Commerce Planet (OTCBB: CPNE) is at it again. On Wednesday, the company paid off a total of $705,000 in principal debentures. The loan was originally taken from two institutional investors, and two individual investors…and the payment was made in cash. Why cash? Because they can! Look back over some of the recent blogs and news for Commerce Planet (formerly NeWave). You’ll find the company is consistently generating cash from operations…enough to pay off debts a heck of a lot faster than initially foreseen.

Just for the record, Commerce Planet CEO Michael Hill stated, “Over the past month, we’ve repaid $705,000 in debt from cash flow. As previously stated, during fiscal year 2006, we were looking to reduce our debt by 50% overall. We have certainly exceeded those 2006 initiatives by reducing our debt by about 70% year to date.”

And the year isn’t even over yet! There’s a distinct possibility the company could be debt-free by the end of the year,

You gotta’ love it. There’s just something about a company that can and will pay off debt, and doesn’t have to stretch to do it. As for the company’s cash flow, we’ll just remind you NeWave’s net income went from a ($1,291,480) loss in the quarter ending March 31st of ‘05 to a profit of $194,380 in the same quarter of ‘06. So yes, they can afford it.

In a recent edition of the SmallCap Digest, we compared news from small companies to a lightning strike - it can happen anytime, anywhere…without warning. But when it does, it’s a big deal. Well, lightning struck yesterday when Execute Sports (OTCBB: EXCS) announced a 181% increase in European orders for snowboards in 2006/2007. That raises overseas sales by 51% on a year-over-year basis. For lack of a better way of saying it, that’s not too shabby, especially considering European snowboard market is estimated to total about $100 million on an annual basis.

Just for some perspective, Execute’s 2005 revenue totaled about $1.4 million, which included domestic (U.S.) sales. Needless to say, even just capturing a small piece of the European snowboard market share would still be a big boost for the company’s top and bottom lines. Based on the way Execute is fostering the foreign market, they’re on track to take a big piece of that pie.

By the way, Execute’s snowboards are marketed under the ‘Academy’ brand name.

As for the stock, it hasn’t necessarily been easy to own lately.  The question is just one of when all this good news will start to get some traction with the investing community. It’s a great corporate story…Execute’s products are top-notch, and they’re getting their stuff to the consumer through some powerful distribution channels. Yet, this recent IPO has had a tough time getting attention. We still like the company and the stock, and if you do too, the recent share price of 24 cents makes for a great entry point - especially as oversold as it is right now. Just keep in mind how young stocks like these can take some time for other investors to find. But when they do, they have the potential to grow exponentially. 

On a side note, we are relieved that the recent pullback has not been made on heavy volume. If anything, it’s been a light-volume selloff, which is a subtle hint the masses aren’t absolutely terrified to own this stock. We attribute a lot of the recent weakness to general market malaise.

If you’re new to this site, or unfamiliar with the company, it might be worth taking a look at our initial profile on Execute Sports by clicking here. You’ll be able to see the reward potential is still pretty high, despite the risk.

Clearly Canadian (OTCBB:CCBEF) has entered into a humanitarian partnership with the non-profit organization Global Water. The joint mission is to provide safe drinking water for developing nations that may not be able to do so without assistance. Funding for the initiative will come from corporate donations as well as fundraising events.

Rather than just a basic donation of water, the idea is to equip these underdeveloped nations with the tools and knowledge needed to maintain safe water systems. At this time, the primary geographical focus is on Central America and South America - Guatemala and Nicaragua specifically. Two new water systems are to be in place by the end of the year, and the current plans are to add 20 more systems by 2010.

It‘s certainly a public-relations win for Clearly Canadian, but it’s definitely a major win for the countries in need of better water systems. So, kudos to Clearly for taking the initiative in doing what they can to improve the global community. And on a side note, companies that make a habit of corporate responsibility (like this) also tend to make a habit of strong corporate results. And there’s no doubt that Clearly Canadian is firing on all cylinders right now. We’ve logged the turn-around saga pretty well here at SCD, but we think the best part of their story is yet to come.

Has it paid off for shareholders? Well, the stock last traded at $4.11. That’s 61% better than the $2.55 per-share price we saw when we first started covering Clearly in mid-March. So yeah, shareholders are being well rewarded.

It was only a few days ago we mentioned how news can strike like lightning - anytime, anywhere. The case in point was Novelos Therapeutics (OTCBB:NVLT). There hadn’t been any news from the company in a while, yet the stock was starting to creep higher anyway. Today we found out why it pays to not try and chase the news, but rather, to own stocks that have the potential to release news that can get investors excited in the future.

The Department of Health and Human Services announced today that Novelos’ proposal for treatment of Acute Radiation Syndrome (ARS) is within the ‘competitive range’ among all the proposals submitted as a medical response to a ‘dirty-bomb’. In plain English, it just means Novelos’ NOV-002 drug is still in the running for a contract that is expected to be awarded in September.

Don’t jump the gun though. There are still other competitors for this contract, so the news may ultimately be meaningless when September rolls around. On the other hand, it could be a major boon for Novelos, as well as its shareholders. We just don’t know. Then again, that’s the name of the game - the big rewards are born from substantial risks. What we do know right now is Novelos shares broke past resistance a few days ago, on major volume. In fact, after reaching a low of $0.85 on June 15th, the current price of $1.06 represents a gain of 24.7%. That’s not bad for less than two weeks worth of work.

Our view point is a positive one, partially because of the news, but mostly because we like the company. Why not the other way around? We’re fine with trading the news, if you’re a trader. And there’s no doubt this news is trade-worthy. But as we also said, the U.S. government has yet to award the contract. We can’t base our decision on a stock simply on something that might happen. Our appreciation for the company - as an investment - is rooted in their foundational work against lung cancer and hepatitis. The possibility of a government contract is just gravy.

Side note: In Friday’s edition, we specifically said there wasn’t any news for Novelos…at least not yet. However, the stock was behaving as if there was. Are we saying we can predict the future? Not at all (though it would be nice if we could). However, we will say that we’re not surprised to see this news today. Odds are that somebody else knew of this news several days ago, which is why the stock pulled out of its dive. Those investors may have been buying ahead of the news, before it was actually released. It’s possibly a case of the dreaded ‘L’ word…a news leak. But, we’ll never know for sure. Whatever the cause (and even if there wasn’t one), the big rally last week was a red flag that got our attention. As discussed then, it pays to note when a stock is suddenly in accumulation mode.

Earlier today, Clearly Canadian (OTCBB:CCBEF) released the terms for a private placement of its common shares. The deal has been in the works since early June, but it wasn’t until now that the details were finalized. In simplest terms, the company will be selling some shares (presumably a lot of them) at a price of $2.75. As of right now, the actual dollar amount of the transaction is not known. We’ll let you know when and if it’s made public.

The proceeds from the sale will be used to finance marketing initiatives this summer. That’s a peak selling period for all drink producers, and Clearly wants to be ready to compete. With the financing expected to be complete by the end of the month, the company will have the resources it needs for the summer season.

Our take is a generally positive one. A pessimist might argue that each time you give away a little piece of a company, earnings are diluted. And in many cases, that’s true. The other side of the coin - and the one that applies here - is that you have to spend money to make money. So, the question to really ask is whether or not the monetary benefit of having the cash infusion is worth the downside of adding yet another shareholder. If it were any other company besides Clearly, we’d have the same concern. But, look back at the recent news (and this blog)…the company really is turning things around. That’s why we don’t see this as a problem; we think the company is going to use this cash very wisely, and crank out a solid ROI.

The name change for NeWave is now complete. As of today, the company will be called ‘Commerce Planet’, with a new stock ticker symbol ‘CPNE’. The updated stock ticker is already trading over-the-counter as a bulletin board stock should, but don’t be surprised to see a transitional period for some data providers. For instance, Yahoo is listing the correct symbol, but the wrong company name. Some stock quote providers are still listing Capital One Inc. as the company name for ’CPNE’. All of those errors will be corrected soon; we just wanted you to know in case you saw something unusual in the meantime (or couldn’t get a quote) for the company formerly known as NeWave.

CEO Michael Hill commented the new name ‘Commerce Planet’ (OTCBB:CPNE) is more descriptive of what the company does. He also added (and this is the exciting part for us) the revised moniker will be better suited for the new growth initiatives to be added in the latter half of this year. Based on his track record so far, we think it’s going to be something really exciting.

As for the shares, it’s business as usual. Each wave of selling is quickly met with an even stronger wave of buying, pushing the stock to new highs. So, not only has the ebb and flow become predictable, it’s also made for a pretty nice uptrend since mid-March when we first started covering the company. At the time, shares were priced at $0.19. The current reading of $0.52 translates into a 173% gain, with more likely on the way.

Xtreme Companies (OTCBB:XTME) notched another small win for its stock by notching a rather big win for one of its boats.

OK, it wasn’t quite a ‘win’ in the strictest sense of the word. Last weekend, in the Hollywood Beach (Florida) Super Boat Grand Prix, one of the company’s boats finished second in its class. The Challenger DDC-28, made by Xtreme, was driven by Team Gallagher Offshore Racing. Although finishing as the runner-up, it’s still high-profile recognition within the niche boating community.

The implication for shareholders is pretty straight-forward….anything that helps the company sell more boats is a positive event. That’s not to say we’re looking for shares to be propelled into outer space on the heels of just one good race. It is, however, some groundwork for bigger and better company results.

This morning, Cel-Sci’s (AMEX:CVM) CEO Geert Kersten released a letter to shareholders. Although we don’t want to reprint it in full here, we do want to highlight some important items acknowledged within the letter. At the very least, it’s a reminder of what it really means to have ownership via equity in a company……something that’s too easy to forget in the middle of the act-on-all-information age.

In a nutshell, Kersten acknowledged that CVM shares had been pulled down with most other stocks over the last several weeks. Although the selling was frustrating, it wasn’t unusual - three out of four stocks move in tandem with the market. Quite frankly, we’re not surprised nor overly upset about the downward move. That’s just one of those things that investors have to be willing to accept.

The compelling part of the letter, however, was the discussion about what’s going on internally at Cel-Sci. The company’s cancer drug Multikine has just been approved for phase III testing in Canada. A good drug? In phase II of clinical testing, patient survival improved between 33% and 40%. So yes, Multikine does indeed have a lot of promise. And considering the patent on the drug’s mechanism will last 18 more years,  it’s just a huge opportunity for Cel-Sci, and CVM shareholders.

Even more compelling, though, was a tidbit that was glossed over early in the body of the letter. Rather than panic like a dear caught in headlights when the stock started to sink, Kersten bought 87,600 more shares of CVM. If anybody knows the true value of a stock, it’s the CEO. There are a million ways to say it…..eating his own cooking, making his own bed, putting his money where his mouth is…..call it what you want - we like companies with CEO’s that are looking to own more shares. In this case, we’d take that lead and use the dip as a buying opportunity.

The current price of 85 cents could be the beginning of a breakout move. The stock is up by 5% today, on higher volume. And we saw a bullish volume bump on May 23rd, as well as a small one on June 16th. So, somebody is getting on board here. As for upside potential, shares have already been as high as $1.78 within the last few months. We don’t think it’s unreasonable to think shares will get there again fairly soon, but we know that 85 cents is a great entry point right now.

In light of last week’s mixed market results, and today’s non-directional follow up, we’ve got a little time to review a chart we haven’t had a chance to discuss lately. We think you’re going to like what you see.

The last few weeks have been tough for Sense Holdings (OTCBB:SEHO). Shares peaked at 43 cents in mid-April, only to pull back to their current price of 23 cents. However, a closer look at the chart might be showing us a proverbial light at the end of the tunnel. The current price of 23 cents was first hit on May 25th…..15 trading days ago. Although they’ve yet to move higher again, they’ve obviously not moved lower either. In other words, shares may be establishing a base here, and gearing up for a recovery move. Were it just the recent bouncing between 22 and 25 cents, the range-bound chart may not have caught our eye. But we also saw support right at 22 cents back in early March as well as mid-January. So, clearly someone is interested in buying shares at current levels, as they have before.

Aside from the likely support level, we’re equally compelled by the growing bullish volume we’ve seen since SEHO worked its way back into this recent range. Once the stock gapped down to 23 cents on May 25th, we’ve seen three clear days of accumulation. Distribution (high volume selling), on the other hand, has been minimal, and far from rivaling the accumulation effort. It’s just a brief flash of bullishness that could indicate a bigger player is testing the waters. If that’s the case, the current bottom is a great entry point for SEHO shares, as it would occur before the buying volume really ramped up - to the levels we saw in March and April. If you’d rather wait for confirmation, any move above 25 cents would represent a bullish breakout of its recent range. 

When it comes to investing, it always pays to keep the ‘bigger picture’ in mind. From that perspective, Clearly Canadian’s most recent (OTCBB:CCBEF) SEC filing is verification the company is indeed turning itself around, as planned. Here’s the deal…..

According to the company’s most recent 6K report (filed with the SEC yesterday), Clearly Canadian lost $6.0 million in 2005, compared to a loss of only $5.0 million in 2004. You don’t have to be a brain surgeon to figure out the loss got bigger. But, you also have to look under the hood - so to speak - to get the full story, because those results alone don’t do the company justice. In other words, the term ‘due diligence’ isn’t just banter….we do it because it needs to be done.

The bigger loss is attributable to a one-time stock option expense of more than $1.7 million, in connection with financing led by BG Capital. Another $680,000 was spent on restructuring a handful of lease obligations and consulting contracts. See anything un-troubling about those expenses? They’re actually investments into the company’s future. You have to spend money to make money, and from our perspective, these are good expenses. If you subtract those two accounting outlays, the loss is indeed smaller. Quite frankly, the wise move was to do what they did and go ahead and get the two liabilities off the books.

Better yet…..

Despite the bigger total loss, the per-share loss was only $1.06 in 2005. That’s enormously better than the 2004 loss of $6.56 per share. The amazing part is (and kudos to Clearly’s rebuilding effort) they narrowed the loss even with a revenue decline of 21.1%. Yes, a dip in sales may also be a red flag, but we knew Clearly Canadian was a turn-around story from the very beginning of our coverage of the company. In fact, we’ve already seen evidence of those turn-around efforts in 2006.  Remember the reality TV show in the works that will feature the Clearly Canadian story? That’s a step in the right direction. Remember James Dines taking the helm? That’s another step in the right direction. We still like where Clearly Canadian is going; we’re not worried about where they’ve been.

More good news from On The Go (OTCCBB:OGHC) today….they just received an order totaling $827,000. That’s OGHC’s biggest single sale in company history.

Are we surprised? No, not really. When we highlighted recent results in yesterday’s edition of SmallCap Digest, it was clear the company knew how to sell (you don’t increase quarterly revenue by 578% without knowing how to sell your product). This is just more of the same from On The Go, which has turned into an incredible turn-around story. Oh, and just for some perspective, last quarter, OGHC reported sales of $8.9 million. This single order matches almost 10% of last quarter’s revenues. In other words, it’s a big deal.

The customer is a Toronto-based polytechnic school (post-secondary). They needed servers and workstations, and On The Go was their chosen supplier.

As for the impact of the order, any sale of any size helps bottom lines, but the true impact may extend even further than that. This is a high-profile transaction, and establishes a lot of credibility for On The Go. Other institutions - educational or corporate - are now more likely to consider On The Go as a potential vendor. Don’t be surprised if we’re reporting a new record-sized sale for On The Go within a few months, now that they’ve upped their status as a technology provider.

Shareholders may have been getting a little frustrated with OGHC. This one was sinking in June along with everything else. All of that weakness was shrugged off yesterday, though, with a big $0.05 gain. OK, a nickel isn’t ‘big’ in terms of what you can buy with it, but for OGHC yesterday, that five cents represented a gain of 38%. There weren’t too many stocks that did that well on Wednesday.

Today’s follow through temporarily pulled shares above a key resistance line extending all the way back to February. As of right now we’re back under that line, but we still like the buying pressure we’ve seen over the last couple of sessions. Besides, the day isn’t over yet, and we’re sure there are a few traders who are locking in some profits from yesterday’s move, and today’s even stronger open. As we’ve been seeing since April (the longer-term), there are far more buyers than sellers.

The key level to watch from here is $0.23. Even all of the high volume gains in late April weren’t enough to actually get the stock above 23 cents. That same resistance was verified with the run in mid-May, when 23 cents was as high as OGHC could go. Today’s high (so far) has been 22 cents. While we like the risk/reward scenario at the current price of 19 cents, a move to or above 24 cents would be a major breakthrough, alleviating most concerns about continued resistance. If that line is breached, this stock could really take off.

The results are in and it’s now official - NeWave (OTCBB:NWWV) is on a roll. Last month, NeWave enrolled 46,000 new purchasing club members. That’s not only a 10% improvement over April’s figures, but also a new enrollment record for the company.

By the way, NeWave is getting a new name too. Within the next few days, the company will change its name to ‘Commerce Planet’. The switch will also include a change in the ticker symbol (NWWV). Current shareholders won’t need to do anything because of the name change. The stock’s registrar and your brokerage firm will take care of the reorganization for you.

In terms of strategy and the business model, not much will change from its present form. The core pieces of their business will still be ‘onlinesupplier.com’ and ‘buydiscount.com’. The ‘mysoftwaretutor.com’ site will also continue to be developed. However, CEO Michael Hill does intend to announce a detailed strategy once the name change is complete. We don’t think it will be anything significantly different from what we already see, nor should it be - the company is doing just fine as it is.

NWWV shares ran all the way up to $0.59 last week, but we’ve seen them slide back to $0.42 as of today. However, we’re also seeing a clear pattern of advance and retracement now. Of course, as long as each advance is bigger than each retracement, we don’t mind. In fact, the current pullback may make for an outstanding entry point into this longer-term uptrend.

In Friday’s e-mail, we pointed out how gold was losing too much ground too quickly to just chalk it up to a little volatility. Instead, our take was that gold’s best days were behind it, and how gold futures presented a better bearish opportunity than a bullish one. Well, over the next three sessions (Friday through Tuesday), the price of gold kept sinking, falling under the $600 mark for the first time in weeks. That brings the total pullback from the $730 peak to about a 19% loss.

Are we saying this to gloat? Not at all. Our only goal is to illustrate for you how hearing some advice on the radio or seeing it on TV doesn’t necessarily make it good advice. We contended then, and still contend, most investors are better off looking for other arenas right now, since the gold market currently presents more risks than rewards.

That said, for those who have the fortitude and desire to take large risks, Tuesday’s dip is a sharp one that may get some other potential buyers off the fence, so to speak. On the other hand, we wouldn’t want to try and catch a falling knife either. So, even a pure speculator may want to wait until there’s some sign of life - like a reasonably bullish day -  following this sixth straight bearish one.

The only caveat is not to expect too much in the way of an upside movement. Gold futures have taken some major technical damage recently, bringing a true end to the multi-year uptrend.

For everyone else, you may want to stay completely out of the water, at least until things stabilize.

Well, you can’t say it’s not interesting. In this afternoon’s e-mail, we mentioned that there would be a clear idea by late today whether or not the market was finally going to rebound. In fact, we went as far as to say many classic signals of a short-term bottom were already in place. The one missing ingredient in that recipe (as of right now, anyway) is rising stocks. Yesterday’s deep low and ensuing late-day recovery could have been a sign that the buyers were finally ready to pounce on a recently de-valued market, but there was no follow-through today. Stocks actually lost some ground, ending the week in the red again. So, maybe we haven’t gotten this monkey off of our back just yet.

As for what was potentially bullish at the time, there was a combination of factors. The over-arching theme was an oversold market primed to bounce. However, ‘oversold’ can still be a little ambiguous. Some of the specific tell-tale signs of a bottom were…

• The VIX (CBOE Volatility Index) shot up to a high of 22.59 on Thursday before coming back to close at 18.35. For those who follow it, you’ll know we haven’t seen a VIX reading that high since the early part of 2004. Generally speaking, VIX spikes like that indicate a peak in fear, which usually occurs right before a peak in the selling (see chart below for prior instances).
• Thursday’s ‘down’ volume to ‘up’ volume was as much as 9 to 1 at some point in the day (depending on the exchange). The idea is that it’s so bearish, it’s actually bullish because all of the selling is being compacted into one single day. After the event occurs, there are no sellers left. Of course, we found out Friday that there are at least a few sellers left, but the big volume disparity is still a subtle hint of being near a bottom.

From where we sit, stocks truly are at a short-term bottom. Plus, if you look closely, you’ll see they’ve actually held their ground pretty well over the last couple of weeks. While that’s not bullish, it’s obviously not bearish, which forces us to at least give the benefit of the doubt to the bulls. The bottom line is that we’re going to hold off on making this call until we see the indices break out of their recent range. We’ll update it here when it happens.

A couple of days ago when we last blogged Clearly Canadian Beverage (OTCBB: CCBEF), we mentioned that the heroic run-up to $3.10 may have left shares a little vulnerable to a dip. Since then, however, we have to acknowledge that the stock has done a pretty nice job of holding on to that gain. The gap between the high of $3.05 on the 9th and the low of $3.06 on the 10th was a worry. But, after we closed that gap yesterday by pulling all the way back to 3.03, the stock made an impressive move back up to $3.09.

Now, that in itself is good news for Clearly Canadian, but our updated take on the chart isn’t as much rooted in the price action as it is in the volume. Despite dipping into the red by one cent yesterday, the volume was nowhere near the levels we saw when shares were pointed upward. In fact, all three of the major bullish moves we’ve seen since March have been on rising volume; we’ve yet to see a high volume selloff (the high volume dip on May 19th would almost qualify, but the buying started again two days later). In this instance, it may pay to follow the crowd.

But wait…..there’s yet one more reason we’re singing some praises. Want to know the 4th best-performing industry over the last month? Soft drinks. (Talk about a niche index!) The Dow Jones Soft Drink Index is up 1.13% since this time last month. That’s not huge, but it does say a lot about where the hot spots are. CCBEF is not actually an index component, but birds of a feather still flock (i.e. trade) together. So, we like the company it’s keeping.

In our last update on Execute Sports (OTCBB: EXCS), our take could have been considered luke-warm. The then-current price of 32 cents was 3 pennies under our suggested stop level of 35 cents (and remember, use mental stops whenever possible). Plus, there was nothing in particular the company saw on the horizon that was going to jump-start a wave of buying. Of course, we didn’t see any bullish catalysts either, so we acknowledged that it was getting tougher and tougher to stick with the stock.

Since then, though nothing has changed about the company since the last blog entry, the share price has at least managed to work its way back above that 35 cent level. In fact, we saw a high of 38 cents today, with the per-share price spending most of the day in the upper side of its range. Yes, it’s only a nickel from that low point we were lamenting, but in terms of percentages, we’re fairly pleased with a 15% recovery move.

We’re not going to imply that it’s grins and giggles from here on out; there’s still a lot more work that the company - and the stock - has to do to really satisfy us. We just wanted to be fair to everyone in how we report and analyze. The bottom line is that things look a little better for shareholders than they did a few days ago. That’s all.

Looking forward for the stock, there’s still going to be resistance around 39 cents. We’ve already seen it once in mid-May. If we can get past that level, then it really will become much easier for the bulls to justify scooping up some shares.

On a side note, one of the most compelling parts of Execute’s recent chart is not so much the progress we’re finally seeing again, but the higher volume that we’re seeing on bullish days. Likewise, we’re seeing lower volume on any bearish days. The technical terms are accumulation and distribution, but that’s just a fancy way of saying ‘there are more buyers than sellers’.

It’s no secret that Clearly Canadian Beverage (CCBEF) shares have been on a roll since our last update on May 30th. The stock closed that day at 2.87, already hitting new 52-week highs. But since then, shares have moved up to yesterday’s close of 3.05…..a 6.2% gain over just four trading sessions. More than that, the buying volume behind this move has been getting progressively stronger. So what could possibly be wrong with this position? The answer depends on your timeframe.

Although we love the bullish momentum, we do see the need to warn you of what may be on the horizon in the short-term. In a nutshell, the red-hot rally has left the stock a little vulnerable to a pullback. In other words, shares have become over-extended by becoming stochastically overbought at the end of last week. It’s not a reason to worry. In fact, we’ve seen this scenario play out several times this year already, like in late January, mid-February, mid-March, and mid-May. In all four instances, the stock ended up moving even higher after the short-term bottom was reached. We don’t expect this time to be any different.

We only want to say that so, when shares move from the current price of 3.05 to somewhere around the 2.70 area, you won’t panic. Or more importantly, when we see the correction, don’t bail out! It’s normal.

And that 2.70 level wasn’t pulled out of a hat. That’s where we estimate the 50 day moving average will be by the time shares could fall back to that line (it’s currently at 2.62, and rising). That same 50 day line has served as a precise bounce point for three of the last four corrections, and the other one in mid-April didn’t get too terribly far under the 50 day average. So, we’re going to expect a repeat performance until we have a clear reason not to.

Clearly Canadian Beverage (CCBEF) Chart - Daily

Our longer-term perspective still says that Clearly Canadian was a terrific addition to speculative portfolios, and maybe even more so now that shares are picking up the pace. Our current gain on the trade is 19.6% (since March 16th), with expectations of more of the same on the horizon. You’ll recall that we were looking for a move to at least $3.30 in an earlier report. Well, that price target still stands, even if we don’t get there straight from here.

You ever heard the adage “just because you can do something doesn’t mean you should” ? The same is true in trading. And specifically, the same is true in establishing protective stop-loss levels on your open positions.

Investors have been taught that stop losses should be in place for any trade at any given time. The idea is simply that one of the keys to making any money in this game is to, at the very least, not lose money…..an idea that we whole-heartedly agree with. However, the exchanges may or may not be offering you the best way to implement such a protective plan. Heck, they may even be doing you a disservice. Fortunately, there is a way around the problem.

You know those stop levels you’ve programmed into your open trades? Those exact exit parameters are actually monitored and executed by the market makers (the middle men) on the exchange floors. Or in the case of NASDAQ stocks, the middle men still act in the same capacity….they just do it electronically. The problem is, the market makers also make your stop-loss information available to anybody who’s willing to pay for it. You’ve heard of level 2 data? That’s part of the data set.

On the surface, it may seem irrelevant if someone else knows your ‘make or break’ tolerance levels. After all, you’re going to make exits at a certain price no matter what happens. And if it were only a few shares or a few traders with a stop at any certain price, then you’re right - it really wouldn’t matter. The practice turns into a problem when a large number of investors start using the same stop prices, or when a major institution (ok, or an individual) has millions of shares just on the verge of triggering an exit due to a stop-level being reached. Since all of that information is completely transparent, there’s an opportunity for someone else with a big enough wallet to misuse the trade instructions you’ve left with the market makers.

How could stops work against you? A couple of different ways.

In some cases, a fund company or major market player may avoid buying a particular stock if they can see that there are numerous stops just under the current price. Should the market sink even just a little bit, then that particular stock could go through a major wave of selling, if all those stops are triggered simultaneously. And we all know what happens when there are more sellers than buyers. It’s not an unethical practice to avoid buying stocks for that reason, but you certainly don’t want to prevent an institution from buying stocks you already own - that’s what forces stocks to go higher.

The second way someone could misuse that data is also the way we’re most concerned about - by using our stops against us by temporarily forcing a stock price past our stop level. Once all of the stops at or near a particular price are triggered - and all of the current shareholders are essentially flushed out of their position - then a major player can step in, and buy all of those shares (usually at a depressed price). This same player will also essentially be in the driver’s seat. Unethical? It depends on the reason and strategy, but usually yes, it’s unethical. Illegal? It’s supposed to be. Does it happen anyway? You bet.

This particular problem is exaggerated for our small and micro-cap stocks. When only a few shares are traded on a daily basis, and it’s easy for a major institution or large investor to buy and sell a lot of shares, it’s also easy to push a stock around - in terms of price.

That’s why we encourage the use of ‘mental’ stops. What’s a mental stop? Glad you asked. It’s precisely what it sounds like it is….a stop level that is only applied in your head. In doing it that way, you’re not subject to the whims of somebody else. Instead, you’re in the driver’s seat. Now, good discipline dictates that once your stop level is violated that you do go ahead and make your exits then. So in that sense, a stop is a stop, no matter how it’s applied. But there’s still a major advantage in applying your stops yourself. Namely, you can still shop (i.e. fight) for a particular exit price.

See, once a traditional stop-loss order is triggered, it becomes a regular market order, which means your stock is sold at the next available price. The problem is that the ‘next available price’ could be several cents - if not several dollars - under your actual stop level (market orders are the birthplace for bad fills). When you’re not just leaving it up to someone else to place your trade at any price they can, your bottom line tends to be much better. (The caveat here is to not get too picky - the road to the poor house is lined with investors who didn’t adhere to their basic stop strategy.)

The other benefit to a mental stop is that it doesn’t tip your hand to the rest of the market, so to speak. Many is the time when an institution drove a price down just far enough to trigger a lot of stop-based exits, only to turn around and drive a stock price much, much higher with a massive buy-in. If a stock is only a few cents under your mental stop, and there’s clear support for that equity around that price, then you may want to apply a little patience. And yes, that’s a little bit contradictory with the paragraph you just read before this one….proof that trading is less of a science, and more of an art.

In any case, where it makes sense, and where an investor has the aptitude and willingness to do so, using mental stops is a far better idea than submitting your stop levels to the exchanges for others to use - and potentially abuse.

Just food for thought.