Well, I arrived here in New York last night, and briefly met with some of the main people from the company I mentioned in yesterday’s newsletter - the small cap company you may well see featured here in the newsletter soon. My luggage will be arriving sometime this morning. (I don’t want to mention the name of the airline that mishandled my luggage, but it rhymes with Delta.) Fortunately, that will still be soon enough for me to do the sit-down meeting with all of the company’s management team.

I don’t want to say too much too soon, as this thing could still be a few weeks away. Let’s just say they’re on target in a couple of different ways. Namely, they have some high-profile spokespersons, and they’re entering a fast-growing niche market with little competition in the space. I’ll try and drop a few more hints once these meetings are complete.

In the meantime, I hope you took my advice on Monday and locked in any oil-based gains you had. I knew the Nigerian thing couldn’t last. Crude futures were well overbought, and tumbled three points yesterday. I see they’re up about $1.00 this morning, but I still expect to see them sink a little more in this wave.

You’ve probably heard the same whispers I have - that oil could reach $200 before it’s all said and done. Maybe, but I don’t think it will get to that point. I believe we’re closer to the end of the bear market and/or the recession, which means interest rates could start to stabilize…or even rise. That will curb inflation, and reel in oil. That’s still further down the road though.

As for our stocks, not a lot going on right now. SpongeTech (SPNG) continues to attack the 4 cent level, making higher lows. I still believe SPNG will break out once Tenet 5 cents is hit. Tenet Healthcare (THC) seems to have found a home around $6.50 following last week’s surge (and Monday’s follow-through).

Today’s Fed day. As of right now the Fed futures are saying there’s a 75% chance of a 1/4 point cut, and a 25% chance of them changing nothing. Personally, I’d say it was 50/50. Guess we’ll find out at 2:15 p.m.

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Just when you think it can’t go any higher, wham - it does. I’m talking about oil prices. You’re feeling the pain at the pump. Hopefully you’re offsetting that pain with gains from energy stocks in your portfolio; profits should be strong again.

The question - my question anyway - is whether or not this is the shape of things to come. It seems like every time a milestone price was hit, someone thought that would be the peak. Wrong every time so far.

Were it me, I’d use today’s surge as a profit-taking opportunity with any oil stocks I owned. It’s not that crude prices can’t go higher; it’s just that I think the reasons oil prices are attacking the $120 level aren’t really the reasons everyone else thinks they are.

For the most part, the spike is being blamed on a shutdown of a BP refinery in Grangemouth, and a military strike that disrupted production in Nigeria. Certainly those are factors, but I don’t think that’s what got oil all the way up to $120.

No, I believe we still need to call a spade a spade - oil is expensive right now because the U.S. dollar is incredibly weak. This isn’t news to any of you. However, if you’re wondering when the oil pain/pleasure is going to end, be sure to look at the right thing…and the right time frame. It will take months to repair the dollar - at least.

There is some light at the end of the tunnel though.

For the first time in as long as I can remember, there’s some chatter that the Fed is more worried about persistent inflation than economic tepidness. More specifically, there’s a possibility that the Fed won’t cut rates as part of their monthly policy meeting on Tuesday and Wednesday. Those low (and lowering) interest rates are what’s sending oil and other commodities to the moon, but letting inflation stay high. Pushing things in the other direction may be a welcome change for most.

However, if the Fed does stand pat, it may also be a hint that commodities have peaked and will no longer be getting a boost from Bernanke and company. That’s why I’m more inclined to lock in any gains today - in case the Fed doesn’t lower rates this week and hints that they may be flat or even pointed upward later in the year.

In terms of the timeline of an ordinary economic trough, it makes sense.

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A couple of you recently wrote in and asked about bulletin board company NuTech Digital (NTDL). It was a good inquiry - the stock had surged and you made some good money on it. You just wanted to know why.

My assumption was that since we got a few inquires on the same stock at the same time, that we had covered it before…perhaps before I got on board with the SmallCapNetwork. I checked the archives though, and we never covered it here. No problem - we can still take a look. We can’t take credit, however, for getting you into the small cap stock in the first place.

Anyway, the chart tells the tale. The stock took a couple of shots at a breakout in ‘06 and ‘07, but really couldn’t get over the 2 cent hump. That is, it couldn’t get over it until recently. It ran up to a high of 16 cents in March, and is now holding its ground at 9 cents.

Two questions come to mind. (1) Why the surge? (2) Will it last?

I’ll answer both as best I can.

The reason for the surge is simple enough - they started selling wireless video products. This is not only new for the company, but something of a new category of technology. It’s my understanding that what they build is basically real-time, two-way television. Actually, it seems like a pretty cool idea….well ahead of its time though.

Will it last? I have a hard time thinking it will - at least like this. Eventually as the technology is understood and embraced, NuTech looks like it will be a leader. For now though, I don’t see enough demand for the technology to justify this bulletin board stock’s price.

In other words, I suggest you take some profits if you haven’t already. If you still like it after it settles down (and the company is doing its part) you can step back into this small cap name.

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I already blogged it this morning, but I didn’t have room for a chart in my morning notes. So, here I am again telling you about Tenet Healthcare (THC). Why do I need a chart? Because the chart is the story. The stock has made a strong break today, moving past some prior resistance levels. Those of you who follow all of our picks would now be up about 48% on this trade.

The chart tells the story far better than I ever could. Take a look…

The surge was prompted by an upgrade from Credit Suisse. The CS analyst felt Tenet was making good progress on their recovery, and general hospital pricing trends were improving.

The same analyst also raised his target price to $8.00 (it had been $6.00). Our target was originally $7.67. As tempting as it may be to raise our bar and let Credit Suisse fans bid the stock right up to $8.00, we’re not going to do that. Better to sell on the way up than try and pinpoint the top.

There’s something else though. THC hit strong resistance around the $7.67 level in early 2007. It may well find it again. So, we’re not going to get greedy and try and squeeze out an extra 23 cents when the chart has already warned us not to. Besides, if THC reaches $7.67, that still means an 88.9% gain from our November 10th ‘picked’ price. Take a look at the weekly chart and see of you agree.

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No surprises here really…small cap company Spicy Pickle (SPKL) has delivered as expected, opening the first  restaurant in downtown San Diego, California. It’s the second in the area. That means 37 are now open, and leaves more than 90 on the way. All the details are below.

In the meantime, how about that market? Stocks mustered a little strength yesterday, and in some cases poked to highs above my personal ceiling (which was February’s highs). The Russell 3000 exactly retested the resistance at 808 though…the third time in three months. Of course, we also watched every index fade from the intra-day highs, and close in the middle of the day’s range.

You could make a bullish as well as a bearish a case out of what we’ve got right now. I’m still leaning on the bearish side of the fence though. The fact that the market is up as I write this makes such an opinion tough to hold onto though.

I’ll say this much - a strong close/finish today could clinch the end of lethargy and the beginning of a move higher. As I’ve said all along, I suspect we’ll see more ‘down’ before it’s all said and done, but the bulls are testing the waters in the meantime. They could push the Russell 3000 all the way back to the 200 day line (at 831) with this effort. After that, I’d be cautious again.

By the way, is it just me, or are some of these index charts starting to make upside-down head-&-shoulderish patterns? If they are, that’s bullish. More importantly, the likely ’slingshot’ effect should carry them right up to the 200 day lines or so. Amazing how the market ‘knows’.

In other news…

One of our small cap company picks continues to fire on all cylinders. Downtown San Diego’s first Spicy Pickle restaurant is now up and running. The lease for the second of what will be twelve units for this franchisee has already been signed. The details really aren’t all that important. The important message is continued growth - Spicy Pickle can clearly do that.

Don’t forget about our Tenet Healthcare (THC) stock pick either. It jumped this morning from $5.46 to the current price of $6.08. That’s a new multi-month high. The catalyst? An upgrade from Credit Suisse. As of now, the trade is up 49.7%.

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Well, it’s been two full trading days since I highlighted three of our bulletin board stocks. My general theme on Tuesday morning was simply that the pullbacks for all three didn’t really worry me, provided they started to rebound soon. So far, all three picks have behaved satisfactorily. None have been ‘like gangbusters’, but then again we’re not in a gangbuster kind of environment.

So what type of market environment are we in? Here’s my latest take - I’m not overwhelmed by Wednesday’s bullishness.

Let’s just mix things up a bit today and look at the Russell 3000 (though each chart is telling the same story). Basically, the market is hovering just under a ceiling, but so far has been unable to break though. To its credit, last week’s rally and this week’s persistence has gotten very close to carrying stocks past early-February’s peak. But, horseshoes and hand grenades, you know?

For the Russell 3000, the line in the sand is 808. Though the Dow and the NASDAQ are technically above their February peak levels, it’s been far from a convincing move. So from my point of view, the overall market is still in a trading range.

Here’s the Russell 3000 chart.

Now, about those three bulletin board picks….

Spicy Pickle (SPKL) quelled the selling pretty quickly Tuesday morning. I mentioned those sellers were limited in number (as indicated by weak volume), and based on the way they’re not putting up a fight now, I think they have been flushed out. The buy-in volume has been a little less impressive than I’d like to see, but we’re getting decent action on the stock.

When I mentioned Smart Energy Solutions’ (SMGY) stock had found a floor at 17 cents, I think maybe somebody took that as a dare. SMGY tagged 16 cents on Wednesday. No big deal - we saw an immediate rebound. It’s just one of those things where ‘as sure as you say it….’

Anyway, I want to reiterate the message I was sending then - though the stock is not doing great, it’s not like there are armies of sellers. In fact, there are decidedly more buyers, need on the rising accumulation line. It’s just that the buyers can’t string enough decent days together in a row to break out of the funk. It’s definitely becoming a test in patience.

And then there was SpongeTech (SPNG). The issue here wasn’t a lack of strength, but too much strength to sustain. The stock did indeed pull back even further on Tuesday, hitting a low of 3 cents. On Wednesday, we saw nice, reassuring rebound, with SPNG again hitting a low of 3 cents and pushing off of it to end the day at 3.6 cents. That’s not the biggest deal though.

Take a look at the last two bars (Tuesday and Wednesday). They’re almost mirror images of each other, and both are relative tall bars (wide ranges). Though it’s not technically what’s known a ‘bullish engulfing’ pattern, it comes pretty close. We need to see a little more upside on Thursday to clinch the signal. It’s encouraging though.

Anyway, all this bodes well for all three bulletin board stocks. Is the market giving ‘em a little nudge? Sure, but we’ll take it.

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Along with using the ISE Sentiment Index as a market timing tool, I also like to look at the number of new highs and new lows for any given exchange. My preference is the New York Stock Exchange’s new high/low numbers, though the NASDAQ’s can be useful too. The only exchange in which I don’t see a great deal of value in the number of new highs and lows is the AMEX - just not enough breadth or depth there to get a good read. 

What’s my interpretation? This one’s actually a little less ambiguous in some ways, but more ambiguous in other senses, than the ISE Sentiment Index. Basically, I’m looking for a wild reading in the number of new lows to suggest a bottom has been hit. More than 500 new lows has been a good rule of thumb lately.

As for a short-term market top, I want to see about 250 new NYSE highs before assuming we’re poised for a pullback. (Bear in mind the new high test/standard is much less specific and difficult to time than the new low rule of thumb.)

Why these levels? Namely because they work. Check out the chart below…the new highs are in green, and the new lows are in red. Though not super-precise, the market timing strategy has caught most of the major turning points.

The reason I want to point it out now is the same reason I wanted to look at the ISE Sentiment Index today…we’re actually NOT seeing the extreme readings that would normally suggest a high has already been hit. That’s pretty stunning considering the size and speed of the recent rally. But, according to the number of new highs we’ve seen the last few days, there’s still room for more gains before the proverbial wall is hit.

As always, there are no guarantees, but plenty of annoying exceptions. The odds seem pretty clear to me though. Despite the fact that I’m still looking for a small pullback - on the order of 3% to 5% - my market timing tools still say more strength could be in store.

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Most of you know by now I’m a big fan of using sentiment tools like the VIX or put/call ratios to spot likely short-term tops or bottoms in the stock market. As you may also know, I’m a very big fan of the ISE’s (International Securities Exchange) call/put ratio as a contrarian tool. Why? It’s one of the most effective market-timing indicators I’ve observed during my too-many years in this business.

The reason I bring it up now is to tell you it says the market has not yet peaked, despite a couple of big gaps that carried stocks into what I feel is overbought territory.

Here’s the basic interpretation - when the ISE call/put ratio is at an extreme low, fear has peaked, and a bottom is likely to be in place. When the ISE call/put ratio is at an extreme high, investors are too complacent, indicating a likely top is in place. That’s the ‘contrarian’ part…going against the grain when nobody else seems to be. To really define what’s ‘too high’ and ‘too low’, I like to wrap the index in Bollinger bands (200 day).

As the chart below shows, the ISE call/put reading tagged all the major short-term bottoms. It wasn’t laser-like precision, but it was pretty close. All those lows are highlighted in yellow. The same goes for the tops, which are highlighted in blue. Take a look, then keep in reading.

See anything interesting? Despite the ridiculous rally last week, investors haven’t gotten cocky to the point of needing to be punished - at least according to the sentiment index. That won’t happen until we see a reading closer to 169. In other words, the market at these prices isn’t as terrifying as the media and pundits might have you think.

As always, no guarantees. However, the strong track record of the ISE Sentiment Index as a market timing indicator really gives me pause here….maybe there is more potential upside. Be sure to check out my other blog entry today, where I look at new lows and new highs as potential market-timing indicators.

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I’m not entirely surprised, nor am I particularly worried, to see index futures in the red this morning. The equity market’s heroic rise last week may have put stock prices a little too far ahead of their actual values. Having had a weekend to think about it, investors are experiencing a little buyer’s remorse…and Bank of America (BAC) was the catalyst. It’s still too soon to call a short-term top though; let’s just use caution and common sense here.

The biggest threat I see are two wide gaps for the NASDAQ Composite’s chart. The market might be able to tolerate one, but two big ones? I foresee enough selling to fill them both. Unfortunately, if both gaps are filled, it will also be the result of a big enough pullback to inspire more selling.

Bottom line - I don’t see now as the time to be proactive. Let’s observe early this week, and respond. I’ve got a feeling the euphoria is going to wear off soon. If the dust settles and the emperor isn’t wearing any pants, I don’t want to be around to see it/

By the way, Stockgroup Information Systems (SWEB) has added some nice talent to its board of directors. Janet Scardino is now helping steer the financial media/community site into the future. Her experience is top-notch too - should be a true asset rather than just a high-profile name to tout. Check out some of her CV….

• Currently the Chief Marketing Officer of The Knot Inc (KNOT)
• Former Executive V.P. of Reuters Group PLC (TRI) (many parallels to Stockgroup)
• Former Sr. V.P. of International Marketing for AOL
• Former managing director of Disney Channel Italy
• Former V.P. of International Marketing for MTV

Not a bad person to have on your side, huh? I think she brings something to the table that’s deliberately outside of the equity market world. Considering Stockgroup is ultimately targeting retail investors (even via their institutional offerings), Scardino’s experience could help hit that target.

Nothing else for this morning, though be sure to check the blog again later on today. There are a couple of themes I’m researching or gathering data for, and I should have these ready sometime within the next few hours.

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We’re still focused on finding and trading bulletin board stocks, despite the fact that large caps have dominated the news of late. Given their (large caps) impact on the overall market - including small caps - we want to stay on top of the major market trends. That’s why we’ve been looking at the major names the last few days….and today. We’re still huge small cap fans though. Sooooooo

Citigroup (C) wrote down $5.1 billion last quarter thanks to bad mortgage loans. [Insert generic sub-prime lamentations here - I’m tired of saying it]. Google (GOOG), on the other hand, appears to be printing money. So how’s the market digesting this mixed news? As the kids say these days, “it’s all good”.

I don’t think any of you will be surprised to hear me say the news is less important than the response to the news when it comes to getting a feel for where stocks are likely to go. Right now investors are seeing the glass as half full, which means they’re trying to think like buyers.

ALL THE SAME, I’m still not going to be impressed (i.e. going long) until at least two of the major indices can break above recent highs. Until that happens, we’re still only range-bound. [Insert generic discussion of range-bound markets here - I’m tired of saying it.]

That said, today may well be the day. I hate those lingering gaps though, and I don’t see where Google can go from here…it’s up 77 points this morning. Plus, it’s the last day of expiration week, so I don’t trust any move today. I definitely wouldn’t be buying into a rally just yet. In fact, I might short some things later today…or buy put options. Strictly speculative.

By the way, our bulletin board stock pick SpongeTech (SPNG) has gotten some big traction the last few days - on higher volume. I think this may finally be the kind of strength we’ve been waiting for. And, it’s been built on real results (i.e. sales and earnings growth). More of the same may be on the way. In fact, we heard of yet another marketing venue this morning.

Radio commercials for the car wash and wax sponge will soon start airing on two TalkRadio Network(r) channels….business, and lifestyle. I don’t have any details of the deal, but I do know that radio is a very cost-effective medium for advertisers.

The sales just keep on cranking up, as does the backlog. They blew us away last quarter with $1.3 million in sales - their best quarter ever. And, profits were a nice $188K. The thing is, that was before much of the marketing effort was in full swing. I don’t think revenues of $2 million or more are out of the question for Q2. I’m looking for earnings to increase proportionally. The radio ads will be part of the reason.

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I know many of you are still a little euphoric following yesterday’s huge rally. As a cautioned then, however, don’t get used to it. Merrill Lynch (MER) is reminding us today that we’ve still got some kinks to work out. They took $6 billion in write-downs, leading to losses of $2.1 billion (or $2.19 per share). They’re sacking 4000 employees soon too. Geez. Pfizer’s (PFE) earnings dropped as well.

Like I also said yesterday though, some companies are actually doing well. Take IBM (IBM) for instance - they put up a nice earnings increase. So, there are investment-worthy companies out there.

And what about the short run, where fear and panic can override a stock’s actual value? It’s the same old song and dance. The market can punch the throttle for one or two days, but then fizzles. The result range-bound-ness. I’m not sure if range-bound-ness is even a word (in fact I’m pretty sure it’s not), but that’s what we’ve got right now. Until we clearly break out of the rut, I don’t suggest getting excited about anything. I do suggest scalping those swings for a few precious points though.

Regardless, I’m still optimistic about our bulletin board stock Spicy Pickle (SPKL). We’ve covered them extensively the last couple of days, but I think this morning’s wrap-up effectively puts all the good stuff into one place.

Bulletin board stock SpongeTech (SPNG) is rallying as well, despite the market’s bearish open.

Stock Pick of the Day: Matrix Service (MTRX). Total speculation here, based on the wide range the stock’s been bouncing around in. We’re pushing off that lower support line, but have seen MTRX travel as high as $30.00 recently. That’s more than 8 points above where we are now, which could mike for a good stock trade, but an even better option trade. The risk here is pretty big, but the reward is commensurate.

Sector Pick of the Week: None, but of you took my advice from April 3rd and got into a coal stock or a coal trade, now I suggest you go ahead and lock at least part of it in. The Dow Jones Coal Index gained 19.3% since then. I don’t have a problem with the size of the gain. My problem is with the speed the gain was made. The group is well overbought now, which leaves them wide open for a lot of profit taking. I still think the group will have a great 2008, but I don’t see them moving higher from here without a significant pullback first.

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One of the toughest parts about evaluating a fast-growing bulletin board company like Spicy Pickle (SPKL) is distinguishing between expansion-based growth and the improvement of your existing revenue centers. To help investors measure a stock’s merits, sometimes a retailer or restaurant will post what are called ’same store‘ sales. The idea is, even if the company never opened another unit, you’d still want to see proof that the top and bottom lines could grow.

Just a few moments ago, Spicy Pickle announced their Q1 (2008) same-store revenue growth was just a hair under 5%. The sixteen stores they had up and running during Q1 of 2007 generated an average of 5% more sales in Q1 of 2008. Therefore, the corporation’s royalties were increased by the same percentage (they take their cut from the top line).

What’s it mean? To us, the most important thing it demonstrates is simply proof of viability. Growth is tough to come by in any environment, but it’s particularly impressive considering consumers went into hibernation mode during the first quarter of this year. If there was any doubt that the ‘fast and casual’ concept would fly, the sales increase should negate the worry.

In short, the restaurant’s concept has been proven in the real world. Here’s the news release.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.