When it comes to trading small cap stocks, you win some and lose some. And in some cases - as with Commerce Planet (CPNE) - you do both. Commerce Planet was one of our biggest winners in 2006. It’s a good thing we suggested taking profits when we did, since CPNE ended up being one of the bigger losers for 2007. Here’s a recent question from a reader… 

What has happened to CPNE? I had my finger on the SELL button at the PEAK but decided to go longer on the stock. Did I miss some nasty news or will it come back in ‘08? I bought in at $0.23

If you bought at 23 cents, then you bought it back in early 2006. That also means (like you said) you rode it all the way up and then all the way back down. Hindsight is 20/20, but I think we’ll both agree this is a good example of why it pays to use protective stops….and raise them every so often.

Be that as it may, I don’t think you missed one single event. Rather, Commerce Planet suffered from a slow trickle of poor investor communications, an increasing number of slow pays and no pays (poor cash flow and charge-offs), and each day that passed, it seemed like the flaws in the business (growth) model became bigger. Amazingly, the company let those issues persist for many, many months.

The company got an overhaul a few weeks ago - complete with new management - that could put the stock on the right path again. It won’t happen overnight though. There’s a lot of burned bridges and bad blood to overcome.

I think it’s possible they can recover, but I wouldn’t make any strong bets at this point.

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The first batch of comments about our 2008 predictions is in. Here are a few of the ones we thought were worth sharing, but if you have other feedback, feel free to post a comment below. (The original newsletter can be reviewed by clicking here.)

The first reader writes… 

“I’m betting on small cap Pharma and BIO-Pharm because no one has said a thing about them. This sector has been decimated in 2007. I see many 10 baggers with numerous M&A opportunities that will surprise everyone.”

You know, I’m on board with the idea. Our very own CEL-SCI, BioCurex, and MIV Therapeutics have all been beaten up as well, yet all have great stories behind them. And you’re also right that nobody seems to be talking about them. Maybe it’s the calm before the storm? Good point. Thanks.

The next comment was in response to one of the lines we wrote. Our comment was “I think the Democrats will pick Hillary as their man, err, woman.”

Our reader responsed…

I’d like to see the results of the physical before I’d commit to that statement.

This is the honest truth…I didn’t even think about our comment being interpreted in that way - the gender question (though I can now certainly see how it happened).  

If anybody was offended, please don’t be. I was just making a reference to the fact that Hillary could be the first female Presidential candidate in a world traditionally dominated by men. Though I’m not a big fan of either Clinton, you have to respect her willingness to not be intimidated, and her political success thus far. (Hats off to G. Ferraro as well.)

That said, the reader’s comment was kind of funny. (We have to have at least a little fun with politicians.)

Anybody have anything else they want to add? Comment and questions can be submitted below.

I know some of you apply candlestick chart theories to your trading, which I firmly believe can beef up your trading success. With that in mind, I want to point out a key candlestick pattern on small cap company Titan Global’s (TTGL) chart….something called a ‘morning star’. This bullish hint is often overlooked, as it takes three days to become evident.

Basically, we’re looking for three specific events spaced out over three days. The first day is a major loss, the second day is a smaller loss with evidence that the bulls and the bears have met an equilibrium, and the third day is evidence that the bulls have started to plow in again. For the most part, we can see all of these things simply by looking at the shape and height (and direction) of a stock chart’s daily bars.

Take Titan Global for instance. On December 17th, 18th, and 19th (the days boxed in on the nearby chart) we see a great example of a morning star bullish reversal pattern.

1. The first day we can see is very bearish…a tall bar (from open to close), and a substantal loss.
2. The second day is a doji, which just means the open and close are about the same. A doji tells us the bulls and bears were still standing toe-to-toe by the end of the day, despite trading higher as well as lower on an intra0day basis. For the purposes of a morning star pattern, the open and the close also both have to be under the first day’s close.
3. The third day should be confirmation that the buyers did indeed take over the reigns from the sellers on the second day. That evidence comes in the form of a strong move higher, beginning with an open above the second day’s close.

As you can see, the pattern worked out accurately for Titan. More importantly, it bodes well for a nice recovery move from one of our favorite stocks. And, the stock chart pattern performs pretty darn well most of the time. I think the reason most people miss these key patterns is they don’t look at charts more than one day at a time. If you do, I feel you’ll see many more important clues like this one.

Note that the morning star pattern tends to work beest following harsh pullbacks like the one we saw Titan go through.

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Last week I mentioned the chart of gold futures appeared to be forming a wedge/triangle shape…a technical analysis omen that a strong breakout (or breakdown) was brewing. As of Friday and today’s follow-through, it looks as if gold is going to get squeezed out on the bullish side of the chart shape.

The nearby chart pretty much says it all. The ceiling was at 811.50 on Friday, and gold closed at 815.40 that day. It’s at 816.20 as of right now (early Monday), which means enough damage has been done to the ceiling to reasonable make an assumption here. Besides, the bigger trend here has been bullish for a while.

We’re certainly not shifting gears here to start trading commodities instead of small caps, but a breakout is a breakout is a breakout.

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I never thought I’d be saying this about a small cap stock pick we dropped months ago, but Execute Sports (EXCS) has my attention again. Something has clearly changed investor’s minds for the better the last few days….though I still have my doubts (a lot of them, actually).

Had it not been for the chart, I probably wouldn’t have even thought about it. But, EXCS’s high-volume gain from the 14th has stabilized around that day’s closing level. We haven’t seen this stock hold on to any gains in a long time, so the fact that we’re doing it now has piqued my interest.

The nice part about this particular move is how it’s being backed by good news. The surge from the 14th was prompted by the announcement that 114 Sugar Sands jet boats had been sold. On the 18th we learned the company would be getting some nice exposure in ‘Wakeboarding’ magazine. On the 19th they got an order for ten boats from a new Russian dealer….perhaps planting a seed in a budding location.

The burning question is obvious - is this evidence the company can finally get something going? They’ve tried aqua-sports, snowboards, motorcycle apparal, and others. Nothing seemed to work for them. Are boats (of all things) going to do the trick?

As it stands right now, my vote is no. I’ve been wrong before, but so has Execute Sports. Here’s why I’m hesitant to dig in too deep….

If you’re having deja vu all over again, it might be because you remember the name Sugar Sands when it was a property of another of our ill-fated small cap companies….Challenger Powerboats (CPBI). Challenger acquired Sugar Sands and Gekko brands in early 2007. They then proceeded to shrink the top lines of all three brands. A few months later they got rid of the Sugar Sands line by selling to you know who…Execute Sports.

Here’s my issue - if Sugar Sands was a winner, why did Challenger get rid of it? Challenger’s expertise was boats, while Execute’s expertise was extreme sport equipment and apparel. If anybody could take Sugar Sands to the next level, it was Challenger. The deal should have buried EXCS…and still may.

Like I said above, I’ve been wrong before. That’s why I wanted to bring it to your attention - EXCS may be worth a look. I think it would be a short-term look at best, but who knows? Maybe Execute can actually start increasing the pro-forma top line.

On that note, do be aware of their Q-O-Q comparisons. Execute has been touting some big revenue increases, but considering they bought a revenue-bearing property, they should be making what appears to be top line progress. Just be sure to look closely at the quarterly numbers to make a fair comparison.

Bottom line - I’m not convinced of EXCS’s potential yet, despite the recent pop. I want to see a few quarters of real improvement before I jump in again; this company has had too many problems in the past to ignore now. Anything’s possible though. Maybe Execute will finally deliver, but it’s still too soon to say with any confidence. That’s my only point for now.

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We’ve been chronicling the saga of this small cap stock for only a couple of weeks now, but I’ve got to say Spongetech (SPNG) has already impressed the heck out of me. Today we got another layer of good news - South American Trading Company just submitted a huge re-order for the company’s multi-use auto-wash sponge.

I don’t want to blow it out of proportion, but the fact that this company (proverbially and literally) ‘came back for more’ after receiving a smaller order in September provides good evidence of demand for the product.

As it turns out, I’m not the only person who agrees. The president of SA Trading said the sponges had only “scratched the surface” of their potential in that market. Moreover, he put his money where his mouth is. Specifically, he put $2.4 million worth (wholesale) of sponges into his inventory. (Money speaks much louder than words.)

As of our last look, the company had a backlog of $14 million in product, to be delivered over the next twelve months. I’m sure they shipped some between the and now, but I’m guessing this brings the twelve-month backlog up to the $15-$16 million range. Considering the market cap is now around $1.5 million, I feel SPNG is way undervalued….trading about 1/20 of what I think it should be. Compare the P/S ratio to any other company - it’s just crazy.

The other big consideration here has been the likelihood of a lot of short interest. The short-sellers ended up winning the battle we discussed back on December 4th, ultimately stopping us out of our SPNG trade. However, we’ve also heard all the short sellers have been looking to make an exit after the stock started to respond to good news over the last several days. The high-volume churn yesterday may have been them doing just that.

With fewer people interested in keeping it lower now, I think SPNG has the green light to go higher. I’m not diving in just yet though…I want to be sure we don’t get a repeat of December 4th and 5th. But, I really like this stock under 3 cents, especially with sales firing on all cylinders. 

Here’s the press release.

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For those of you who speculate in commodity futures as much as you do small cap stocks, here’s an update on my gold chart…a saga I started when I first pointed out gold’s bearish gap and reversal pattern back on November 15th. In short, the chart is forming a wedge, or triangle shape. This is often a pre-curser to an explosive move. The question is, which way is it headed?

The pattern is actually pretty easy to spot…the highs are getting lower, and the lows are getting higher. On the chart, this reality is framed by the converging support and resistance lines (blue). That’s the only clue we need to tell us that volatility is dissipating.

However, knowing that periods of low volatility are followed by periods of high volatility (and vice versa), this is ultimately going to be a dream-chart for traders. The challenge is just being patient enough to wait for the volatility to begin.

But how do you take a stand if you don’t know which direction to face? That’s what the lines are for. Whichever breaks first - support or resistance - is the likely hint of which way gold’s going to move for a while…at least long enough to burn off all that pent-up volatility.

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Well, they’ve gone and done it again. Stockhouse.com - Stockgroup’s (SWEB) primary site - has topped the Canadian web traffic charts for the second year in a row. ComScore Media Matrix has officially announced that Stockhouse.com was the most-trafficked financial website among Canadian users for the last year…..again.

The press release didn’t say it, but I will…for an ad-supported site like Stockhouse.com, traffic is revenue. The more eyeballs they can put on each page, the more sales dollar they can command from advertisers.

Those of you who’ve been following Stockgroup closely will recall ad revenue has been one of the focal points for a while. In fact, ad sales was their bread and butter for the better part of the site’s lifespan. But, the effort to take this income stream to the proverbial ‘next level’ has only been a more recent development.

You may recall something we mentioned a few months ago about the hiring of Joe McWilliams. He was brought on board in July specifically to enhance the monetization of the site. You also probably remember the entire site was overhauled (and is still in beta testing) in October, with the intent of making Stockhouse.com even ’sticker’…just a fancy word meaning the site is harder to leave once you get to it.

ComScore basically just validated the traffic efforts are working - in spades. Better revenues are likely to be in tow.

And it’s not just a respectable amount of interest we’re talking about here…the site’s ridiculously more compelling than other business sites. Check out some of these stats complied for Canadian user trends:

• The average Stockhouse visitor viewed 400% more pages than they did at other business/finance sites.
• The average page-views per visitor was 170.
• The average time spent on the site per visitor was 1 hour & 40 minutes….333% better than the average business/finance site.

And just for the record, the ‘other’ sites include the likes of MSN Money and Google Finance.

You can slice this a dozen different ways, but the bottom line is always the same - Stockhouse.com is clearly better than the rest. Advertisers look at these kinds of traffic figures when making decisions about where to spend money on ad space. You tell me - where would you rather advertise?

To really give you the full scope of where the company was six months ago versus where they’re going, I really recommend you browse through our recent coverage by clicking here.

You’ll find that last quarter’s ad revenue was actually less than they had hoped, mostly because the company was focused on getting the beta site up and running. The market, bluntly, saw the glass as half empty. That’s a good thing though - the door’s wide open for a massive improvement in ad sales. Moreover, I suspect that’s exactly what we’ll see when the current quarter is finally reported. The comScore numbers speak for themselves.

For the full press release, click here.

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This small cap stock pick from early in the year was one of the best things we had going through Q3, but Titan Global (TTGL) has been something of a let-down since then. No big deal - stocks ebb and flow over time. In Titan’s case though, the ‘ebb’ is getting to a critical ‘make or break’ trading level again.

There are two key support lines I see here…the 200 day moving average line, and the 61.8% Fibonacci retracement line. The Fib line came into play three weeks ago, and the 200 day line is in focus for the second time in three weeks as well.

So far it looks like the market is interested in building a new base here. On the other hand, it’s still early in the game. As long as the $1.44/$1.49 area holds up, I think we’ll be ok. If it doesn’t? Well…we’ll burn that bridge when we come to it.

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Hey y’all. I don’t know if I’ve mentioned it lately, so here goes…if you have feedback, questions, or responses to anything we put on the site, the best way to get the word to us is by posting a comment in the blog. We can respond to them faster, and more importantly, we can share your thoughts and our response with everyone. (No need to keep anything behind closed doors, right?).

If you’re worried about having your e-mail address publicized, don’t worry - nobody can see it. If you’re worried about having your name publicized, just don’t add your last name. As long as it’s legitimate, we’ll still publish your comment (plus our response) without a full name.

Anyway, the reason I bring it up is in response to an e-mail we got about today’s newsletter on Marine Growth (MGRW) news. The note reads…

According to your blog [newsletter]: “Wyndham Worldwide (NYSE: WYN)…one of the largest hospitality-related companies in the world! They did about $4.3 billion in revenue last year. Let me just say this about that figure - you don’t drive more than $4 billion in sales for any year in any business without knowing what you’re doing.”

Do GM, Ford, Chrysler know what they’re doing? The IRS revenues are 1,000 times that and it is one of the most inefficient and inept institutions in the world. What were the sales of Enron? $111 billion in 2000. Wydham is a good inventment itself, but your writer has the analysis sense of a 15 year old.

Thanks for the feedback, including the pointless insult. It’s great that you completely missed the bigger picture from the commentary and are focusing on a comment that - in the end - really means very little to Marine Growth. In any case…

As I have said repeatedly, I don’t have the corner on investing knowledge. I’m wrong my fair share of the time. Feel free to disagree with anything I say, for now and evermore.

The only thing I ask….make sure you know what your true motivation is. If you want to share knowledge and offer opposing opinions, just state your case. If your only goal is to twist something out of context in order to feel better about yourself, I invite you to unsubscribe from the newsletter - you’re wasting everyone’s time.

I can always separate the amateurs from the pros by the way they think about investing, and what they focus on. Pros focus on ideas that ultimately make money. Amateurs focus on everything else, blame everyone else, and take their failure-related stress out on everyone else. In other words, amateurs have a misdirected agenda.

In response to the reader’s question, yes, I absolutely think GM, Ford, and Chrysler know what they’re doing. Since 1977, Ford shares are up dividend-adjusted 1306%, GM shares are up a split-and-dividend adjusted 1216% since 1962, and Toyota is up 298% since 1993. (Chrysler is no longer public.)

It is true the last couple of years have been a disaster for auto-makers. That’s not a reflection of not knowing what they’re doing; it’s a reflection of the environment.

In the same respect, I think you cherry-picked a group you knew was struggling. There are a lot of multi-million dollar companies with stocks doing considerably better. The fact that you mentioned Ford, GM, and Chrysler makes me wonder if you specifically got burned by them. Perhaps you have an agenda here…one that isn’t really related to the issue at hand. Regardless…

The IRS? Seriously? It’s not a company in the least…I can’t even respond.

Enron? Again, you’re cherry-picking, knowing Enron was a disaster. However, that has nothing to do with big revenues. I can show you companies doing practically no revenue at all, but are still complete scams like Enron was. Size and legitimacy have nothing to do with each other.

You mentioned Wyndham was a good investment. This is the biggest concern of all, as I wasn’t even presenting Wyndham as an investment idea….I was talking about Marine Growth Ventures. Did you even read our comments?

Be that as it may, you’re still free to assume I have the analysis sense of a 15 year old. I’m not going to get sucked into the game. I will, however, point out that it was the same 15 year old analyst that picked Overstock, Merck, and Tenet…our only three non-compensated trading ideas of the year, each of which have been huge winners for our readers.

I guess you missed those, huh?

Anyway, I still stand by what I said…if you can consistently generate billions of dollars per year (legitimately) in revenues, I’m going to assume you at least have enough skills and knowledge to merit my respect. That’s not to say you’re the best of the best, but I still have to give some credit where it’s due.

If you’re not familiar with the term ‘jump the shark’, click here to find out what it means. Or, just take my Q&D explanation - ‘jump the shark’ means all the other ideas have been tapped out, and new ‘creative’ ideas indicate just how desperate the situation is. You may also know the concept as a ‘Hail Mary’ pass in football.

Anyway, undoubtedly by now you’ve heard the latest from the Fed…they’re setting up some lines of credit and temporary cash provisions for U.S. banks to access foreign liquidity - mostly from Europe and Canada. The reason? “Elevated pressures” in credit markets. I guess domestic banks are tired of losing their own money on bad loans; now they want to lose someone else’s.

(Yes, I know this has little to do with investing, and less to do with small caps. But you know me - I have to get on the high-horse every now and then.)

Is it just me, or is this more than a little odd? I can’t quite put my finger on it because I’ve never seen it before, but this just seems like a short-term patch to a long-term problem. The issue is simple…we’re borrowing overseas cash to pay other debt.

Here’s what I see….bank lending standards have tightened considerably following billions in sub-prime losses - as they should have. As a result, consumers are finding it tougher to get a loan. If nobody can get credit though, the economy is stifled. Of course, this worries the Fed. (So far so good.)

Here’s my question/problem…will an injection of liquidity actually make a potential borrower more credit-worthy? Will it make a bank more apt to lend to someone? I have to think not. Whether it’s a good consumer loan or a bad one, the cash drummed up by the Fed’s action has to be returned sometime by the bank doing the borrowing, whether or not the underlying loan is in default.

The Fed says that banks need more money to make more loans. I say the banks have plenty of money to make the loans they want to make. We learned earlier today that mortgage applications were at a two-year high last month. There’s no word on the number of those approved, but clearly it’s not like banks can’t attract business.

The only conclusion I can come to is that the Fed isn’t worried about a repeat of all the sub-prime losses we thought were over. I think it’s a big mistake. The lending bar - in the grand scheme of things - is already pretty low. That’s why so many people who shouldn’t have gotten loans did. The recent tightening is probably the standards banks should be using anyway, so I don’t see it as a burden on economic expansion. Lower the bar, and you’re right back in the line of sub-prime fire.

I’m not sure why Ben didn’t call me to consult.

What say you? Just post a note using the link below.

Today’s the big day…or at least another big day. On Tuesday we’ll hear from Ben Bernanke and Co. about the latest Fed Funds rate decision, which most of the market expects to be a 25 basis point reduction. I tend to agree.

What I and the rest of the world still can’t seem to decide is what’s likely to happen beyond that. Not that we’ll make an iron-clad prediction today, but I do want to look at some realities nobody else seems to be studying in the aggregate.

Reality #1: The U.S. dollar can’t take much more. Each rate cut eventually takes a toll on the U.S. dollar’s value, and it may not have a whole lot more to give. Given that the weak dollar is one of the reasons we’re contending with inflation, I think this really helps make the case against further cuts.

Reality #2: Inflation really hasn’t been as bad as everybody seems to want it to be. Yeah, it’s higher than it was a year ago, but a year ago it was rock-bottom. On the flipside, it is getting close to its upper limit. I attribute a lot of that to higher oil and a weaker dollar though. The dollar’s not improving yet, but crude prices are starting to ease. As long as inflation is contained between now and our next update (December 14th), I don’t think the Fed is as alarmed as they may seem to be.

Reality #3: If investors really want it, they can paint the Fed into a box and virtually give them no choice but to cut rates. Eventually he’ll stand his ground, but I don’t think he’s in a position to do so as of today. (Note that just because investors want a rate cut doesn’t mean they should get it - they always want it.)

Reality #4: Based on CBOT futures, traders are saying the odds of a 1/4 point are 100%, while there’s a 34% probability that we’ll see a 1/2 point cut. These same futures are suggesting there’s a 10% chance that the Fed Funds rate will be 3.5% by the middle of next year.

Reality #5: The bond market isn’t really worried about inflation, according to recent price action in bonds. Bond prices have been on the rise, causing bond yields to move lower. The evident worry here is economic weakness. Note the yield curve is no longer inverted, so the recession worries are probably old news. (A recession and a general cooling are not necessarily the same thing.)

Reality #6: The expectation for multiple rate cuts over the next several months are indeed founded. Credible forecasts for 2008’s growth are as low as 1%, and the Fed is seeing a slowdown as well. That’s good news for those planning on a lower Fed Funds rate.

Reality #7: Sub-prime losses seem to already be factored into stock prices, so now people are trying to find a valuation based on the recovery efforts. The five year loan freeze is just the beginning of the process. So, now it’s a question of when the first step will be taken. Regardless, I don’t think the housing slump (in all of its facets) is going to be the prompt for any more Fed action. That’s a strike against further cuts.

It’s ‘go-time’ for the Fed. Their job is to find the balance between inflation and a firm economy…something they really haven’t had to do until now (one or the other had been nominal up until a couple months ago). The last inflation rate was 3.4%, while Q2’s GDP was a solid 4.0%. The dilemma is, inflation could easily rise, and GDP is likely to fall. (See realities 2, 5 and 6 again.) You fix one, you aggravate the other. Good luck to them.

In the meantime, I see only a 1/4 point cut on Tuesday, and perhaps one more in the first half of 2008 (though not necessarily in January). Moreover, that should be plenty to prod stocks as long as inflation stays in check. However - based on what I listed above - I don’t think there’s enough fodder to drag rates all the way down to 3.5% as some economists have predicted. The market as well as the economy have a way of climbing a wall of worry.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

Smart Energy Solutions has been ‘fishing’ for a little over a year now, and they’ve really started to catch some pretty nice ones too.  For perspective, in 2006, revenues of $1.8 million easily topped 2005’s total of $151K. As nice as those bigger fish were though, I have to say I think the company just landed the proverbial ‘whale’. This morning we learned a multi-million dollar deal has been forged.

I’m not going to review the entire Smart Energy Solutions (SMGY) story again, as most all of you know it by now. I’ll just summarize it with this - Smarty Energy’s ‘Battery Brain’ can drive revenue in three ways…(1) retail, (2) wholesale , and (3) as a private-label product.

To date it seems like most of their business has been as a wholesaler. Today’s private-label agreement, however, may have trumped all of their combined business so far.

Though there weren’t many details added to the news release, a couple of different times they specifically mentioned a couple of words I really like to hear when it comes to young companies…multi-million.

All-Start Battery will now be selling Smart Energy’s auto battery-saving device (otherwise known as a Battery Brain) as their own product, called the StarterGuard Failsafe Battery System.

They can call it whatever they want for all I care - it’s their private-label program to do with what they see best. The only thing I’m concerned about is that Smart Energy is getting paid, and apparently getting paid well.

They didn’t divulge the details, but they did mention a couple of times it was a long-term, multi-million dollar deal. That can mean a lot of things, but at a bare minimum I have to assume ‘multi’ means at least $2 million. And frankly, I personally believe it means much more than that.

Regardless of how much ‘multi’ is in this case, it’s got to be big on a relative basis. The company did $1.8 million in 2006, and has done $1.1 million in business for the first three quarters of 2007.  No matter what, we’re talking about a very substantial increase in sales. Better yet, the orders are in hand, and shipment will be immediate. And, those first All-Start sales can be booked in Q4 of this year.

More than that though, I think this news is an important assurance for investors that the product is plenty marketable.

We all know it’s felt like a slow start for Battery Brain revenues, but that’s just the nature of the sales cycle in the automotive supplier world - it can take months from the first contact to produce tangible results. Once you book one good one though, all of a sudden it was worth the wait.

Though I don’t know of any impending deals ready to roll, I do know that we’re now several months into the first major wave of the sales process. I have to think the All-Start news is just the beginning.

Is this going to be a spark of new life for the stock? I think it could be.

The press release is here.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

Back in October, I used the Small Cap Network site as a platform as something a little more op-ed than I usually write. The subject was the growing reliance on small biotech outfits that large pharmaceutical companies were experiencing.

It was an interesting reality if I say so myself (how modest of me), and I think it was accented today by a similar article I came across today on seekingalpha.com. In fact, I had to wonder if its author was feeding off of my write-up…which was fine.

This article took a slightly different path than mine, looking closely at the recent expiration of many key patents, and the scramble to replace those drugs (or the competition to fill that newly-unpatented void).

And more than that, this author - H.S. Ayoub - correctly pointed out that big pharma is solving one of their key problems by acquiring small biotech companies. Ayoub contends - and I agree - that such unions are difficult at best, and disasters at worst.

I just thought it was an interesting point. If you have no idea what I’m talking about and want to do the compare-and-contrast for yourself, click here for my take, and click here for the seekingalpha.com take.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

This doesn’t necessarily have anything to do with small cap stocks specifically, but more to do with investing advice in general. All the same, I thought it was well worth sharing with our investor audience, as I’m always open to sharing good stock trading lessons…

I usually don’t like to mention any other website’s on ours - especially when it has to do with Jim Cramer. I’ve got nothing personal against the guy, as he’s been great for getting new investors into the game. I just think he’s a little too aggressive to have basically no accountablity with his picks. (We could all hit some bulls-eyes if we throw enough darts.)

Anyway, I have to say I was impressed by something that originally came from RealMoney.com, but was posted on Yahoo! Finance as a new article. Alan Farley, one of RealMoney’s better columnists, published a ‘Top Ten Ways to Improve Your Market Timing’ List.

I think the reason it struck a chord with me was that it largely mirrors my stock investing philosophy. He touched on three ideas near and dear to my heart - following the VIX, sector rotation, and entering trades when things are quiet. (The longer you guys read this site, the more you’ll pick up on my sensitivity to sectors, the VIX, and liking stocks when nobody else seems to care.)

The other seven themes were pretty good too…good enough for me to suggest that you check it out as well. Click here to go there.

It’s not an uncommon issue when trading small cap stocks, but we’re getting closer to a resolution in this particular case - slowly but surely. What I’m talking about is a more reasonable spread between the bid and the ask for Marine Growth Ventures (MGRW). In other words, the difference between the price you buy it for and the price you can sell it for has been shrunk to something more tolerable - five cents.

You may recall the bid/ask just shortly after we published our initial profile was about $0.35/$0.90. A few trades went through at 75 cents, but most of the buyers and sellers weren’t able to find that ‘common ground’ price.

Now, however, we’re seeing the trading landscape turn a little more reasonable. The current bid/ask is $0.70/$0.75….a modest five cent spread. Though I’d rather see several more bids and offers near there (we only see 2500 shares on the table for both the $0.70 bid and the $0.75 ask), this is a good start.

For those of you who saw the bid/ask last week and held off on jumping in, I can’t say I blame you - I’d probably be hesitant too. The one thing to keep in mind about a tight bid/ask is this - when it comes to small cap stocks, this dynamic can change almost instantaneously.

I still say it would pay you to be ready when the liquidity is finally beefed up….and I do indeed feel it will be beefed up. I see Marine Growth Ventures as one of the most exciting ideas we’ve come across in a while, if only for the sheer number of ways they have to make money. I guess some people don’t see it yet, which is fine. Wait as long as you need to, but don’t be shocked when this thing launches like a rocket - and is possibly out of reach.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

One of our readers submitted this small cap stock trading idea about a year ago. We gave it some thought - and attention - but N-Viro International (NVIC) shares just didn’t seem to be getting much traction by the time we got wind of it. (The best time to have been an owner was the few months before we started our discussion.)

Though we haven’t given it much thought in several months, I gotta’ say at least this much - NVIC is scrappy. Most of these small cap story stocks just fade away without much fanfare. N-Viro, on the other hand, has managed to establish a range between $2.30 and $3.11, keeping it within striking distance of a breakout.

It’s neither good nor bad…just interesting. Clearly somebody thinks something of this stock. It makes me wonder if a small nudge in the right direction (above $3.11) could still spark another bullish wave.

By the way, the company’s profit center is a method of making a sludge/coal mixture to burn as fuel. As such, it’s part of the ‘alternative energy’ arena. Their technology works too - General Electric (GE) verified it. Now the challenge is selling the rest of the world on the idea. For more details, click here to read through our previous blog entries. 

If you have a trading idea you think is worth sharing, let us know. Just be sure to include a brief pitch, and disclose any interest you may have in the stock.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

OK, I guess I was wrong about Tuesday being the day the short holders of Spongetech (SPNG) attempted to cover their shorts gracefully - with minimal pain. The stock actually closed a little lower, though the very low volume today tells me there’s still some unfinished business to take care of.

SPNG closed at 4.4 cents…up and off that low of 3.5 cents. And once again we saw some pretty good strength (and volume) late in the day (take a look at the chart). Though it didn’t pan out today like I thought it would, I attribute the tepid day to a lack of effort from the shorts who still need to cover. In other words, the potential short-covering rally is still on the table.

And if you’re wondering what the heck I’m talking about, click here.

Also, here’s the bid/ask scenario. Looks pretty balanced to me (which is a good thing), though the ask side of the table seems a little more robust than the bid side.

Believe me - this is anything but an encouragement to brush you back into a Clearly Canadian (CCBEF) position. However, it’s my role to point out relevant possibilities within our small cap universe. With that in mind, I have to confess CCBEF’s chart is getting me curious.

The stock’s freefall is almost painful to look at - a tumble from $3.00 to lows of $0.60 in less than half of a year. And in some ways, maybe it was deserved; the company has not been putting up the kinds of results promised…a message I’ve delivered a few times in recent blog entries. (I’ll spare you the details - just click here to find them yourself.)

But, at some point in time, reason has to kick in. This company’s market cap is now about $14.8 million. For comparative purposes, they did $3.3 million in sales last quarter, and have done $7.8 million in sales for the last nine months. Annualized, this company’s probably capable of maintaining the status quo and doing about $12 million in revenue per year. A price/sales ratio of 1.23? Interesting.

Now don’t get me wrong…a year’s worth of acquisitions seems to have done little except brought about a year’s worth of disappointing results - and some dilution. But, at least the acquisitions are paid for.

I’m still not quite sure what to think, but I do know this - they have a real product right now, and have slowly been improving the top line for a few quarters.

Is it enough? Maybe. Maybe not. At 70 cents though - not to mention the fact that the chart has stopped the bleeding - I’ll give the stock its due attention and put it back on my radar. It’ll take a lot more than that to get it back in my portfolio, but….

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

The Small Cap Network received this e-mail from one of our e-newsletter readers, but we decided to post it an respond to it in the blog. Why? It’s a question many of you are probably thinking to yourselves, and even if not, there’s a great stock trading lesson to be learned here. Howard writes…

Hi, a few months ago you mentioned that you would possibly revisit overstock.com if it had a nice pullback. looks like it is down 50% from it’s highs in the 23 dollar range. Do you still find this appealing?

Thanks for the question Howard. In case anybody missed this trading idea, we suggested Overstock.com (OSTK) on September 7th. At the time, shares were trading at $22.80. We suggested a target of $30.20, which was reached on October 1st. The total gain was 32.4%, and was locked down in less than a month.

We mentioned at the time of the exit that we would still consider going long on OSTK in the future, but it looked quite frothy at the time - we were more than happy to be out.

Howard’s question prompted two ideas I want to share with everyone.

The first is, the potential ‘value’ idea in Overstock is appealing, but the chart right now is very unappealing. I see more downside in store before a rebound is made. We’re making lower lows and lower closes, and nobody seems willing to nibble on the bait. I don’t want to be the first, though I’m still watching OSTK’s chart. (Admittedly, the support at the 200 day average line has me curious.)

The other point I wanted to make was more philosophical. In short, OSTK is a great example of why you want to (1) set a target, (2) stick to a target, (3) set a stop, (4) adjust a stop, and (5) stick to a stop.

Yes, our Overstock trade worked out pretty well for us, but I’m under no illusion that it was a sure thing. We could have just as easily bought at the high - right before the pullback. We ultimately got out a little too soon, as OSTK went up to $39.39 in late October. But, given the choice between taking what we had or being forced to decide after it peaked? I’ll take an exit on my terms any day of the week…even if it means I leave a little on the table.

Burn this chart and our trade into your head - discipline will get you much further than luck and brains will in the stock trading business.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.