Just a shorty to say that Nortel at roughly $3.10 appears technically oversold to us. Here’s the chart:

The shares have come down to test the $3 area, AGAIN, and look due for at least a short term bounce, especially if the market perks up from here. I would caution that this is a critical support area for the shares and if you want to take a quick punt, ensure you put in a stop loss and make it tight, say $2.90 or just below. Last run from here in November took it to $4-ish. Also, you could get whipsawed if it dips to $3 and bounces.

Obviously only certain kinds of traders will try this. Tough call, but looks decent for a bounce from here. Longtermers might want to add some shares.

Remember; stop losses all ’round…

You’ll notice that over on the right that there is a new box entitled “My Yahoo”. We’ve made it easier to access both the SCBLOG and the SmallCap Digest through RSS feeds. Just click, and add one or both to your My Yahoo. If you wish a personal copy of the newsletter delivered via email, you’ll still need to sign up –which can be facilitated over yonder in the upper left corner.

And now….

First, our coverage of payment solutions smallcap Payment Data looks fairly good. The shares are acting well and establishing a good consolidation at the 33 cent resistance level.

The shares have had a decent run and should continue to move within the current trading range. Accumulation on pullbacks makes sense and, as the chart denotes, the trend line seems solid. We could see a minor pullback to that trendline and as we’ve said before, a decisive breach of the 33 cent level should bring a new upleg. This one is news driven and we suspect there will be more to come.

Recently, the company announced that it had opened up two new business/revenue streams including facilitating online insurance payments as well as an agreement with Central Bancard to provide credit card authorization and settlement. From the Press Release:

With this new capability, PDS will be in a position to create and capture significant new revenue opportunities from an extremely diverse cross section of billers that have wanted to do business with PDS, but until now have had to seek out other providers.

Although the sector seems to lack sizzle, you can’t dismiss the potential. PYDS seems to have all the moves for spec players who like to be early to a decent growth story. Again, risk-oriented investors should have a few shares.

Spectrum.

Nice accumulation as Spectrum passes $2 a share. Waiting for some news on this one–as we always are with all of our stable–and would be prudent to raise the $1.69 sell stop previously suggested to $1.85. Might as well protect those paper profits just in case. New buyers should also use tight stops.

Force Protection

Ballistic vehicle maker Force Protection was covered in the SmallCap Digest, yesterday. Have a read. Lots of capital restructuring going on which, we believe, will be of good benefit for the shares. You should probably have a few shares.

Force is a long-term situation, but given the travails in the current war zones–and, potentially more opening up–the company fits into an important defense niche with products that have and will truly save lives.

Yahoo

Disliked Yahoo at $38 as noted below, still dislike it at $34. Valuation is just too high. For the record, previously noted flavor of the month GOOG has been ugly and TZOO has been really ugly.

Might be a point at which a punt in any or all makes sense, but damned if I know when that is. I’d still avoid them unless you have a Klingon-like constitution. Yes, they would have been good shorts. Anytime you short anything use stops to limit the risks. I tend to avoid situations rather than play them short, but that could change.

More one liners to come. Stay tuned.

Nice bounce in the market Tuesday am, Dow up 110-120 plus points. Nice rally after three weeks of downs. Hasn’t happened on that timetable since 1977 apparently. I’m putting it down to the full moon tonight…

The sloppy market action recently –NAZ is at around 2027–has lowered our support level for the NASDAQ slightly to around 1970, previously 2050. We breached that late last week and will likely see snapback rallies as today, but would like to see 1970 hit to start a sustained rally. Should be some great prices for long term buyers over the next while.

Warning: Personal indulgence

Ed McMahon was on Larry King the other night saying that Johnny Carson would have hated all this fuss at his passing. Respectfully, a memo for Ed; it’s not for Johnny, it’s for us. As one who was about 7 years old when Carson took the reigns of the Tonight Show, the loss is palpable. We always had fun when we watched Carson. We haven’t had that kind of fun in a long time. The tributes are not really for the man, but for the diversions from everyday life that he brought to us. At least in my mind.

And now, your moment of Tea-Time Movie Zen:

Art Fern: How do you get there? Let me tell you friends, how do you get there! You take the San Diego Freeway to the Ventura Freeway. You drive to the Slaussen Cutoff, get out of your car, cut off your Slaussen, get back in your car, then you drive six miles till you see the Giant Neon Vice-Squad Cop.

Safe journey, Johnny.

Now, back to our regularly scheduled programming.

Not much more news than we reported to you in our January 5th newsletter piece other than Spectrum shares have decisively broken through our $1.69 resistance level and are, at $1.94, sneaking up on $2. While we like SPSC, the chart evidences a trading range within a fairly solid channel. Investors who took our accumulation suggestions at $1.46 or lower might consider selling a small percentage of those shares. For those who wish to make an initial purchase, a stop loss at $1.69 or wherever your risk tolerance takes you would be appropriate.

Finally, if you don’t wish to sell any shares, make sure you employ a stop loss to protect capital and, hopefully, some decent paper profits.

Why? Simple. Spectrum—as neat a company as it is– can be extremely volatile. We’d like to see the upper end of the current trading range breached decisively to herald a new up-leg. Risk-oriented investors should maintain exposure; given the distance the shares have come, some hedging just makes sense. We expect more news—as we do with all in our stable—and will report on anything that we feel will reflect on the fortunes of either SPSC or any of our followees.

Whether any of them have good news or the other kind.

I guess I must be out of step. Yahoo reports nifty numbers–here– and the stock does bupkis.

Could it be that it’s already fully or appropriately priced? If you want to be long, I’d wait for a decent pullback as evidenced by the chart. The first green line in the middle denotes a 38 percent pullback and the first blue line is a 50 percent drop. bottom line? We think that the high 30’s does not represent a rational level at which investors should participate, no matter how warm and fuzzy the press. Could we be wrong? Of course. But to us, it looks like a trap. The expectations are extremely high for YHOO and even a whiff of disappointment could well clobber the shares.

As well, analysts have raised YHOO’s 2005 earnings to 53 cents and 2006 to 72 cents. If hit, those numbers represent price/earnings ratios of 70 times and 51 times respectively against today’s price of $37-ish. Methinks that there is a bandwagon mentality at work here and while the company has done extremely well over the last few years, isn’t it time for the valuation to adjust to something reasonable? YHOO isn’t the wave of the future anymore. That future is now. It should lose it’s seemingly endless flavor of the month status.

It’s not like YHOO hasn’t been pounded before…

You’ve heard this from us before: if you own cheap stock, sell some. If you want to buy it here–and you’re on your own, bucko–put in a very tight sell stop.

If we look at Intel for example, the same comparative projected numbers for the next two years evidence p/e’s of 18 times for 2005 and 15 times for 2006. Likewise Microsoft with projected p/e’s of 20 times and 18 times.

I guess those behemoths have lost the sex appeal that has rotated to YHOO. How long can the bon temps last? And how long until it rotates back?

I said in Friday’s newsletter regarding Apple’s recent run: “Astrologer Susan Miller was the most prescient back in 2003 when we quoted her: “From April 2003 through January 2004, some ‘turbo-cosmic energy’ will bring on ‘an unprecedented surge of creativity’ [which] will result in well-received new products.” Argue with the cosmos at your peril…. I believe that’s the period the iPod made its debut.

Almost instantly, reader Ben corrected me:

the ipod did not debut in 2003. It debuted in november 2001. It only
became mainstream in 2003. But those in the know, well, knew about in
2001, and some of us owned it then, the 4GB $250 deal…

I didn’t realize the little fellows showed up that early. Apparently, neither did a lot of other folks until later. No matter. They’re still way cool. Might grab one of the iPod shuffles. Seems simple enough even for moi…

Thanks Ben…ya gotta love the Internet… and blogs…

BTW, the bounce we looked for on Wednesday (see piece below) seems to have materialized late Friday. Google closed at $200 even and the big boys such as Intel also had a good day. PPI was good this am, retail sales were ok and the market traded well all session.

Tuesday should be fun…

Nasdaq looks constructive here as it lifted off our 2050-ish target near the close, Wednesday. Got as low as 2066 in the am, closed at 2092– within a hair of the day’s high– so we’ll take it.

Wednesday morning, the NASDAQ COMP hit it’s 5 month trend line (red) of higher lows. As well, the index also has completed retracing 40% of its gains since October 2004. Earlier in the day the market looked interesting, but still a great risk entry point for those with the stones. Sure ’nuff around 3pm edt, the market caught on and took off.

Thursday’s action is very important because if we see follow through buying, that will likely force the shorts to cover and take us higher. We’re looking for a 50% retracement to the upside of the 2005 selloff so far and if market gaps down in the morning, good sign to buy but, if it gaps up, wait and see if it fills the gap and stabilizes first.

Unless technicals are broken, we believe the markets in the 1st quarter of the year should see decent gains.

Saw that title somewhere and it seems to fit the market currently. The NASDAQ has gone pretty much nowhere with great haste. So much for the first five days, week, month directional crap. The market is in flux. The NASDAQ Comp, at 2075 currently, is about 25 points from our 50 percent retracement target from the Q4 rally mentioned in our previous piece.

Nortel came clean with its 2003 numbers–restated, of course, and the shares perked up on size volume. Revenue rose, earnings fell to 10 cents from the previous 17 cents and the company says that 2005 revenue will be higher. Hardly a wringing endorsement, but at least we’re getting closer to closing the books. Execs paid back or were told to give back some bonuses, workforce has been skinned and the company is putting on its game face.

It appears the restatement was fairly benign as the worst case scenario was likely priced in to the shares already. Here’s some of the latest poop from the press.

Buy it? Sure. The company will either survive or be bought out. Be careful, be strategic. Today’s trade action is a decent foreshadow of the future. It could have been really ugly. Time apparently does make the heart fonder. Or at least less risk averse.

Eternal Technologies the chinese biomed –and more– company profiled here a while back hasn’t risen, but seems to be attracting more investor attention. The company is sending a group to the US to scope out opportunities, possibly build some facilities and that of course, means jobs. China outsourcing to the US–good to see.

This one is fascinating for reasons previously stated, and given the fundamentals, having 43 cent a share exposure to the agriculture and biomed sector in China makes a compelling add to the spec end of a portfolio. As well, the company is tackling the German market scourge which has seen many companies shares listed in Germany without company approval. Some wags think this is to flout (sp?) the naked short selling rules in the states. May well be. Should tighten up the trading for this and others that call out the practitioners and get their shares delisted in Germany. The ends some folks will go to to make a few bucks….

Most of our stable are idling or down a snick; except Spectrum Sciences which seems to have regained its program of stair-step advances popping a couple of pennies a day to trade in the mid-$1.70 level. It appears business is growing, the company is back on the acquisition trail and its manufacturing division is pounding out product at its highest production level to date. Broke our $1.69 resistance and could see $2 in the near term. That said, this is Spectrum: volatility is its middle name. Seems to defy the market direction and trade on its own schedule. Own some, be strategic and trade the swings. Good company, but can be a heart-breaker if you don’t keep an eye on it.

What else…Payment Data Systems is teasing us with lots of trade at or around our 33 cent resistance level. Seems to want to go higher and I suspect future news will drive this payment solution company. Still a spec, but management working hard to get the story out and do deals it appears. Again, accumulate some here and fill in with dips into the 20’s if they appear. Better to own a bit of a winner in case it takes off than none. Also, with smallcaps, large positions are just plain dumb. They can go down, in case you haven’t noticed. Again, better to have a little…

For the most part, some dry powder is a good thing. Dribble a bit into the barrel as stocks backup, but I’d like to see a decisive bounce off our NASDAQ 2050 level to make me feel all warm and fuzzy.

Might want to take a another look at Isonics here. We mentioned a sell on the last run to $6-plus and now that the shares are back under $5, they bear a look. Remember though, this one can rocket either way depending on news and the daily volumes can be in the 10’s of millions. This baby is definately news driven and the company seems to engage in good, albeit peiodic, substantive developments. Maybe bet a few acres here, but, as always, never the farm.

That should do it for now. Thanks for the comments both here and on the smallcapdigest. Couldn’t–or more likely wouldn’t–do it without y’all.

The following shameless plagiarism–it’s ok, I wrote it– is for those who only visit the SCBlog. If you signed up for the newsletter, you’d know this already… and more from the article in it’s entirety.

The process; not always perfect, but it works for us

We always look at stocks as investors ourselves. The first question is, after fully reviewing a company is; “would I invest in this venture”? A lot of times, actually most times the answer is no–usually because the management vision is too optimistic or just downright unrealistic. Or, there are funding issues, too many better-structured competitors or, and this is usually the case, the idea or vision is flawed, lousy or both.

As I have said, probably ad nauseam, once a company tweaks our interest, a decent balance sheet with cash and low or no debt is always good. As well as access to reasonable funding sources that aren’t toxic and who have or will come on board as investors rather than cowboys who flip the shares for a penny profit or short it to increase their profit.

And of course the technical picture is a large consideration as well. Entry points—and exits—are of always of paramount importance.

Ongoing coverage depends on the company; if management delivers what it says it will, we’ll continue following. If they don’t, we’ll tell you and dump it. Period.

Fool me once…maybe.

Do we get fooled? Sometimes, but very rarely. Our team’s opinions and commentary are based on decades of market experience. There’s not much we haven’t seen.

Bottomline? Given all these factors, our mandate is simple; do we believe the company is worth bringing to the readership for their consideration? As you can see by the small universe of stocks that we follow, the answer is frequently no. You should see some of the beauties that have come to our attention and been discarded. Now there’s an article…

Do we miss some opportunities? Sure. Do we care? No. The formula we have established works more often than it doesn’t. And if it ain’t broke….

The other bottomline is that the small or micro cap market is unique in that it really has no bellweather names—it is purely a stock pickers arena. That’s why we love the challenge and ever-changing nature of these companies. In a word, it’s never dull.

Wall Street spends more time telling us how much they dislike, ignore or don’t understand the smallcap genre. That’s just fine, because they don’t. Not to mention there’s nothing financial in it for these ‘investment dealers’ to follow them.

The typical smallcap investor—not the punter—has to have certain qualities. First; a strong constitution—have you looked at the chart above? Second, and related to the first is to establish a strong risk tolerance and solid trading strategy. We always try to provide stop loss targets when appropriate, but the amount of risk assumed is purely a personal matter. Oh yes, and likely the most important of qualities: Patience. Neither Rome nor Microsoft was built in a day.

Investors can certainly make money with a smallcap buy and hold strategy, but these smaller stocks are made for trading. That’s the fun and the challenge.

Hope that helps y’all.

Mainly because we are getting more and more visits every day. Even through the Holidays, our numbers increased.

So, you have no excuse for not commenting or leaving comments on my musings.

Let’s get with the program. throw me a bone… Punch the button at the bottom right of any article and send ‘em in. Don’t make me come over there….

Ok, earlier today, I sent out a newsletter updating the SmallCap readership on Isonics and Spectrum Sciences. Both have substantive news and are performing well. There’s also a brief NASDAQ market update like the one below. Sign up for the SmallCap Digest in the top left corner while you’re there. It’s free, we won’t compromise or sell your info yadda, yadda.

I believe I heard media hound Jim Cramer of thestreet.com fame say this am that he sees the Dow at 12,500 by the end of the 2005. Or maybe that was the high for 2005. Whatever. I find the man annoying at the best of times. And don’t get me started on Kudlow. Smart guy–most of the time– but no less annoying.

First 2005 NASDAQ Glance

As I mentioned in the newsletter, the COMP looks to be in profit-taking mode. Look for a possible 50 percent retracement of the 1900-2200 run in the last quarter of 2004. That would put us around 2050, or another 100 points or so down from here. Not a big deal, but the good performance of 2004 was pretty well compressed in the waning months of 04 and some consolidation is likely warranted.

I’m more interested in the prospects of individual stocks, as good stories can–and do–go contra market direction.

SmallCaps tend to be more news than market driven. But I imagine you know that already. Eventually they have to deliver, but in the formative stages, the trading currency tends to be news more than fundamentals.

At least that’s my story.

It appears that Nortel has gained a three month extension to file its reports. If the filings aren’t complete by March 31, 2005,the NYSE will proceed with suspension procedures.

So a reprieve granted, apparently. I still submit the NYSE should have announced this rather than wait several days and make the company announce it. But that’s just me…

And it appears that blogs are here to stay. The readership growth in 2004 was impressive and looks to continue. Isn’t it nice to be an early adopter?