite of email software products to the consumer and home user markets. Management appears to be managing their business nicely. The company has been turning a profit (what a novelty), they have excellent cash on the books and virtually no debt. Now consider this, in the age of major media conglomerates paying an exuberant amount of money for databases (Wall Street calls it desired demographic advertising targets), what do you think Incredimail really has that everyone may want? Good guess. I concur. With potentially millions of users, and a current market cap of roughly $63 million, I like to think there exists some major upside in this stock if they are a valid takeout candidate for one of the bigger players.

Happy Trading…

Trader’s Corner Editor