Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

Congratulations are in order for Novelos Therapeutics (OTCBB: NVLT); the company just enrolled its first test patient in its U.S. NOV-205 trial. Novelos’ NOV-205 compound is a promising drug designed to fight hepatitis-C. It showed efficacy against hepatitis-B and C cases in Russian trials, and now the company will seek to confirm its effectiveness as they enter Phase 1b testing in the United States.

If the story seems ‘familiar, but not really’, we’re not surprised…most of the recent Novelos chatter has actually been about NOV-002, which is their company’s lung cancer treatment currently in Phase 3 testing. We haven’t heard much about the hepatitis treatment in the shadow of NOV-002, since the lung cancer treatment is much closer to being brought to the market.

As participants in the global community, we’re excited to see progress being made in the fight against lung cancer as well as hepatitis. Chronic hepatitis-C is estimated to affect 170 million people on a global basis, with 4 million new infections each year. So, the need is clear, and we applaud the work.

That said, being investors, we also see Novelos’ opportunity. We already know the cancer market is roughly worth $10 billion to $20 billion a year, with some estimates being even higher. But, we weren’t aware the hepatitis market is expected to be about $3 billion this year. That’s a big piece of pie, but the mind-boggling part is how fast it’s growing…by 2010, it’s projected to be more than an $8 billion opportunity worldwide.

Of course, the other side of the coin is ‘does it work?’ Although it’s only in Phase 1b testing in the U.S., in other geopolitical regions so far, the results have been good.

In the Russian trials, based on clinical studies in hepatitis-B and C patients, NOV-205 greatly reduced or eliminated hepatitis viral levels 30 days after treatment. It also significantly improved serum biochemical markers of liver damage. This is actually a huge advance when given the specifics of the situation. See, the biggest portion of chronic hepatitis-C (genotype 1) patients don’t respond well, or permanently, to current methods of treatments. Essentially, if they are ‘non-responders’, which half of them are, there is no viable treatment. However, with NOV-205, new alternatives are in the development pipeline.

Our take on Novelos stock? You’ve got to like a company that has more than one way to win (like a lung cancer treatment and a hepatitis treatment). And, you’ve got to like a company that has new stuff to roll out over the next few years (NOV-002 is currently in phase 3, while NOV-205 is on Phase 1). So, sure, NVLT has a lot of potential. We have no doubt things will remain volatile - and perhaps even frustrating at times - for shareholders. Meaningful test results for Phase 1b aren’t expected until early 2007. However, investors should also keep the bigger opportunity in mind, which could take years to fully materialize.

In the meantime, it sure looks like NVLT shares are itching to come up and off those recent new lows. The stock is significantly above the 50 day moving average line for the first time since December. And, clearly something has changed for the better as of Monday, at least to someone big enough to push the shares from 72 cents to 86 cents. That brief flash of bullish may also be an institutional tip-off. We shall see. 

I don’t know how they do it, and I don’t even care how they do it. All I know is, they’re doing it, and the stock is going higher because of it. What I’m talking about is Commerce Planet’s (OTCBB: CPNE) bevy of upgrades and additions to its web site and customer service offerings. A couple of weeks ago it was an online bill-pay utility. One week ago it was a self-help chat feature. Today’s installment - another customer retention tool - is a comparison shopping web site called SearchDiscount.com. This newest shopping site, powered by PriceGrabber.com, will allow Commerce Planet’s customers to do comparison shopping, and see vendor ratings/reviews.

A big revenue generator? Maybe, but that’s not even all it’s designed to be. All of these seemingly minor details just make the Planet’s library of site(s) ’sticky’…a phrase used to describe a web site that is so feature-rich (much of it for free), it’s hard for a user to navigate anywhere else. Of course, ’sticky’ is a relative term; in Commerce Planet’s case, the appeal is primarily to those doing e-commerce in one fashion or another. However, the appeal does indeed mean eventual revenue. Why do you think the stock has moved from 19 cents to the current price of $1.25 in just a little over six months? That’s a 557% gain so far, and in our opinion, more of the same could be on the way.

For the full release, click here.

We got this question after Monday’s discussion of Execute Sport’s (OTCBB: EXCS) stock chart. Although we responded directly, we figured it was well worth sharing with the rest of our readers.

Please explain what the ’stochastic’ graph means. I don’t understand. Thanks.

Editorial response: Thanks for asking. Stochastics is actually a mathematical concept that just happens to have a trading application. The idea is fairly simple…the placement of the stochastic line(s) on any given day is a reflection of where the stock price is in relation to its recent range. The only twist is that it’s ‘normalized’, which just means it’s been centered on a scale of 0 to 100…as opposed to a scale based on the actual dollar value of shares, which would change for each and every stock.

(OK, this isn’t the scientific explanation, but it’s the functional one.)

As a basic example, if a stock’s range over the last 20 days was a low of $10 and a high of $20, and if the current price was right at $20, then the 20-day stochastic line would be right at 100…the top of the range. If instead the current share price was $15, then the 20-day stochastic line would be right about in the middle of the stochastic chart, at a reading of 50. That’s all the faster moving stochastic line really tells you. It’s arbitrarily called the %K line. The other stochastic line is called the %D line, which is just a smoothed version of the %K line. Stochastics is a little easier to interpret when you have two lines to compare, especially when one is a little less erratic than the other.

The application, however, is a little less scientific. There are two basic trade-worthy states here….overbought, when stocks are ripe for a dip, and oversold, when stocks are ripe for a bounce. Whenever the %K line reaches above 80, it’s usually considered overbought, since it’s pushing the upper extreme of its range, yet really isn’t making higher highs - a signal of exhaustion. If the %K line falls under 20, it’s considered oversold - a sign that the worst is over, and that the stock may start to move higher.

The challenge, of course, comes when a stock stays oversold or overbought for long periods of time…defying the odds, and sometimes a trade position. For that reason, it’s not recommended to use stochastics blindly. Remember, it’s only an odds tool.

To see the stochastics chart that prompted the question, click here.

Never let it be said we didn’t put it all on the table. After last Friday’s Q&A session with CEL-SCI (AMEX: CVM) CEO Geert Kersten, we got a handful of follow-up questions for him. We forwarded them, and he responded. Here are the unedited questions and answers…the only thing we changed was the formatting so we could present it in the website. 

Q. Why don’t they have a product after 15 years of development? Why are they just starting phase II trials this late in the cycle? Multikine has been around for over 10 years.
 
A. The person says “why are they starting Phase II studies this late in the cycle”?  The person did not read well.  Phase II is complete and we are moving into Phase III.  It typically takes $800 million and 15 - 20 years to develop a drug.  Things can take longer in biotech because of lack of funds.
 
Q. Why did they keep switching their development to the next best thing instead of focusing on something they saw promising so long ago?

A. We have not switched our focus.  It is only that investors were more excited by our AIDS vaccine because it was in the news during the 1990s.

Q. Why does Geert talk abut his stock purchases without talking about his stock sales? Why has he been consistently selling blocks of shares?

A. I have not sold any shares since 2000, only bought shares, when I exercised 20,000 options.

Editor’s note: It is what it is. While our bias always remains in favor of the retail investor (i.e. the little guy), we’re also always going to be fair to everybody…including CEO’s. That’s why we did the Q&A in the first place - to give a complete and meaningful voice to everybody. You may not like the answers, but they’re still the answers. From here, investors now have more (and better) information to guide their risk-versus-reward thoughts about CEL-SCI. We hope to bring more in-depth interviews like this to you in the future.

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

Just a few days ago we heard about Commerce Planet’s (OTCBB: CPNE) new online bill payment offering. Today, as part of what has become a relatively consistent series of revenue-improving features, the Planet has added a virtual chat feature for its subscribers. The tool is expected to help drive revenue for the third party merchants, who will in turn pay Commerce Planet a nominal acquisition fee.

In other words, Commerce Planet is providing a help-chat service that should allow its current subscribers to create even more sales…an offering that, if effective, would be a no-brainer addition for the folks already using the Planet as the virtual middle-man.

Brilliant? Yeah, but even better is the cost. This isn’t a ‘live’ chat requiring labor-intensive support (i.e. man hours). This is a pretty sophisticated set of algorithms that acts like a live chat from the casual web surfer’s perspective, but is actually automated from Commerce Planet’s end. Pretty slick, huh?

This is yet one more reason why CPNE shares just keep on rising. And yes, in our opinion, we can see the stock continuing to rise - despite the strong run already. While big moves may foster hesitation in some cases (and rightfully so, in some of them), the Planet’s shares have never really reached that white-hot ‘overbought’ stage where the only possibility was an implosion. That relative stability is a nice quality to offer shareholders. 

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

Think oil prices are just going to keep on sinking? They certainly tumbled well under the support levels we had previously established. However, now severely oversold, we see a short-term bounce brewing up.

What’s that mean for the long-term? At one point we were batting around the idea of $100 for a barrel of crude. But, that was also before that key support line broke. When it did, so did the long-term trend. Translation: things are a little different now, in that oil is not bullet-proof the way it was over the last couple of years.

We’re not saying expensive oil is a thing of the past…we’re just saying we need to be vigilant (and we will be) about assuming - or not assuming - anything at this point. Oil charts took a lot of technical damage, and we’ll be very curious to see how the futures respond as any recovery begins. Keep an eye on the blog for more.

Thank you all for your positive feedback on Friday’s Q&A with CEL-SCI (AMEX: CVM) CEO Geert Kersten. We hope to provide more ‘behind the scenes’ interviews with other CEO’s in the future, as it’s a great way to really get to know a company.

As expected, the interview answered a lot of questions, but raised some too. If you forwarded follow-up questions to the SmallCap Digest Editor, be aware that we forwarded them on to Mr. Kersten; he’ll be able to answer them better than anybody. We’ll publish his responses soon…probably somewhere in the blog.

However, we did see one question a couple of times about Phase III testing. Essentially, there was some confusion about whether or not Phase III had already started in the countries where Multikine had been approved for Phase III. In simplest terms, no, not yet. Per Kersten (to us), CEL-SCI is going to wait until they get Phase III (or equivalent) approval in all of the countries where tests are being conducted before proceeding on to Phase III in any country. By doing so, Phase III can be carried out simultaneously, which is much more cost-effective according to Mr. Kersten. As he said, one of his primary goals is to create the most value for shareholders. To commence Phase III testing in some locations but not others would ultimately decrease the stock’s value, as it can be very costly to perform non-synchronous testing.

That said, we’re still going to forward the question on to Kersten, since he may have a more meaningful (and scientific) response.

Thanks again for asking those questions, and keep ‘em coming!

If there’s one thing we’re convinced of, it’s Commerce Planet’s (OTCBB: CPNE) ability to nurture new ventures. The fact that the company even exists at all is proof of the pudding. But, even since we started covering the company in March, we’ve observed new ventures coming into the fold. And more importantly, they all seem to do well under the Planet’s guidance. Case in point - Commerce Planet’s wholly-owned subsidiary One Source Imaging. The company bought the printing outfit on June 6th. By July, the proverbial bar had already been raised for the printing unit, as it quickly became a viable revenue center.

Now, we reviewed One Source Imaging’s history to make a point about Commerce Planet and its newest venture…if this one is like the rest, it’s going to be a winner (i.e. a viable profit center). In short, the Planet’s subsidiary Customer Loyalty is teaming up with Payment Data Systems (OTCBB: PYDS) to create ibillpayonline.com. The joint venture will provide private label bill payment portal services to Commerce Planet. In English, it just means the Planet will provide a bill payment service to current (and future) customers clamoring for a bill payment feature on their account. If it’s like most everything else Commerce Planet does, it’ll be a winner.

When we first profiled Eagle Broadband (AMEX: EAG) in our September 15th edition, we explained how IPTV was going to be the new era of television content delivery. And Eagle, with over 200 channels worth of content to supply to…whoever, was poised to lead the charge. Well, it wasn’t just some philosophical, hopeful, generalization to be realized at some point in time in the near or distant future. Eagle just announced the beginning of construction of its super head-end and satellite farm in Miami, Florida. The Florida-based head-end operation will collect signals from over 30 satellites to deliver a broad range of content from more than 250 cable channels. So, the concept is becoming a reality. Click here for the full story, and complete explanation of the infrastructure being built.

Can the stock be far behind the progress of the company? Other investors seem to be getting behind the idea…and behind EAG shares as well. The stock started to perk up a little after we issued the profile on the 15th, and did so on higher volume. We saw a slight dip into the red yesterday, but today the bulls are back at it.

Also, you may have heard some news about one of Eagle’s board members being dismissed. Here’s the deal…

Dean Cubley was removed from the board because of a suit he filed against the company. He says the company failed to pay on a $2.3 million loan he made. The company states all of the payment that was actually due has been paid off already. The company further claims Cubley wrongfully induced the board to approve the issuance of the note in the first place. As of right now, we don’t see it amounting to much either way. While corporate turmoil like this can sometimes be a red flag of bigger, more subtle problems, we don’t see it here. Eagle is too small and close-knit, and Cubley’s claim is too unsubstantiated so far, for the matter to swell into something meaningful. In fact, the market apparently couldn’t care less. Shares closed one cent lower yesterday after the news came out, and are flat for today.

Yesterday, Execute Sports (OTCBB: EXCS) announced they would be hosting a conference call in the middle of the quarter, on September 28th…well before they had any official results to discuss. What’s the hurry? Good question - we don’t know either. However, we are taking Todd Pitcher’s statement at face value…

We…understand that, as an early-stage player in the marketplace it is important to provide our investors with visibility and a reasonable level of access to the management so that they can better understand our business, the implications for our business in light of various announcements both financial and otherwise that we have made throughout the quarter and year, and also our business plan.

The concept isn’t new to us…CEL-SCI (AMEX: CVM) utilized the idea just yesterday. For the same reasons it was good for CEL-SCI, we think it’s a good move for Execute. If the company wants to gain favor and legitimacy with investors, they’re going to have to be transparent as they work through these early stages of their growth. Plus, it’s sends a message they’ve got nothing to hide.

To listen in on the call (and we encourage you to do so), the toll-free call in number is 1-800-819-9193 and for international, it is 1-913-981-4911. The teleconference call is scheduled for one hour, starting at 1:30 p.m. PT (4:30 p.m. EST).

You gotta’ like a company that knows what it wants to accomplish, then goes out and does it. We just learned Xtreme Companies (OTCBB: XTME) has hired Media Direction - an advertising and public relations agency - to promote Xtreme’s Challenger brand.

On the surface it may not seem like that big of a deal…companies hire PR firms all the time. However, boat companies typically don’t. The fact that Xtreme did sends a clear message to us - and investors - that the company is serious about its new direction. So yes, in this case, it is a big deal. It will be interesting to see how an outside pro handles Xtreme’s new line in comparison to the competition. We just get the feeling a professional public relations agency knows how to garner a heck of a lot more attention than most of the in-house marketing departments of other boat manufacturers. And more importantly, we suspect the attention will show up on Xtreme’s top and bottom lines.

To see the whole press release, click here.

As for the stock, we renewed or optimism back on September 6th when we profiled the company’s re-invention. Although shares haven’t been launched into the stratosphere, we can see strong evidence of a reversal effort. Just prior to that edition, shares were testing the waters just under 3 cents (2.9 cents, to be exact). Since then, we haven’t been all the way back to that level. We have, however, seen a higher high and higher low. Maybe the idea of a new Xtreme is starting to catch on with other investors. No doubt the risk is still there, but as we mentioned before, the old price may not reflect the new Xtreme.

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

This morning, CEL-SCI Corporation’s (AMEX: CVM) CEO sent a letter to shareholders regarding the status of the company’s development of its primary cancer drug, and the market’s recent valuation of CVM shares. In short, CEO Geert Kersten feels the stock is undervalued because investors aren’t fully aware of Multikine’s (the cancer treatment currently in testing) potential. He also points out in the letter how new biotechnologies - and young biotech companies - are too often passed over by the investment community, as they may not be fully understood by investors. The letter also adds investors who were patient with companies doing the right kind of research were eventually well rewarded. Amgen (NASDAQ: AMGN) and Genentech (NYSE: DNA) were two cited examples.

In short, we agree with the rationale…and the point. Since our coverage of CEL-SCI started in February, the company has stayed on the strict R&D course, pushing Multikine through the FDA-approval process. In the United States, Multikine’s use as a treatment for head and neck cancer is in phase II testing. In Canada, the company is already in phase III testing. On both fronts, the success rate appears to be as positive as had hoped - the survival rate is up, and so far, there are fewer recurrences of cancer. Better still, Multikine is non-toxic…as opposed to many other cancer drugs that can actually create another problem with the very mechanism that treats the cancer.

For the whole letter, click here.

So, do we like CEL-SCI at these prices? Based on the reasons Kersten shared, and knowing what we do about Multikine’s progress, we have to say yes, CVM has a lot of potential. There’s no question the stock will continue to be volatile…small biotech stocks almost always are. However, with a very impressive cancer drug in the works, and shares priced less than half of what they were just six months ago, aggressive traders may find a big winner - over time - with CEL-SCI. 

We’ve been singing Commerce Planet’s (OTCBB: CPNE) praises since March, and it has yet to not live up to our standards. In fact, the company - and the stock - has exceeded them in every way. Just today, CPNE’s move to a high of $1.26 also represent a new 52-week high…the previous peak was made in August, at $1.20. From the point when we first started covering it, the stock has moved from $0.19 to the current price of $1.22, which translates into a gain of 542%. For some traders it might be tough to buy in in the wake of such a monstrous move. After all, what are the odds of more big gains like those? However, every now and then, lightning does strike twice, meaning there may still be some meat left on the bone.

The stock’s prior all-time high was $1.94, reached in February of 2005. Based on the current revenue and earnings trend, we have a hard time believing CPNE won’t at least reach that mark again. And who knows? Maybe it will exceed that mark, and end up being the next Microsoft or Google. Stranger things have happened. As we said, the key for ‘the Planet’ is in continuing to do what they already do so well…which is add subscribers. Even if you didn’t get in on the ground floor, there’s still a lot of upside potential here.

First it was a $425,000 order in June; now it’s a $176,000 order from the same company. What we’re talking about is On The Go’s (OTCBB: ONGO) orders from a particular Toronto-based television and movie studio. The orders are being fulfilled by On The Go’s division ‘OTG Creative’…the arm designated to supply the entertainment industry with the high-powered equipment needed to create special effects and digital images. Apparently the studio isn’t a bad client to have, especially when they come back for more.

However, we’re not surprised by the news at all…we’ve seen this kind of growth and revenue expansion from On The Go since we first profiled the company in May. And, we followed up just a few days ago with enormously good news about their revenue forecast (the official results come out in October). Although the details are not yet available, as we said then, we expect whatever October’s news is to be very positive. Be sure to read both of those newsletter editions to get the whole scoop…it’s a very impressive opportunity.

As for the stock, as we also said on the 13th, the radical devaluation we’ve seen over the last couple of years just doesn’t jive with the company’s renewal over the last year or so. The company - through acquisitions - is on track to do more than $30 million in sales this fiscal year, as opposed to less than $10 million last fiscal year. Better than that, the loss is shrinking, almost to the point of a swing to profit. Like we discussed in our most recent update, the return to profitability is very near, with positive earnings maybe even coming when they report quarterly results in a month or so…we’ll not assume anything though.

In any case, the current price of $3.00 pales in comparison to where it was a year ago…at $60. The disconnect is simply that the company everyone is now pricing at $3.00 is not even close to being the same company On The Go was in the fall of 2005. That was then - this is now.

With generation-X icon Artie Lange as the highlight of the film, we’re not surprised at all to hear ‘Beer League’ was a hit when it premiered Wednesday at Ziegfeld Theater in New York City. Ckrush (OTCBB: CKRH) pin-pointed exactly who and what today’s young adults wanted, and then delivered it right on target. We have little doubt the film will be major hit within the demographic. It opens nationwide today, Friday, September 15th.

Beyond that, though, we have to think this bodes well for Ckrush’s next project, ‘National Lampoon’s TV: The Movie’. In turn, it bodes well for Ckrush. The films will drive in millions at the box-office, even though (like most indie films) it was produced with a relatively tiny budget. With Ckrush gaining some traction in the entertainment world, can the stock be far behind?

For the whole release, click here.

Ckrush Entertainment (OTCBB: CKRH) will be enjoying Xenon Pictures’ expertise when it comes time to roll out one of their movie projects to theaters, and then later as a DVD. Xenon has acquired theatrical and DVD rights to Ckrush’s ‘National Lampoon’s TV: The Movie’. The press release didn’t include any specifics about the contract, but no matter what, it’s a major victory for an up-and-comer like Ckrush to be rubbing elbows with a higher-profile promoter like Xenon. Once again, Ckrush has moved a little higher up the credibility ladder. And, with Xenon fronting the film, it won’t hurt Ckrush’s revenue effort either.

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

Back in our July 6th edition, we took a look at MIV Therapeutics’ (OTCBB: MIVT) medical breakthrough in the field of biocompatible coatings. In a nutshell, the company was on the verge of solving a growing problem with heart stents - the current coating (or lack thereof) was a danger to patients. MIV’s Hydroxyapatite (or ‘HAp’, for short) was the solution, as it had been shown to not cause the same problems created by traditional heart stents. The technology, for lack of a better word, is miraculous.

Another step in the evolutionary process of Hydroxyapatite was taken today, when the company named Joseph P. Carrozza, Jr., M.D as the newest member of the company’s scientific advisory board. Dr. Carrozza certainly has the chops to help MIV…he’s the Chief of Interventional Cardiology at Beth Israel Deaconess Medical Center, an Associate Professor of Medicine at Harvard Medical School, and a widely recognized expert in the field of interventional cardiology. While nobody here at the SmallCap Digest can tell you the difference between Hydroxyapatite and hepatitis, we have no doubt Carrozza’s credentials make him an excellent addition to the MIV team.

To see the whole press release, click here.

Also, MIV Therapeutics announced today it has entered into a formal agreement to acquire (subject to the prior satisfaction of certain conditions) Vascore Medical (Suzhou) Co., Ltd. Vascore is a Chinese manufacturer of advanced cardiovascular stents and other medical devices.

As for the stock, it’s hard to believe these announcements are the sole reason behind today’s 16% rally. However, it’s also easy to miss the boat while trying to rationalize. The move from 55 cents to 64 cents is big, and it’s happening on big volume. And now (in retrospect) we can see the support line at the 50 cent level extending all the way back to June of 2005. A 38% retracement from that low puts the stock right at $1…a move that isn’t out of the question if today’s rally can get some traction tomorrow and beyond. As for value, you don’t need is to tell you shares are beaten up - just look at the chart. MIVT could make for a high-powered value play.

By now you’ve noticed our coverage of Xtreme Companies (OTCBB: XTME) has been ramped up over the last few days. The headline above is one of the reasons why. In our September 6th edition we explained the company’s decision to drop their fire & rescue boat focus, and devote all of their time, attention, and resources to performance and sport boats. Why’d they do it? Because their Challenger sport boat line is the creme of the crop. In business, if you can do one thing better than anybody else, the smart thing to do is to repeat the same process as often as you can. Well, Xtreme clearly knows how to make a fast boat.

This morning, the company announced Team Gallagher’s 2nd place finish in a recent Panama City, Florida race. The boat they were driving? None other than a Challenger DDC-28. The strong finish came just a month after Team Gallagher’s 2nd place finish in a Hollywood Beach race.

Conclusion? Xtreme’s Challenger boats are smokin’ hot. You can bet that other teams are now taking notice of how well the Challenger line performs. And, considering there are 85 teams in the same racing circuit Gallagher runs, a little envy may prompt a few sales in the coming year. More than that, boating enthusiasts also continue to see Challenger boats leading the pack. Wanting to mimic a winner, we expect Xtreme’s and Gallagher’s recent success to create a buying buzz at all of this year’s boat shows.

For the full release, click here.

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

After seven straight days of losses, crude oil futures have finally stopped falling. They went as low as $63.59 on Tuesday, and have been no lower than $63.50 today. As of right now (2:30 PM EST), the current price of $64.07 is above Tuesday’s closing level of $63.76 - a welcome break for those with bullish oil positions.

More importantly, what do you need to know about oil now that it’s here? We see two key items to focus on.

First, from a short-term perspective, this may be a trade-worthy bottom. Not only was the seven-day losing streak snapped, we’re seeing support in the mid-$63 area. Being as oversold as it is now, crude is certainly ripe for a bounce. However, be patient with any entry point. The ideal long entry would include a confirmation of a rebound. In general, another higher close and/or a higher trading range on Thursday would significantly improve the odds of a bullish bounce for oil. After all, today may just be a glitch in a bigger downtrend…it can’t hurt to see for sure.

Second, from a long-term perspective, some serious damage to the long-term uptrend has been taken. The support line extending all the way back to late 2004 did NOT hold up with this recent test. Although we see a bounce brewing up in the short run, we may have also seen a paradigm shift for the longer-term bull market in oil. It makes sense too…inflation’s containment has been confirmed, which means commodities like gold and oil are likely to lose - as investors migrate back into mainstream equities.

In any case, take a look at the chart. If you’re looking for a trade, Thursday could make for a smarter entry point no matter which direction you’d like to trade.

If you’ve been watching the VIX lately in an effort to find the market’s direction, then the odds do indeed favor you being dizzy. After being stuck at 12 for three weeks, it shot up above 14.49 last week. Then yesterday it fell back to three month lows when it sank to 11.55. Today, the VIX visited 10.54 for a few moments, but now it’s back up to 12.45. With this contrarian indicator all over the map, how’s a trader supposed to make any sense of it? Don’t worry - we’ve got a little perspective for you, thanks to the help of Bollinger bands.

We’ve touched on the idea of contrarian indicators before…just when practically everybody is sure the market is going to zig, it then zags. It may not sound very sophisticated, but it’s actually a pretty accurate description of how things work. The trick is in figuring out at what point in time traders are getting to those extreme opinions (where almost all of them are sure things are bullish, or sure things are bearish). The VIX has been an outstanding tool to do that very thing, as long as you know how to keep it all in perspective. An overwhelming amount of the time, Bollinger bands spot instances where the sentiment extremes are being reached.  

What’s that got to do with anything now? Well, the Bollinger bands pretty much guided each of the VIX’s volatile moves over the last week, providing support and resistance in textbook fashion. Just take a look at the chart below…the VIX was starting to run higher as of the 5th, but it only took one brush of the upper Bollinger band on the 7th to send it lower again. On the 9th, a quick retest of the upper band yielded the same results - the VIX got sent even lower.

Just yesterday, the VIX’s low of 11.55 was just a hair above the lower band. And although the VIX opened under that lower band line today, it took no time at all to work its way back above it. In other words, the lower Bollinger band acted as a floor/support.

In both instances, as we’ve grown to expect, the S&P 500 moved in a perfectly inversed fashion. In other words, you would have been well rewarded had you traded the SPX using the VIX’s bounces between both of its Bollinger bands. Those encounters, relatively speaking, were the ‘extreme’ sentiment readings…the zig mentality so rampant right before a zag.

The implication for us is actually two-fold. First, with the two band lines only about 2.2 points apart, the VIX doesn’t really have much room to run in either direction, which means the SPX doesn’t either. This sets up some choppiness in the near future, as opposed to a sustained move. The second implication is a bearish one, for the time being. The VIX is coming off of its lower band, and has yet to reach the upper band. So, stocks have a little more downside room until we get a bullish counter-opinion (i.e hit the upper band) from the VIX. However, it’s a problem that could be solved within the next few minutes…evidence of the ‘choppiness’ problem we’re still facing.

Once the band lines start to diverge, then the VIX - and by extension the market - should be able to make some moves with a little more longevity. This Friday’s Triple Witching - when monthly and quarterly options expire - isn’t helping the volatility issue either.