We just realized there was a typo on the data table from this morning’s profile on Spongetech Delivery Systems (SPNG). The intended stop level was supposed to by 2.5 cents, not the 5 cents listed up at the top of the report.

I’m sure the majority of you guys and gals caught the error with no problem after reading the piece…we specified 2.5 cents as our stop level in the commentary, and it wouldn’t make much sense to issue a stop at the current price. Just wanted to make sure everyone was on the same page.

As far as trading goes, we’re off to a healthy start. Volume has been great, and the stock is up nicely without running rampant. Nobody has had to pay more than 6 cents yet.

I was wondering about this happening with a stock that only trades a few thousand shares per day, on average. In terms of size, yes, Marine Growth Ventures (MGRW) is a small cap, but with 21.7 million shares and a market cap of $15.2 million, it’s not like it’s that small. However, we’ve not seen any volume or price movement this morning. That’s very unusual for our newly-profiled companies.

I think what’s going on here is not a lack of buyers, but a lack of interested sellers. That’s ultimately a good sign, as it tells us people want to hang onto their stock, or expect a very good price if they sell them….the ‘ask’ side. The ‘bid’ side is pretty stingy too. Thus, there aren’t many buyers hooking up with sellers, because they can’t quite meet in the middle. In other words, the market depth dynamic still isn’t prompting any exchanges.

That being said, I have seen the asks drift lower since this morning’s open. I think the best ask started at 90 cents, and is now 75 cents. The best bid is 70 cents, so I think the two sides are getting close. Beyond that, most of the orders are unmarketable near current levels, though I’ve seen that change quickly.

Bottom line: I wish there was a more active market (on both sides), as I know a lot of you are trying to get in. Just leave your limit orders intact - I think we’ll find some willing buyers and sellers with a little time.

Here’s the most recent market depth chart taken from the OTCBB site. If you want to check in on the intra-day changes, here’s the link. http://otcbb.com/asp/Info_Center.asp

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Habits can be a good thing when it’s in reference to corporate growth. That’s how micro caps become small caps, and how small caps become large caps.

While I don’t want to get too far ahead of myself with that discussion, I did want to let you know Spicy Pickle (SPKL) has opened two more stores. That’s the seventh store they’ve opened in nine weeks, and the 33rd store now in operation. And yes, the company is still on track to have 38 to 40 stores open by the end of 2007.

Plus, the company still has over 50 more signed franchise agreements, and expects all of those to be up and running by the end of 2008. That brings the count up to about 90, yet still doesn’t count any new deals they’ll be signing between now and then.

As a reminder, each restaurant contributes 5% of their sales to the company’s top line, plus the corporation receives a 2% rebate from the restaurant’s suppliers. With the average unit doing about $700,000 per year, each one means about $50,000 worth of high-margin revenue for the organization.

With 33 storefronts up and running, we estimate annual revenue run rate should be somewhere around $1.65 million. With 90 stores in operation, annual revenues should be somewhere around $4.5 million.

(As a reminder, each restaurant contributes 5% of their sales to the company’s top lin. Also, the corporation receives a 2% rebate from the restaurant’s suppliers. With the average unit doing about $700,000 per year, each one in operation means about $50,000 worth of high-margin revenue for the organization.)

Don’t forget the one-time franchise fee for each store either. It’s books between $17K and $35K in revenue for the company, depending on whether or not it’s the franchisors first Spicy Pickle restaurant. (Subsequent stores opened by the same person/company aren’t required to pay the full $35K….they just owe half the regular fee.) 

Chart-wise, we seem to be hovering around $1.32 after a roller coaster ride over the last month and a half. We saw a low of $1.09 in early November, and then a high of $1.65 a few days later. Now we’re somewhere in the middle….waiting. Today’s news may well be such a catalyst to get things moving again. Personally, I’m thinking a move above the 20 day moving average line (at $1.41) could be a trade-worthy breakout effort.

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I think there are two basic kinds of small cap companies in the world….the ones that make a plan and achieve it, and the ones that don’t. More importantly, the small companies that can execute a well-thought-out plan tend to have better performing stocks, which is why I’m once again excited about Applied DNA’s (APDN) potential.

The news should come as no surprise. We first mentioned a new revenue path was being paved back in the November 8th edition ‘APDN’s Serendipity’. It was then the company announced that the process used to create the ingredients needed to make their anti-counterfeit DNA could also be used to produce the fermentation ingredient used in many skin-care products….a $50 billion industry.

At the time, Applied DNA had only provided samples to potential customers. That all changed today though; Applied DNA has officially shipped their first commercial order for DermalRX (meaning they got paid for it).

Though one order isn’t like winning the lottery, I do think it’s a big sign of viability - consumer products makers want the stuff. I have to think many other manufacturers who’ve been test-driving DermalRX will be on the bandwagon soon…with dollars in hand.

Just as a reminder, the nice part about adding this product to the company’s catalog was immediate revenue, which could be used to support the longer-term revenue goals of their anti-counterfeit product ‘Signature DNA’. In other words, they’ve diversified.

There’s no official word on the size of the order, though I’m not sure that really matters - all I wanted to see was DermalRX’s viability. Since it’s now ‘on the radar’, I’m looking forward to seeing Applied DNA carving out a piece of the $50 billion skin-care pie.  

Here’s the press release.

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As I said in Saturday’s newsletter ‘Will Black Friday Make Investors Blue?’, I had a sneaking suspicion this past weekend’s retail sales were going to be far batter than anybody expected. Not to gloat, but I ended up being right…Friday’s and Saturday’s combined sales were 7.2% higher than last year’s numbers, according to ShopperTrak.

On the other end of the spectrum, the National Retail Federation expects that during the 2007 holiday season, sales will only rise 4.0% over last year’s numbers. That’s significantly less than the average increase of 4.8% over the prior 10 years.

What we basically have here is evidence contrary to the argument…at least so far. Though the NRF’s forecast was for the entire shopping season (Thanksgiving to Christmas), and this weekend’s retail sales numbers were only for….well, this weekend, the two still don’t jive. 

More importantly, what I feel we have here is a case of low expectations and strong performance - the opportunity I was describing Saturday.

Ladies and gents, the American consumer is alive and well. A growing number of them are without jobs, and it costs a fortune in gas to drive the SUV to the mall, and some are even losing their houses, but they’re still shopping as usual. That’s why I’m not too worried about a recession.

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I’m not sure if everybody saw it or not, but if not, small cap company Smart Energy Solutions (SMGY) posted their Q3 earnings this week. There were no surprises…about $260K in revenue, and $145K in cost of goods sold. The total net loss was $1.7 million, thanks to some big publicity/consulting fees. The total operating expense for their third quarter was $1.6 million - roughly the same amount as the loss, though much of that was paid with stocks and/or warrants.

The top line and profit margins continue to come in about the same from quarter to quarter. The problem is, operating expenses are also coming in about the same from quarter to quarter. I don’t think there’s anything wrong with the gross margin, so I think they really need to boost the top line to make this thing work.

I do think they can, and eventually will, improve revenue. I just don’t know how long it’s going to take. I estimate they’ll need to multiply sales by a factor of about twelve to reach a break-even point if they can’t pare down expenses. To go from $1/4 of a million to $3 million per quarter? The dollar amount isn’t much for the multi-billion dollar automotice aftermarket arena.

I’ll say this much….they spent a lot on the Carter deal and publicity efforts last quarter, which isn’t bearing fruit yet. When that goes through, these numbers will change. Also, I know they’re working on an overhaul of their marketing/sales process. The company said they anticipate better numbers for the current quarter. 

Another observation…though the stock has moved lower of late, we’re still seeing more accumulation than distribution (i.e. more buying than selling). I’m willing to give them the benefit of the doubt for now, though I’d obviously prefer the stock to start moving higher now that most of the worst is over.

For the complete quarterly update, click here.

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It looks like I got out about three days too early on my bullish gold call from September 17th. But, I couldn’t be any happier about getting out too early. Why? Because getting out too late would have cost me a fortune. More than that, we’re seeing an ‘island’ reversal on this chart now, suggesting more downside could be on the way.

Just as a reminder, I said get out when gold hit 810, which it did on November 2nd. It ultimately went on to peak at 847.5 on the 8th. But, look what happened on the 12th…gold futures gapped from 834.7 to no more than a high of 817.4 since then. Anybody waiting for a rebound was punished even further - the current price is 785.5. As if that wasn’t bad enough, a couple of hints on the chart are saying that the pullback since November 8th hasn’t been just a little volatility.

Technical analysis fans will recognize the bars from the 6th through the 9th as an ‘island’ reversal signal. Why is it called that? Because that group of bars is completely detached form the rest of the chart by two gaps…one from the 6th, and the bearish one from Monday the 12th. The island in this case is boxed in blue.

The theory is these patterns show an exhaustion of one trend, and a strong beginning of a counter-trend. Though there are always exceptions, the pattern works pretty consistently when it comes to spotting trend changes. And with gold being as over-extended as it was anyway, I think the island pattern further cements that the pullback possibility in place.  

The trading lesson to be learned, however, isn’t just about an important chart pattern. I think the lesson we can all learn is one of discipline. Take your profits at pre-established profit targets. Getting out too late can be far more detrimental than getting out too early.

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Still hearing the echoes from yesterday’s announcement about opening a new store and signing leases on two more, micro cap company Spicy Pickle (SPKL) released their quarterly (Q3) numbers this morning. It was about what I’d expect for a company that went public in that quarter, but only opened a handful of stores during that time.

Franchise fees and royalties for the roughly 27 stores up-and-running as of the end of the quarter (9/30/07) turned out to be $260K. About $200K of that was in royalties, and the other $60K was franchise fees. Sounds a little low? Here’s why…for accounting purposes, the company doesn’t recognize franchise fees until a store is open. In this particular quarter, they only opened two stores; the other 29 were opened in other quarters (before or after). Point being, don’t get the idea that this past quarter actually reflects the company’s historic and more recent (i.e. the last two months) expansion, because it doesn’t.

The hefty items on the expense lines were also one-time things, like getting the stock launched and introduced to the public….a very necessary expense. They used a combination of cash and stock to do so, but we don’t believe Spicy Pickle will have to lay out anywhere near that much for future publicity/investor relations efforts. That was about a $600K bill this time around.

My guess…SPKL may sell off a little on the bottom line. Traders who don’t really understand the story now aren’t likely to dig deeper into the numbers to gain that understanding. They’re just going to bail.

However, I’d personally use such a dip as an entry opportunity based on the long-term view. Those investors who do ‘get it’ also are wise enough to look at where this micro cap company is going. These Q3 numbers are not a reflection of the company’s future.

Anyway, for the nitty-gritty details, click here. Be sure to check out Tuesday’s blog entry as well.

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I see a trend in place…a good one, for Spicy Pickle (SPKL) stock owners. Just a few moments ago the company announced another store had been opened, and two more leases had been signed. The two new stores leases were signed for are expected to be open sometime in early 2008.

Just for the record, when we first started our coverage back on September 22nd, there were 26 stores up and running. In other words, they’ve added five stores in seven weeks. There’s a word for that kind of thing….’growth’. Spicy Pickle is growing, plain and simple.

This has turned out to be one of our most rewarding ideas in a while, particularly for shareholders. If you happened to miss that first bullish wave, don’t worry - I think another one may be right around the corner.

Ready For Round Two?

I know I probably go a little overboard about reading the blog, but I can’t help it…I’m able to put a whole lot more in there than I can in here. Hopefully you check it out on a daily basis, because if you do, odds are you caught Thursday evening’s mention that SPKL shares had made a nice pullback and were looking pretty undervalued around $1.25.

From that dip - based on the key Fibonacci retracement lines - I also suggested Spicy Pickle was looking ready for another round of buying. After opening at $1.25 on Friday, shares have since made their way up to as high as $1.47, and are currently resting at $1.40. That’s only a 12% gain, but then again, it’s only been three days.

What I’m really keying in on here goes back to Thursday’s and Friday’s bars. In both cases we saw pretty strong opens and closes, with long-tails. That just means the intra-day low was pretty low relative to the open and close (which were fairly high those two days). Generally speaking, that’s a sign of reversal pressure. Some traders may call it a ‘hammer’ shape, though it’s not a perfect example of one.

Less obvious was the support made at the 50 day moving average line…one of my favorite intermediate-term trend indicators. SPKL had only been trading for a little longer than 50 days at the time, so many chart-watchers may not have even been thinking about support being found there.

In any case - and like I’ve said a few times since then - I think most of the initial volatility here has played out. We got a pretty good trading run-up, and a pretty typical trading pullback. Now we can start looking at SPKL as a true investment. And at the $1.40 area, I think Spicy Pickle may be well undervalued relative to where the company seems to be going…five stores in seven weeks!

News You Can Use

The newest store was opened in Indianapolis, Indiana. It’s the second one of ten scheduled for the Indianapolis area, as we discussed back on October 22nd.

The new leases are for stores in San Diego, California, and Austin, Texas. That’s the third one in the Austin area. As for San Diego, I believe it’s the first of twelve slated for the area, which is a big deal. Those stores in new markets are like seeds…once the first one causes a buzz, the subsequent stores are well received. And yes, the company still expects to have around 50 stores up and running by the end of December. Just amazing.

By the way, one of our readers correctly pointed out it’s getting near time for Spicy Pickle’s quarterly numbers. I honestly have no idea what to expect, as most of the quarter they’ll be reporting on came before the largest chunk of the growth/expansion spurt. However, I’m not even sure that the numbers will have any meaning.

The expense of going public was incurred last quarter. Though most of it was booked as non-cash expenses, it’s still going to trickle down to the bottom line. The thing is, it’s not like they’re going to go public again - that’s a one time thing.

The other x-factor…any of those revenue numbers are based on a lot fewer stores than they have now, not to mention a lot more are on the way. So, if you’re trying to compare apples to apples, I just don’t think it’s that kind of scenario. To get a feel for how we’re seeing things, I’ll refer you back to our original analysis.

Anyway, I like Spicy Pickle at Thursday’s closing level of $1.40. I’d like it even better if it can dip one more time following their quarterly results announcement, because I don’t think the market is going to let it linger too low for very long. It seems to me the word on this opportunity is spreading, much like the restaurants are. Here’s the full release.

Back in October 20th edition of the newsletter (‘Big Pharma, Small Biotech - Who Needs Who?’) I spent a little time talking about the potential for a buyout of small cap biotech company CEL-SCI (CVM). Or more specifically, I gave my reason why I thought an acquisition by a big pharma company was very unlikely. Well, now you can add another reason to the list. Today CEL-SCI announced the adoption of a shareholder rights plan that would make it even tougher to facilitate a take-over.

Disclaimers and warnings first….the rights plan will not prevent an acquisition. In fact, it’s not even designed to stave one off. The only goal (and this is from the company) of the plan is to protect current shareholders’ interests in the event of one. If it’s going to happen, the plan will ensure that current owners get at least fair value for their stake.

Why bother? Because with some acquisitions, shareholders receive less that what they should. The term the company used was ‘coercive accumulation practices’, which can and do occur (especially when the company is of the ’small cap’ variety).

Anyway, the deal basically gives current owners the right to buy more shares at a ridiculously low price. Through two tranches of rights (the option to buy a stock), current owners will be able to buy more shares at 20% of their value at the time, and/or 50% less than the value at the time if further conditions are met.

Like I said, technically this won’t bar an acquisition. However, you do the math here. If current owners can get such a deep discount and dilute the takeover attempt, the prospect of a buyout is incredibly unattractive to any suitors. They’ll have to end up possibly paying more than the market value at the time, and they’ll need a lot more shares to actually gain control of the company.

The plan is in effect through 2015. That should be more than enough time for the company to get through Phase III testing of Multikine and start generating revenue with it. If and when that happens, we suspect CEL-SCI shares will be far too expensive to even consider a buyout.

Anyway, for the official release, click here.

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Everyone had a chance to catch their breath following a big selloff and subsequent rebound on Thursday? The NASDAQ didn’t recoup the majority of its intra-day loss, though the S&P 500 and the Dow did. It raises the obvious question…is there more downside to go, or was that the short-term bottom?

Had you asked me that on Wednesday I would have said there’s more correction on the way. On Thursday though - when the market went nuts in a bearish way - all bets were off. Those ridiculously wild selloffs disrupt any effort to spot a true trend. Instead, all we’re left with is a best-guess about which way the winds of volatility will blow.

If I had to guess, I’d say the result of Thursday’s sharp pullback and bounce will set up a little bullishness for Friday, which may even carry through to next week. Why do I think this? Two reasons. First, volume was huge. The market tends to pivot on volume spikes (which are usually capitulations or blowoff tops). Second, we saw ‘hammer’ bars for two of the three indices. That just means the open and close were near the highs for the day, despite a pretty deep low. Generally, that’s a sign that the torch was passed from the bears to the bulls in the middle of the day.

The only problem with the theory…it’s supposed to happen after a downtrend, and after new lows are made. This time, we’re still hearing the echoes of new multi-year highs. So, we may indeed get a bounce out of all this, but it won’t be a very good one like the one we saw in August. That reversal came after a very evident market correction. This correction so far has only been about an 8.5% slide….not quite enough to really get it all out of its system. I think we need one more good pullback to fully do the deed. But like I said, I don’t expect to see it pan out that way immediately.

To that end, I refer you back to the VIX, or put/call ratio - two of my favorite contrarian indicators. Both of those data sets indicated a huge amount of fear on Thursday….amounts often associated with short-term market bottoms. The VIX also made a hammer shape with its chart, hinting at the same mid-day bullish reversal discussed above with the market.

The bigger picture idea to keep in mind during all this….the market is in a ‘trading’ mode rather than an ‘investing’ mode right now. It’s being pushed around by fear, speculation, confusion, panic, etc. Those forces can be effectively traded, but it’s tough (ok, impossible) to start a true trend in that kind of environment.

And valuations? Forget about it. I don’t think stocks are going to trade at what they’re ‘worth’ for several more days - at least. Use dips to buy stocks you want for the long-haul. Use peaks to dump stocks you don’t want anymore. Don’t get too bogged down by the guessing game, because there are no rules or reasons in an environment like this one.

By the way, for me, this ’short-term’ bullishness would only become a longer-term trend if the indices crawled back above their 10 and 20 day moving average lines. The indices could rally pretty sharply on Friday, but still not do that. That’s why I’m patiently waiting on the sidelines right now.

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I hope all of you are watching our small cap pick Spicy Pickle’s (SPKL) chart right now. If you are, then you may have already noticed some clues that a bottom is being tested. And as I said in a couple of blog entries and newsletters, I’d look to buy on a dip when the dip looked done.

Well, if you’re also looking to step in (or back in) before the next wave of buying, I suggest you get ready….I think it’s going to be soon.

Above all else, we’ve now seen a full 61.8% retracement from the highs of $2.02, starting back with the low of 56 cents (from September 21st, when this micro cap name really started to trade well, and with some volume).

More than that, look what happened once that $1.12 level was reached today. SPKL reversed course and started trading back up at the higher end of its range. Upside reversal? Sure looks like it could be.

By the way (as I said repeatedly at the time) I think the right thing to do was take profits about three weeks ago - or sooner - since the chart was starting to look a little extended then. Why take profits on a good micro cap stock in a long-term uptrend? Take a look at the last three weeks - that’s why. If I can make money on two rallies instead of one, why wouldn’t I?

If you didn’t get out, I think you may be off the hook within the next few days. However, I hope you don’t forget that short-term pullback the next time we get over-extended. Remember, the underlying story is driving the stock higher for the right reasons. The hype is pushing it up and down in the meantime. There’s nothing wrong with playing one against the other.

Anyway, I’m thinking round 2 of a SPKL buying spree is just around the corner. Stay tuned. 

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Today’s news is kind of what I was talking about a couple of weeks ago when I detailed Titan Global’s (TTGL) entry into the often-government-supported world of biofuels. Per the Wednesday press release, we learned Titan had received grants from the state of Tennessee (where recently-acquired Appco Oil is based) to pay for the installation of biofeul pumps and storage tanks. It was only $190,000, so it’s not like winning the Super Bowl or anything. However, it does validate my idea that the biofuel industry is getting a lot of help from local and state governments.

Here’s the whole press release.

It’s do-or-die time for micro cap stock Clearly Canadian (CCBEF). The company has announced they’ll be releasing Q3 earnings on November 14th (Wednesday) at 4:05 pm EST. There will be a call and webcast at 4:30 pm EST the same day.

You may recall my last comment on the company from an October 15 blog entry. Basically, I’m not impressed by all the recent news. It all sounds good, but lacks substance. Of course the company is ramping up the top line sales figure…they bought two more companies. My problem is, the combined companies should be doing more revenue than they’re doing. More than that, I wonder if they spent $2 to make $1. Based on the stock’s chart, I’m not the only one with that opinon.

Bottled water sales - the original staple for the organization - are actually down. The ‘My Organic Baby’ stuff seems to be doing pretty well, and the snack food division….well, I can’t really tell what’s up with that. Judging from the number of new outlets and retailers, snack food sales should be through the roof. They’re not though. 

In the company’s defense, they are in the midst of rebuilding their beverage distribution network. However, why should shareholders be penalized in the meantime while they get all their ducks in a row?

I really need to see some proof that these acquisitions are going to pay off. Hopefully it’ll be in next Wednesday’s numbers. My fear is, there’s more promise here than profit. I hope I’m wrong, but we’ll see.

The call in number is 800-949-8476. To see the webcast, go to www.clearly.ca.

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