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Small Cap Network Blog

11/4/2009

Vonage (VG) On the Verge - A Technical Outlook

Filed under: — SmallCapNetwork Editor @ 10:49 am

A few weeks ago I posted some not-so-optimistic comments on Vonage Holdings Corp. (VG) following what I felt was an excessive runup in the share price that really wasn’t yet supported by the news or underlying results. Some agreed, some didn’t… welcome to investing (or trading, for me).  Not a lot has changed since then in terms of share price, though Vonage seemed to have an easier time making rallies than it did the dips. Today’s 22% plunge from VG, however, has put the stock dangerously close to a breakdown trigger again.

The key here for Vonage shares - for better or worse - is the support line around $1.31. Today’s low (so far) has been $1.37. That’s not exactly teetering in the edge, but it’s close. The downward momentum is accented by higher than average volume… an alarming number of sellers are bailing out of VG on what is, quite frankly, nothing all that terrible.

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From here the course of action is to wait. The stock could rebound tomorrow, rendering these comments meaningless. If Vonage pittles around here though, and stumbles under $1.30, I can see a firestorm of selling unfolding. Like I said above, the underlying fundamentals don’t really support a price of $1.37 yet, and the market seems to be figuring this out.

As for a target, I don’t have one. I do think Vonage is one of those stocks that’s quick to find support and sympathy buying though, so I’d personally be inclined to take a quicker profit following any significant plunge. Keep your powder dry in the meantime though.

If you’d like to know of any changes in our opinion of Vonage (or if we officially recommend it as a trade), be sure to sign up for our free newsletter today. It’s delivered weekly.

10/30/2009

The Trade That Almost Was - Tootsie Roll (TR)

Filed under: — SmallCapNetwork Editor @ 11:49 am

When I published our weekly newsletter a couple of hours ago, I did not mention a very ‘close second’ to our long pick for the week. I think it’s worth mentioning now, however, that Tootsie Roll Industries Inc. (TR) could have just as easily been our choice for a bullish play. Here’s why.

I didn’t show it on the chart we used for Teleflex, but the same trading system that found that stock also identified Tootsie Roll shares as a potential buy. I don’t share details of our proprietary trading systems and scans, but like I said in the newsletter, we’re looking for a very particular scenario where both volume and momentum are accelerating…. which can take weeks to identify in many cases.

My one problem with the TR chart was nagging resistance at $25.36 as well as $26.10. The stock is chipping away at the lower of the two right now, while the upper one remains untested for the time being. Had Tootsie Roll actually been at or above $26.10 earlier today, I would have suggested it then rather than talk about it here.

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So why am I bringing it up at all then? This is one of those cases where I have a hunch (which I rarely trust) about something…. I have a hunch this buy signal from TR is a good one that just hasn’t gotten much traction with yet.

That being said, there was another reason I opted to not go with TR…. tomorrow’s Halloween.

Huh? Though I know for a fact that candy stocks tend to do well before and around Valentine’s day, I’ve never actually observed the phenomenon with Halloween. I wonder if that’s what’s going in with Tootsie Roll. I don’t think it is, but it costs me nothing but time to find out for sure.

In any case, I like TR right now as well; don’t be shocked if it too becomes an official pick. Be sure to sign up for the free newsletter to find out when or of we pull the trigger on TR shares.

10/28/2009

Breadth, Depth Turn Bearish for SPDR S&P 500 (SPY), NASDAQ 100 (QQQQ)

Filed under: — SmallCapNetwork Editor @ 9:35 am

If you’re a fan of trading the SPDR S&P 500 Fund (NYSE:SPY), or any index vehicle for that matter, you may want to put your bearish hat on. It’s no secret that the market’s been sinking for the last few days - we’ve seen plenty of ebb and flow since March. What traders may not realize yet, however, is that index funds like the SPY or the PowerShares QQQ Trust (NASDAQ:QQQQ) just fell under some crucial support lines today. It could get uglier before things get better.

Here’s the most critical part of our bearish forecast for QQQQ or SPY though - it wasn’t exactly the charts of the exchange-traded funds that are leading us to a near-term bearish view. It was the NYSE’s and NASDZAQ’s breadth and depth that prompted the outlook.

It was only last week we pointed out that, though the market had been rising, the number of stocks participating in the rally (the ‘breadth’) was actually sinking. Moreover, the volume behind the gains (the ‘depth’) was also shrinking. Stocks were still pointed mostly higher, but underlying support for the rally was crumbling fast.

That’s how we knew SPDR S&P 500 Fund and the PowerShares QQQ Trust were essentially on borrowed time; today the price is being paid.

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As for how we interpret breadth and depth data, we explained that in detail with last Friday’s newsletter, though we explained in tremendous detail a long, long time ago. (If you’re looking for a powerful market-timing tool to add to your arsenal though, studying our technique would be time well spent.)

At any rate, a quick comparison of today’s NYSE breadth and depth chart to last Friday’s breadth and depth chart (same chart, just updated data) plotted along with the S&P 500 illustrates a bigger-picture shift to bearishness that we’ve not seen in months. All the breakdown signals are marked in yellow. Be sure to compare the two charts - you’ll clearly see the breadth and depth trends have remained bearish long enough to turn the tide and actually generate bearish crossovers on both fronts. [Note we use the NASDAQ breadth and depth data for the QQQQ’s. though we didn’t show it here.]

And just so you know, both the QQQQ and the SPY broke under the equivalent support lines that we marked for the S&P 500.

To answer the next question, yes, we know the technique gave us some errant signals in July, but the market didn’t break under a support line then. Now we’re getting a breakdown of support at the same time the breadth and depth tide has turned.

There are several ways to play this…. put options, shorting the ETFS, and others. The easiest though - if you agree that things just turned bearish - would be to tap one of the leveraged inverse index funds. Think about the ProShares UltraShort S&P 500 ETF (SDS), or the Rydex Inverse 2x S&P 500 ETF (RSW). No margin or option-approved accounts are needed for either.
If you’d like to know of any changes in our opinion of QQQQ or SPY (or if we officially recommend them as trades), be sure to sign up for our free newsletter today. It’s delivered weekly.

10/23/2009

Heathrow Natural Food (HRNF), Western Lithium (WLC), Canada Lithium (CLQ) on the Hot Seat

Filed under: — SmallCapNetwork Editor @ 1:17 pm

A day like Friday leaves most people wondering if there were any stocks that managed to make gains to close out the week on a positive note. As we’ve always said though, a really great stock will find a way to overcome a bearish tide…. perhaps a stock like Heathrow Natural Food and Bev. Inc. (OTC:HRNF), Western Lithium Corp (CVE:WLC), or Canada Lithium Corp. (CVE:CLQ). Two of those three are up today, after all, resistance to the selling we’re seeing in most of the market’s corners.

Is that strength something investors need to pay particular attention to? Maybe. Take a look.
Heathrow Natural Food and Beverage was actually mentioned to us by one of our readers as a suggested idea. He wrote….

Is anybody in your company tracking HRNF [Heathrow Natural Food and Bev. Inc. (OTC:HRNF)]. It is reporting great growth and is expecting to soon introduce a chewing gum that has antitoxins.
Regards

(name removed by editor)

Thanks for the e-mail. (By the way, we remove any information that might be identifying. If you’re ok with not being anonymous, feel free to post a comment ion the blog or at the community.) To answer the question, no - nobody’s following Heathrow. We’ve never even heard of it. Though a little off-the-wall in terms of product, it sounds interesting.

We’re going to open HRNF up to our readers and see if they have any thoughts or important information. If you’ve got something worthy to add to that discussion, please chime in below.

As for Canada Lithium and Western Lithium, they were also suggested by a reader e-mail…

Hey, I’m (name removed by editor). Check out Western Lithium Corp (WLC) on the tsx and Canada Lithium Corp (CLQ) also on the tsx (Toronto exchange). I’m sure you know the transportation world and energy storage infrastructure will continue and eventually be completely taken over by lithium and ultracapacitors. These companies, if you do your research, have great leaders, actual proof of high quality deposits and advanced stages of development, and the empirical proof of a growing industry. I’m only a 21 year old (school name removed by editor) student. I do my research, make sound decisions, and never take an irrational risk. I’ve put money and will bank on these two cheeaaaaaappppppp companies that will control the North American lithium supplies. PUSH IT BABY PUSH ITT!!!!!!!

(name removed by editor)

P.S. Please don’t make this a pump and dump. These are two great companies with cash and a future.

Thanks for the e-mail and ideas. We don’t follow many Canadian stocks, though you’re right - Lithium is the future, though it’s a distant future. For that reason, maybe we should look towards our northern neighbors for opportunities, since there are next to no U.S. stocks with that kind of exposure.

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Anyway, one thought - you do realize the “PUSH IT BABY PUSH ITT!!!!!!!” and the “Please don’t make this a pump and dump.” are totally at odds with each other, right? [I’m just having a little fun with you…. I know what you mean by it.]

We’ll do the same for Canada Lithium and Western Lithium that we did for Heathrow Natural Food. Since we don’t know much about them, we’ll open the topic up to our readers and solicit their help. Does anybody out there have any pros or cons regarding either company?

It should go without saying, but just in case….blatant self-promotion and disrespectful comments will be ignored; legitimate ones will be approved.

With that, the floor is open.

If you’re not a subscriber to the free Small Cap Network newsletter, this is what you missed today. Don’t let another money-making idea pass you by - subscribe today.

10/20/2009

NeoMedia (NEOM) Makes Good on Breakout, But Too Fast - Time to Scale Out

Filed under: — SmallCapNetwork Editor @ 11:43 am

Figures. We felt fortunate to find NeoMedia Technologies (NEOM) at the beginning of its upturn, attracted by its well-paced move higher as of October 14th. Rather than just quietly ride the trend higher though, today’s 40% surge is forcing us to turn our intermediate-term trade into something with a much shorter duration. Yes, that’s right - NeoMedia technologies is overbought, and ripe for a short-term dip. Here’s how we’re handing it….

First and foremost, we’re not complaining. We suggested NeoMedia shares on the 14th when they were trading at $0.142. At the current price of $0.20, our readers are up about 40%. We’ll take it.

Our grumbling is simply that the chart’s over-extended now, which puts the entire uptrend at risk. Sustainability is the key. The pace we saw then was sustainable. Today’s pop, however, isn’t sustainable, and may end up acting as a ‘final hurrah’ for this leg of the chart.

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NEOM.
————————————————On the flip side, the rising support line is still intact, and the volume is clearly favoring the bulls. In other words, don’t freak out just yet.

We advocate the hedged approach…. sell some now and lock in a short-term profit, but keep the rest just in case NEOM settles down, retest that bullish support line, and resumes its uptrend again. Just think of it as the best of other worlds. Of course, if NeoMedia Technologies shares slip under that support line, that’ll be the time to dump the remainder of what you own and enjoy the small profit on the entire trade.

All in all it’s not what we were hoping would happen, but that’s trading - a small win that could have been a big win is sure better than a loss any day of the week. If we continue to find enough of these high-potential, low-risk trading setups like the one we found with NEOM, enough of them will pan out to our advantage.

The best and only way to get our official trading alerts, for free and in real time, is to sign up for our free e-newlsetter. Don’t worry…. it’s only delivered a couple of times per week, and we only need your e-mail address.

10/16/2009

What’s Next for Spectrum Pharmaceuticals (SPPI)?

Filed under: — SmallCapNetwork Editor @ 11:31 am

Though we strictly adhere to a policy of not offering individual advice (for regulatory as well as feasibility reasons), in cases where sharing our thoughts with everyone is educational and broad in its scope, we don’t mind answering some questions with our opinion…. like the one we got today regarding Spectrum Pharmaceuticals (SPPI). Our reader writes….

I OWN SPPI STOCKS AND FIND IT PIERCED THROUGH YOUR BOTTOM OF 4.78! ON CHARTS. WHERE NEXT? — ‘IYEEKS ‘ AS YOU SAID!

Thanks for the note. A little background work may be in order for everyone to fully appreciate our answer. The discussion the note references was actually posted last Friday after SPPI broke under one key Fibonacci retracement line, and tumbled (gapped, actually) all the way to the next one at $4.80. If the $4.80 one broke as well, then Yikes! indeed.

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Well, yikes. As you can see from the chart below, the floor at $4.80 broke in the meantime, and Spectrum Pharmaceuticals shares are now trading at $4.67.

As far as the ‘where next?’ is concerned, we don’t even really have a strong idea yet. The fact that SPPI can’t get back above the Fibonacci line at $4.80 isn’t a good sign… that’s for sure, but it’s still working on getting back over the hump.

From my perspective, it’s too soon to give up on Spectrum simply because (1) you’ve already ridden it this low, and (2) it’s trying to recover. If SPPI rolls over again though, and makes a low under yesterday’s low of $4.35, that’s likely to be a strong sign that things are poised to get much worse before they get better. In the meantime, I’d say the chart’s in limbo.

The bigger lesson that Spectrum Pharmaceuticals has taught us here is simply to use and be aware of Fibonacci retracement lines. They’re not perfect, but when used in conjunction with other tools they can really improve your trading odds.

If you’re not registered for our free newsletter, this is what you missed today. Don’t miss out on any more money-making opportunities… subscribe today

Reader Trading Idea - Short Scotts Miracle Gro (SMG)

Filed under: — SmallCapNetwork Editor @ 10:54 am

As we’ve said before, we’re open to hearing any of your legitimate trading ideas. Just let us know by sending them in with a reasonable argument. We got one such e-mail today from a reader who made a pretty valid case against (bearish on) Scotts Miracle Gro (SMG). He writes…

I have alot of respect for your work and would like to bounce a trading idea off you. I believe that Scotts Miracle Gro (SMG) is a good short candidate. They report earnings before the bell on Oct 26. Let me make my case:

  • (1) Weather: unseasonably cold weather early in the fall should not help their business late in quarter or guidance going forward
  • (2) Earnings estimates are very optimistic going forward
  • (3) Last quarter, the company raised guidance half way through - nothing this quarter
  • (4) Stock has underperformed market rally for last month
  • (5) Heavy insider selling as of late
  • (6) Short interest has significantly decreased since last quarter
  • (7) Volume has significantly dried up last month or so

Thanks for the note. All of your arguments seem solid. While I don’t know if items 1 through 3 have much bearing (they might - I just don’t know), I’m totally on board with ideas 4 through 7…… #4 and #7 in particular. A chart of Scotts Miracle Gro will easily illustrate what’s going on here.

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———————————————————————-As you can see, SMG - though up a little over the last two weeks - has indeed failed to rally with the rest of the market. You can also see that volume has been getting thinner and thinner on the way up…. a major red flag.

At the very least, volume should stay steady during rallies, or ideally, increase as the rally progresses. In the case of Scotts Miracle Gro though, the buying volume (blue bars) have been getting shorter and shorter. Eventually, there won’t be enough buyers to even keep the stock propped up at current levels, let alone higher levels.

The only thing we’ll add is that SMG actually hasn’t started to unravel yet. And, as we all know too well, what ’should be’ and what ‘is’ can be tow different things for a very long time. For that reason, we’d simply suggest waiting for Scotts Miracle Gro shares to slilde under one of the several possible support lines (which we plotted) before turning this idea into a trade. That’s just my two cents.

As far as our opinion of the idea though, I think this reader found a great setup.

If you’re not registered for our free newsletter, this is what you missed today. Don’t miss out on any more money-making opportunities… subscribe today

9/29/2009

Where Are All the Penny Stock Trades?

Filed under: — SmallCapNetwork Editor @ 2:37 pm

We’ve mentioned this before, but we can’t say it enough… if you’ve got a question or suggestion for this site, please send it in. We read them all, and respond to every legitimate one. We got this one recently specifically about penny stocks, and why we don’t look at more of them.

The reader writes…

Dear Editor, Just a quick question about the Penny Stock Analysis section on your site. I wondered why most of the stocks are above one dollar rather than penny and/or sub-penny levels as the section implies? I am always looks for start up companies with good products or services that I can invest in with the potential make a nice profit. It would be nice to get your take on up-coming companies who have a chance to go big rather than stable companies who are already turning a profit as in your Small Cap Stock Analysis, which already does this. Just a thought and thanks for your valuable info!

Thanks for the note and great question.

The short answer is, given the choice of making some high-odds money versus swinging for the fences on a few penny stocks that will probably not pay off, we’ll take the former. And, those have been our only two viable choices of late.

The long answer is a little more complex, but still worth discussing.

We’ve had this discussion internally recently….. the choice between focusing on stocks priced under $1.00 (or comparable small caps) versus the choice of trying to just buy low and sell high no matter what the share price. IN THE CURRENT ENVIRONMENT, we’ve been more of the mindset that making some money is more important than scouring through an ocean of true penny stocks just to find a very rare gem. (Not that they’re all ever collectively healthy, but in a normal environment, at least some penny stocks have a shot at producing returns)

Oh, don’t hear us wrong… most penny stocks are crap most of the time. Right now though, almost all of them are crap all the time. Since we face the exact same headaches you do (like manipulation, bad information, inconsistent volume, etc.) when it comes to finding good sub-$1.00 stocks, we’re not going to try and squeeze blood out of  a turnip.

Or, think of it like this….. we’d rather have a 70% shot at a 50% gain instead of a 15% shot at a 300% gain.

We’ll probably stick with the favorable risk/reward scenarios of higher-priced stocks for a while longer, but as the economy continues to strengthen, we expect to find more and more penny stocks worth a look.

Something else to bring up (though the reader didn’t specifically mention it)…. it should be something of a given that we’re not likely to issue a short-term, ’swing’, or day trade alert for any penny stock. We just have too big of a list to mail to, and we have to take a little too long to craft a message to do so.

We frequently talk about penny stock trade ’set ups’ in the community articles though, so you can find those kinds of ideas there. As for what we’ll be focusing on on the newsletter, it will probably be more of the longer-term (days, if not weeks) penny stock trade picks.

Bottom line? Be patient - they’re coming.

If you’re not signed up for the free Small Cap Network newsletter, then you’re not going to hear about any of the penny stock picks discussed above. Sign up today.

9/23/2009

A Map of Global Debt - Which Country Owes the Most?

Filed under: — SmallCapNetwork Editor @ 10:49 am

I stumbled across an interesting tool The Economist rigged up that shows - nation by nation - who proudly own the most debt. As it stands right now, the world owes a total of $35 trillion. Who owes the most and the least? Check out the map to see.

http://buttonwood.economist.com/content/gdc

I don’t know of any particular use this will have to us as investors, since the world is so co-dependent, one country’s massive debt will affect all markets. Still, it’s worth knowing who’s not getting crushed by a mountain of bills.

Have fun.

9/22/2009

Is it Time to Take a Little CEL-SCI (CVM) Off the Table?

Filed under: — SmallCapNetwork Editor @ 9:11 am

It’s hard to believe that CEL-SCI (CVM), which was only trading at $0.27 when we suggested it in January, has rallied more than 600%, and is currently priced around $1.85. THAT is the reason we focus on small and micro cap stocks… big winners are uncommon, but when you do latch onto one, wow!

That being said, I have two business items to take care of before we go any further.

  1. Just for the sake of smart trading, I think it’s time to at least take partial profits on CEL-SCI, even if temporarily.
  2. Just for the sake of disclosure, I want to make sure there’s no misunderstanding that this site has an indirect compensatory relationship with CEL-SCI.

First things first.

Not only have CVM shares rocketed past resistance around $0.80 recently, today’s peak of $2.10 also matches multi-year highs for the stock… not that it wasn’t deserved. The company’s swine flu technology (LEAPS) may indeed be a game-changer not just for the fight against H1N1, but also a game-changer for the company’s stature in the biotech community. (The U.S. government is interested, for cryin’ out loud.)

Still, a triple-digit rally is a tough thing to hold onto no matter what the cause. So, between the potential brush with long-term resistance and just the sheer size of the recent pop, it may be a smart move to take some profits on CEL-SCI here. (continued below)

Just to be clear, I’m a long-term bull on CEL-SCI. I would be even if we hadn’t picked it in January. I’m also interested in preserving gains though, and my defensive senses are just telling me to shrug of the swine flu euphoria and be smart.

If it’s the wrong move, you can always buy it back later. In fact, the company’s Multikine cancer treatment alone (I think) makes the per-share price worth more than $2.00. That’s a long-term proposition though.

That being said - and not that it matters at this point - you should know that in January, this site received shares from CEL-SCI to present the opportunity to our readers. Since then the entire format for this site has changed; we’re now ad-supported and sponsor-supported, and those shares were transferred to a sister site. So, we still have a vested indirect interest in CVM shares… albeit very indirect

So what? Well, there’s really no ’so what’ to it. We’re clearly not pumping the stock - we’re telling you to lock in profits while you can before a pullback. We’re not even ‘covering’ the stock anymore. We’re just answering any potential questions that may pop up from this follow up discussion. (Normally we’d just drop the coverage and topic altogether, but this is important enough to discuss.)

In any case, that’s what we see right now - simply a chance to lock in a near-term gain, if not for your whole trade, then at least part of it. Just something to think about.

By the way, if you missed out on the bulk of the CEL-SCI (CVM) gain because you didn’t get our initial recommendation, don’t miss out again - subscribe to our newsletter today.

9/21/2009

Questions Answered About Flotek (FTK) and Quicksilver (ZQK) Trades

Filed under: — SmallCapNetwork Editor @ 6:55 am

For those of you who are new to our stock-picking newsletter and trade recommendations, the reader’s question below about our Flotek Industries Inc. (FTK) and Quiksilver Inc. (ZQK) picks give us a reason to explain how this site works, and what our M.O. is. Let’s start with the question first thoough. The reader writes…

Thanks for the sensible insight in small stock opportunities. I did have two questions I wondered about:

1. Following your entry point recommendation, Quicksilver moved higher for a while. Then it retreated back to the entry point, and now seems to be back on an uptrend. During that pullback, earlier this month, would that still have been a good time to open up a position if I had missed the original recommendation or would the upward momentum opportunity have already passed?

2. I read that Flotek has multiple class action lawsuits in the works and I wondered how much this plays into your recommendation…aren’t these potential concerns and wouldn’t this negatively impact the stock’s upward progress?

Thanks for the questions. In the same order:

1. It depends. Yes, in this case the temporary pullback would have been a great second chance to get into Quicksilver. That may not always be the case though.

With most of our recommendations we’ll describe key support and resistance levels. As long as those hold up, the trade will probably be ok to enter even if it’s well after our initial recommendation. Just bear in mind the stock entries tend to yield the biggest reward if they’re  taken at the onset. The ’second wave’ entries are your call - we just suggest buying them on the way up, or where they’re clearly finding support. In other words, ZQK was still a good buy because it was headed upward at the time.

2. Every lawsuit, whether it’s potential, frivilous, or real, can have an impact on a stock’s value. In 99% of cases though, that risk is already priced into the stock’s value. Flotek was no exception. So, what we’re looking for going forward from our FTK pick was more news that would spur a continued breakout regardless of any lawsuit. We haven’t seen it yet, but it’s only been a few days.

Hope that helped at least a little. Note that while we try and be as transparent and complete with our stock recommendations, often, time and space constraints don’t let us go into this kind of detail. If there’s something like this on your mind about any of our other picks though, you’re always free to ask.

If you’re not subscribed to the free e-newsletter, then you’re missing trading ideas and market commentary you can’t find anywhere else. Sign up today

Raser Technologies (RZ) Roundtable - Good, Bad, or Ugly?

Filed under: — SmallCapNetwork Editor @ 6:30 am

As always, we invite questions and conversations about any particular stock you’ve been thinking about. That doesn’t mean we’ll always answer it (sometimes we can’t, and sometimes we just shouldn’t), but we will put it out there at least for others to sound off on. The latest entry into the mix is Raser Technologies (RZ); we got this question from a reader last week…

Is RZ a hot pic ? Some say yes. What contracts might they get , or does that matter ?

Is Raser a hot pick? Not right now. If anything, it’s cold. What contracts they might get matters, but what matters more is whether or not they get any.

As we (I) see it, Raser is close to being a one-trick pony. They’ve got a firm contract to build the bulk of a geothermal plant, and they’ve got the deal with Hummer to build electric auto motors. All well and good, but the failure to secure anything major other than those - paired with the failure to really turn either of these deals into a (net) cash machine yet - doesn’t exactly help the bullish case.

The fact is, the world’s not really falling in love with geothermal energy (not to mention it’s been determined to be a possible cause of earthquakes), and the world’s falling out of love with electric cars…. a field that’s seen a ridiculous amount of new competition flow in within the last three years.

So, no, Raser Technologies doen’t look all that great to me.

That’s just one man’s opinion though, and I’d be the first to say there are plenty of readers out there who have more perspective and knowledge than I do when it comes to RZ. So, I’m going to punt to them. If you’ve got something to say about Raser - good or bad - feel free to chime in below.

If you’re not subscribed to the free e-newsletter, then you’re missing trading ideas and market commentary you can’t find anywhere else. Sign up today

9/11/2009

EDAP Jumps at the Open, Now What?

Filed under: — SmallCapNetwork Editor @ 7:05 am

Looks like I underestimated just how the market would respond to the EDAP TMS (EDAP) news of its HIFU business and expansion. The odd part is, the news actually came out yesterday morning, and the stock didn’t budge at all then. In any case, the bearish call/trade still stands, though the big pop this morning throws a wrench in where and how we draw our lines in the sand…. stops.

Truth be told, the move to the peak of $4.70 may actually have done us a favor - as long as it doesn’t persist. Odds are that most of you (judging from the point in time I hit ’send’) were starting to short EDAP between 9:40 and 9:50 am, at an average price of about $4.45. Since the delayed surge is also apt to be temporary, it’s actually helpful - we were able to get in at a higher price than we would have found yesterday.

The problem is, what about our stop level? I advocated using that key resistance line as a stop, and it was obliterated before the stock ever opened.

Well, I really don’t want to not use that line…. it’s an important line. The only adjustment I’m going to make is that the stop only applies if it looks like EDAP is going to close above it for any given day (which is something of a judgment call). After all, the close is the most important price of the day.

Bottom line? I’ve got a feeling the market’s not going to be as keen on EDAP later in the session when it comes time to take it home for the weekend. Stay tuned though.

If you missed the EDAP trade along with the Leap Wireless (LEAP) recommendation we’re talking about, it’s becuase you’re not signed up for our free newsletter. Subscribe today.

8/18/2009

Take Profits on American Axle & Manufacturing Holdings Inc. (AXL)

Filed under: — SmallCapNetwork Editor @ 1:03 pm

Veteran readers of the Small Cap Network website and newsletter will probably already have done so, but newcomers may need to hear it explicitly…. take profits on American Axle & Manufacturing Holdings Inc. (AXL) if you were in a trade because of our July 28th article “Five Great Stocks Under Five Dollars“. The stock has jumped more than 100% today thanks to an announcement that General Motors (GM) would rework an agreement with American Axle & Manufacturing that is almost the equivalent to winning the lottery.

At the time we suggested them, AXL shares were trading at $1.28 each. As of today, American Axle & Manufacturing Holdings is trading at $5.71 per share, translating into a gain of 346% for those who acted on the idea when it was published.

Here’s the core of the new deal….

  • GM has pledged $110 million payment (to help recover AXL’s costs associated with the automaker’s bankruptcy process)
  • GM will offer a loan facility of up to $100 million (through September 2013)
  • American Axle will receive its second waiver extension
  • GM will receive warrants for up to 20% of Axle’s common stock

In other words, American Axle & Manufacturing Holdings Inc. gets to live….. something the stock was hinting at well before today.

But isn’t all of this great news, and a reason to keep holding AXL shares? Yes and no. It’s great news, but a bird in the hand is worth two in the bush.

AXL may well keep on rising, but a 100% gain is a tough act to follow. The rally was based more on hype and euphoria than on numbers, and it could be a while before AXL shares are actually worth $5.71…. even if General Motors starts to crank out and sell cars like they did yesteryear (metaphorically speaking). If American Axle continues to rise, or dips sharply, you can always buy it back then. The sell recommendation is a simple matter of risk and reward; there’s not a lot of reward left to garner, but there is a lot of risk.

Or, here’s the ultimate hedge - sell half your AXL now, and keep half.

If you missed the American Axle & Manufacturing Holdings Inc. (AXL) trading idea, or any of our others, do something about it today - sign up for the free newsletter. We’ll send out similar trading ideas and market commentary 2 to 3 times per week. 

8/11/2009

Mobile Telesystems OJSC (MBT) Rounds Out the Wireless Struggle

Filed under: — SmallCapNetwork Editor @ 8:34 am

We opened a can of worms last week when we pointed out how the S&P 1500 Wireless Index was a bearish freight train despite the fact that some - not all, but some - of these stocks were undeservedly being dumped. Mobile Telesystems OJSC (MBT) didn’t help the cause any today. Russia’s largest wireless service provider saw it’s net income fall 14.6% last quarter, on a 23% decline in revenues.

There’s a slight upside…. the $2.02 billion in sales was better than analyst’s expectations of $1.98 billion. And, the $563 million in income was stronger than analyst expectations of $541 million. There’s a problem though - even that number may be a little misleading. Had it not been for a fortunate currency exchange fluctuation, Mobile Telesystems would have knocked another $198 million off the bottom line for the quarter. In other words, MTS would have earned $365 million instead…. well under the $659 million earned during the second quarter of last year.

A handful of things have become clear….

  1. The problems being experienced by most wireless companies are universal/global
  2. Though Mobile Telesystems is an exception to this trend, revenues are largely dropping because subscribers are being lost
  3. Incomes are up for the wrong reasons…… mostly because of expense cuts, but in MTS’s case because of currency swings

We still contend there are some very solid companies being thrown out with the baby’s bathwater, but at the same time we can’t encourage anyone to step in front of a bus until these little shots of troubling news have eased up.

By the way, we also looked at another wireless company’s earnings this morning - Virgin Mobile USA (VM). It was the same higher income/lower sales act we’ve been hearing from most of these stocks.

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8/5/2009

Detailed Applied DNA (APDN) Report Now Available - Crystal Research

Filed under: — SmallCapNetwork Editor @ 7:29 am

Though it’s technically off our watchlist, we’ve still been unofficially following the continued progress of penny stock Applied DNA (APDN). Today we’re able to offer an updated overview of the company, where it is, and where it’s going. (It’s a Crystal Research Report, which as many of you know means it’s a very thorough and very fair look.)

The link is below, but first we wanted to chime in briefly about APDN’s chart.

Applied DNA fostered a wave of major progress early in the year, fanning the buying flames and pushing the stock all the way up to a high of $0.21 by early June. The ebb and flow pattern stopped then; shares moved back to the 10 cent area and simply traveled sideways for a couple of weeks. Over the last five days though, APDN has started to move again.

In other words, this penny stock is back in play.

I don’t think the prior trend lines (marked on the chart) are going to be a factor going forward, as that pattern was broken in June. Rather, we’ll just have to monitor the news and watch the chart one day at a time to find the turning points. As they become relevant, I’ll try and post more trading thoughts on APDN here.

In the meantime, the link to the Crystal Research report on Applied DNA can be found at the company’s website. Just click here to access the PDF.

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7/31/2009

Another Confusing Syndication Inc (SYNJ) Press Release

Filed under: — SmallCapNetwork Editor @ 6:44 am

What is it with Syndication Inc. (SYNJ.PK) and its press releases that use a lot of words but never really say anything? The latest one came yesterday. From what I could glean, the company has initiated what they’re calling Phase I of their Bio-diesel production partnership with Sentinel Renewable Energies S.C. Inc. What’s less clear is why the company chose to declarify the message with quotes from some of management’s key members.

What we didn’t get was an explanation of what ‘initiation of Phase I’ means. Does that mean production has started? Does it mean the hardware is now in place? Does it mean revenue is flowing? The news release didn’t say. What we did get, however, is a list of both companies’ officers and directors, and the geographic locations of any and all of Syndication’s partners (and some of their partner’s partners).

But wait - it gets even stranger….

McCutcheon Marshall Jr. (President of Syndication), when asked to comment on the merger, said:

“The only specific comment I have on the merger, is that I think it’s great…. However, as far as I understand, it was done some time ago. It’s the corporate policy style to let internal developments of the Company season a bit before releasing news…. Mr. Sorrentino wishes I not name at this time. As the legal department becomes comfortable it will allow me to release the details of these relationships, including the financing, but, not before,”

In all fairness, Marshall is a new addition, but did he actually say ‘as far as I understand’? I have no problem with a CEO not making legal assumptions (that’s what lawyers are for), but this guy seems to have no say at all, nor does he seem responsible in the least for getting Phase I going. Yet, his name is plastered all over the press release.

But wait - it gets even stranger….

Brian Sorrentino, the CEO of Syndication, stated….

“Mac (McCutcheon) has assembled a ‘World Class Team,’ why is anyone surprised?…. Mac moves fast. In just 4 short months he has launched the Bio-Diesel Phase of the program and has me working on Phase 2.”

First of all, did ‘Mac’ do anything or not? He says he really didn’t (though he doesn’t seem sure), and Brian says he did. Worse than that, why is the President instructing the CEO what to work on (Phase II)? It all has to be done eventually, and the two likely work as a team. It’s just an odd (disfunctional?) way of posing it.

More than anything else though, the news release left me wondering one important thing…. so what? As an investor, why should I care if Phase I has been initiated?

Clearly I’m being rhetorical, as Phase I’s beginning means progress towards revenue. Considering the company’s extreme fuzziness though, a little more clarity is still needed. They never even came close to answering the ’so what?’ question.

As for SYNJ shares, the market loved the news despite the lack of meaning, sending the stock higher by 60%. However, Syndication shares have had a serious problem hanging onto its gains lately. Unless the market can attach some real dollar amounts (even ballpark guesses) to the news, this stock is one I advocate selling - taking profits - when it surges, and then buying on the dips.

If you’d like to hear more thoughts on Syndication Inc. (SYNJ) - including if we decide to recommend a trade on the stock - be sure to register for our free newsletter.  

7/21/2009

Walk a Mile in These Shoes - DECK, ICON, WWW, BOOT

Filed under: — SmallCapNetwork Editor @ 9:10 am

Investment opportunities can pop up in unexpected places, but none may be more offbeat than from the small cap stocks in the footwear industry…. such as Deckers Outdoor Corp. (DECK), Iconix Brand Group Inc. (ICON), and Wolverine World Wide Inc. (WWW). Each of those shoe companies - and many of their peers - have fared the recession surprisingly well, leaving many investors wondering why the S&P 600 (small cap) Footwear Index is still down 66% from its October 2007 peak. Here’s a closer look at footwear’s recent past and likely future.

Footwear the First to Fall

Though the recession (thank sto the privilege of back-dating) officially began in December of 2007, it’s not like the market started to fall apart at the same time. Indeed, many industry groups were still hitting new highs in mid-2008. Footwear was not one of them though.

The S&P 1500 footwear index (all caps) began tumbling in early November of 2007, and hasn’t looked back since. All told, the index lost 55% of its value from its peak through its March 2009 trough. The small cap version of the index lost a whopping 82% during the same period. That big dip, however, is part of the opportunity … low stock prices are more affordable than high ones.

‘Undervalued Shoe Stock’ is a Matter of Opinion

Of course, the difference between a ‘cheap’ shoe stock and an ‘undervalued’ one is the company’s future. The more compelling the future, the more attractive the stock is. Fortunately for value seekers, Deckers, Iconix, and Wolverine do indeed have a compelling future… an outlook made very plausible based on the fact that many of these companies remained pretty profitable during a period when profits were rare at best.

Take Iconix for instance…. net margins of more than 30%? Deckers was no slouch over the last twelve months either, clearing more than 10% of its revenue as income. With a forward-looking price multiple of 9.9, DECK is more than a slightly-interesting long-term idea.

The Cinderella story here, however, may be LaCrosse Footwear Inc. (BOOT). To say it’s off the radar would be an understatement, but the company has managed to do something other similarly-sized shoe companies can’t - turn a profit.

Though clearly not every single small cap name in the footwear group is a winner, as a whole, the industry has quietly been holding its own, waiting for an economic rebound. On that note….

Looking Forward - Footwear to Lead the Recovery?

Economic predictions are rarely even worth the paper they’re printed on. And, the estimated earnings for these shoe companies are indeed rooted on the assumption of an economic recovery. So, what if the recovery doesn’t actually happen?

It’s a legitimate concern, but a revisit to 2007 is in order.

In late 2007, when very few prognosticators and even fewer investors actually believed we were headed into the worst recession since World War II, the demise of shoe manufacturer stocks actually correctly predicted what was to come. In that light, the near-100% gain we’ve seen from the S&P 600 Footwear Index since March’s low may be equally indicative of the economy’s improving health.

Strange? A little. Plausible? Sure. Shoe stocks are generally something of an enigma when it comes to long-term trends, so to use them as an economic barometer now isn’t any crazier than, say the Dow Theory (which compares transportation stocks to industrials stocks to determine the market’s true trend).

In the meantime, Iconix and Decker - and Wolverine to a lesser degree - appear to be leading a very stealthy footwear stock charge. Long-term investors who think boring and obscure stocks are beautiful should take note.

 

7/20/2009

Pink Sheets That Post - Quarterly Numbers from HVAE, STDF, LFLS

Filed under: — SmallCapNetwork Editor @ 11:12 am

High Velocity Alternative Energy Corp (PINK:HVAE 0.0065 +14.0%) drove revenue of 6.6K for the quarter ending on March 31st, 2009. Gross profits came in at $763. Selling and administrative expenses of more than $28K led to a loss of more than $27K for the quarter enduing on March 31st.

It should be noted that High Velocity Alternative Energy Corp. acquires Reflectkote, Inc. in June, and will be changing its name and business interest as a result. Reflectkote manufactures reflective coating that can be applied anywhere, and it permanent.

Steadfast Holdings Group, Inc. (PINK:STDF 0.032 +39.1%), a manufacturer of aftermarket parts for light trucks and pickup trucks, filed its quarterly results this past weekend. Through the first six months of the fiscal year, Steadfast has generated $191K in revenue, $14K in gross profits, and incurred a net operating loss of $64K. A one-time write-off of $240K has pushed the year-to-date net loss to $324K.

STDF shares are up nearly 40 percent on the encouraging improvement.

Loans4less Com Inc. (PINK:LFLS 1.10 +0.0%), an online mortgage loan brokerage, filed its Q2 numbers today. For the first six months of the fiscal and colander year, Loans4Less generated revenue of $265K. Total operating expenses were $269K, leading to a year-to-date loss of just under $4000.

Though the near-breakeven is encouraging, with a market cap of more than $30 million, LFLS shares are hardly cheap.

7/14/2009

AVANIR (AVNR) Up On Zenvia, Teva Buyout News

Filed under: — SmallCapNetwork Editor @ 8:33 am

If you’re looking for some biotech penny stock action today, you’ll want to check out AVANIR Pharmaceuticals (AVNR). The rumor is - and it’s strictly a rumor - that Teva is mulling an acquisition. AVANIR shares are up firmly, though not yet wildly, on the buzz.

A Teva acquisition of AVANIR actually makes a little sense. Teva has been looking for a foothold into the arena. And. Zenvia is targetng unpredictable emotional episodes of pseudobulbar affect (or PBA), which is also known as involuntary emotional expression disorder (IEED). However, Zenvia can also treat diabetic peripheral neuropathic pain.

The assumption was that Endo Pharmaceuticals would get the honor. But, AVANIR’s Zenvia could fit the bill too.

If Teva can actually buy AVNR at $2.00 per share, most owners would be - and should be - greatly disappointed. Some analysts suggest the price should be closer to something between $6.00 and $8.00, especially considering the chances of Zenvia’s approval are high.

At a 5% market penetration, Zenvia could produce annual revenue in the neighborhood of $200 million. That’s largely where the $6.00 to $8.00 per-share valuation is coming from.

As for the stock itself, I like this chart as much as I like the story/rumor. I see a clear break in a falling resistance line. You could also make a good argument that the last couple of weeks formed a technical wedge, and today’s modest move here is a breakout of that triangle shape.

You can also see that last week’s bottom and the resumption of the uptrend was fueled by a much longer-term support line being met.

Bottom line - this is just a good looking technical chart, especially for a true penny stock. The accompanying story ain’t too shabby either.

The one thing that’s missing with today’s move from this penny stock is volume. You’d think with these kinds of rumors floating around - unconfirmed though they may be - that the market would be all over this potential three to four bagger. Maybe the market collectively sees a problem…let me know below if that’s what’s holding shares back.

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