I know I’m not necessarily your supreme authority on every single matter (hard to believe, isn’t it?), so I don’t take too much offense if you didn’t blindly agree with my June 6th assessment that printed newspapers were a wilting business…and investing in one could be bad for your financial health. If you didn’t believe me and my pessimistic outlook on newspapers, would you believe if it someone from the newspaper industry said it?

That’s basically what we heard yesterday from the former editor of the New York Post. His discussion came shortly after the New York Times (NYT) announced yet another disappointing quarter. Ad revenue is down, and so is circulation…for the whole industry.
I’m not going to rehash the article/interview, but if you’re interested, just click here to be taken to “tech ticker’s” interview with former New York Post editor Tom Colarusso.

The recommendation for printed newspapers? Don’t fight the web - embrace it.

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I thought we’d never make any headway with my June 25th bullish call on small cap biotech. Biotech in general has been going strong for the whole month, but it seemed like large caps (such as our Amgen pick from July 1st) had no intention of yielding to smaller stocks. Today though, the S&P Small Cap Biotech Index is up about 5%. For the month-to-date (which ends today), the small caps are leading the industry with a 23.2% rise.

So what’s next? I think more of the same….and not just based on today’s outperformance. (One day does not make a trend.) No, now that the small cap biotechs have taken the lead, I think they’ll stay out in front for a while simply because they have the most ground to make up.

Take a look at the results table below. If you look at 3-month results, small cap biotech is still well behind large and mid caps. Being a ‘rotation’ guy, I typically assume leaders and laggards are apt to change. So…

In that light, I mentioned way back in June that I was on the hunt for some small cap biotech names. Not that this is an exhaustive list, but here are some that caught my eye and kept my attention:

• GTX Inc. (GTXI)
• Genomic Health (GHDX)
• Martek Biosciences (MATK)

I doubt I’ll follow up with any of these stocks, unless one of them specifically becomes a trading idea. That doesn’t mean you can’t do something with them though. If you have any thoughts or other stocks, feel free to add ‘em below.

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It’s no secret I’ve been a fan of biotech since late June. I mentioned I was bullish on a couple of biotech indices, once on June 25th, and once again on the 26th. I specifically mentioned Amgen (AMGN) on July 1st, noting that a little more upside would push it past the key 200 day moving average line. Well, AMGN went on to cross that long-term line on July 2nd, closing higher at $48.84 that day.

As you may be aware, Amgen shares surged to a high of $64 yesterday, and have since settled down to the current price of $62.52. If you got in in early July, I highly suggest you take your 28% profit (or so) and sell those AMGN shares.

I’ve got no particular problem with Amgen - I like the company and the industry. My problem is with the chart. A move that big - and a gap that big - is nothing but trouble. The risk of a pullback is tremendous, and there’s not really much reward potential left to tap. Lock it in if you took action four weeks ago.

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Not that CEO letters to shareholders are ‘news’ events, but sometimes you really do get some good information from them. SpongeTech’s (SPNG) CEO Michael Metter wrote such a letter today. I’m not going to rehash the typical PR hype, but there were a couple of things I didn’t know that I think you should know too. They’re nothing earth-shattering, but could potentially change your overall opinion.

1. For the first half of the current (first) quarter (6/1 thru 7/15), they did about $2.4 million in sales. They’re on pace to do $5 million in sales for the quarter (which ends on August 31st). Revenue is getting better each quarter. You may recall they expected to report $3.8 for Q4 of last year (which ended on May 31st). We don’t have the official Q4 numbers yet, but Q1 is on pace to be significantly better than Q4.
2. The current sales backlog (confirmed orders but no revenue booked yet) now stands at $30 million….which was pretty much what I figured back on the 10th.
3. For every dollar they spend on advertising, they’re getting $1.60 worth of sales. That’s pretty strong, and a key point worth remembering. The data reprises one of my (and your) long-standing contentions about SpongeTech…if they’re going to sell stock to raise marketing funds, is the benefit going to more than outweigh the downside? Now we have a rough idea, though I don’t think the question is completely answered. Dilution has been heavy, but did dilution devalue the stock by the same 60% that those dollars benefited the stock? Personally, that’s not a rate of return (the upside compared to the downside) I’d be satisfied with, but…..
4. What if the sales created once by the marketing effort also prompted repeat business that didn’t require any marketing (or dollars) to generate? We know that 70% of sales over the web are re-orders. What if 70% of non-web customers created by the commercials also end up being repeat customers? Does that mean the company is actually getting $2.72 worth of revenue benefit for every marketing dollar spent? With that scenario, I’m significantly more enthused.

The letter had more, but I’ll let you read it for yourself. Just click here to read Metter’s comments to shareholders.

As for my take, numbers 1 and 2 are what I expected. Numbers 3 and 4 really point to the issue shareholders are grappling with now. Read my other blog entry for all those details; I can summarize it here very simply - the company seems to be focused on growing the long-term business, so much so that the short-term books can be scary to investors.

That’s why we’re at an inflection point with SPNG. If you’re an investor for the long-haul, no biggie….you have to spend money to make money. If you’re looking to get rich in a short period of time, it’s not likely to happen.

There’s never been any question of them getting bang for their marketing buck right now. The data verifies that. The million dollar question is, when will SpongeTech stop issuing stock to finance growth? I see it happening, but I don’t know when. When they do though, I can see the value being suddenly ‘unlocked’, and all the things they’re doing well will start getting traction.

I’ll wait, but I’m not holding my breath. Timing really is everything.

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Odds are you’ve already seen this morning’s letter from SpongeTech Delivery Systems’ (SPNG) CEO. Good stuff, as usual. I think much of it was expected boilerplate verbiage, with several key details added in. I learned a couple of new things that may help me evaluate the company.

However, I doubt many - if any - of you saw Monday’s 8K filing with the SEC. I have my watchlist set up to alert me whenever anything is filed, so I caught it early then. In my opinion, this filing was just as important (if not more important) than the letter. Besides, I find the best tidbits in the small print. So, I wanted to discuss the 8K as much as I did the letter. (The letter is discussed in a different blog entry.) 

While I’m always open-minded and optimistic, I’m always honest and objective too. That’s the whole basis of this site and our newsletter - capitalize on the good, and avoid the bad, but be able to spot the difference. This is my honest and objective view of the filing…

I have to confess, the 8K caught me a little off guard. That’s not to say I’m dumping SpongeTech - quite the opposite. But, to say I’m displeased would be an understatement….there’s a lack of transparency that’s making it tough to figure out just how well things are going on a per-share basis. However, nothing changes about the things they have done and are doing very well….which is ramping up revenues and profits. As such, I’m torn about what to say or do.

Here are the key points from the 8K:

• In the first half of the year, SpongeTech issued 267 million shares of common stock to RM Enterprises (at the end of the first half of the year, there were 400 million shares outstanding, so this is most of them). Needless to say, RM is by far the biggest shareholder. RM also happens to be managed by the same guys running SpongeTech. However, the sale of those shares to RM also raised $4.9 million.
• The previous limit of 400 million authorized shares is now 800 million. 750 million are common stock shares, 40 million are preferred, and 10 million are the new class B shares. Class B shares have 100 votes per share, versus the one vote per share the common stock gives their owners. Other than that, they’re basically the same as common shares with one exception…..they can’t be transferred to someone else not authorized by the company. All 10 million class B shares have been granted to three people: two in company management, and the third who is a consultant.
• The company’s different products (Puddle Pals, Auto Wash, Pet Sponges, etc.) are now each their own subsidiary, wholly-owned by the parent company SpongeTech. This does nothing to affect performance; they’re just shells to achieve a legal objective.

I can deal with RM being a majority shareholder. In fact, SpongeTech is authorized to buy those 267 million shares back at the price paid for them ($4.9 million). Maybe they will. I can also deal the six subsidiaries, since that really doesn’t have a fiscal effect.

What I’m trying to get my arms around is RM Enterprise’s role, and the additional 400 million shares recently authorized.

Well, after giving it some thought, here’s what I came up with.

I know the sale of stock to RM concerns a lot of you. It would concern me too, if I hadn’t done the math, and if RM’s folks didn’t have money on the line just like everyone else. They’re investors too though, and on the same side of the table as everyone else. The issue I have is the discount they got - they only paid about 1.8 cents per share, where you and I had to pay somewhere between 2 cents and 5 cents. I’ve seen discounts before, but geez….

The one thing on that front I’ll be curious to see is whether or not the company will actually buy back those 267 million shares they’re now authorized to. I distinctly remember SpongeTech saying this would happen way back when RM started buying them, so it’s plausible. My question is, if they’re going to buy those shares back, what’s the need for the extra 400 million? Just buy RM’s back and put them in the treasury.

That said, SpongeTech’s word is a little tainted with me. We were told no more dilution, and then they authorized 400 million more shares. Bear in mind ‘authorized’ shares doesn’t mean ‘issued’ shares. Maybe they just chose to authorize more as a precaution for the unknown. It makes me wonder though.

So, my bottom line is this….I like this company and its progress. I still don’t mind their rampant fund-raising by selling shares, because they truly are getting more out than they’re putting in. However, I don’t like the shell games, particularly when they’re not disclosed until after the fact. It makes it near-impossible to peg a per-share value when there’s not much transparency. I don’t think it’s dishonest - it’s just sloppy and a little insensitive to shareholders.

I was prepared to hammer the company on Monday following the 8K, but that wouldn’t have been fair. After thinking about it objectively and cooling off, I still encourage everyone to weigh the good against the bad. I’m still not happy, but I do think there could be a point in time when the company will stop financing its growth by selling stock. I was just hoping that would be now - not later. It’s killing investors in the meantime.

Personally, I wouldn’t bother getting out of a position, but I sure wouldn’t be a buyer until some of these issues are addressed.

I would guess between the detailed coverage we’ve provided and your own due diligence, most of you could actually have written this thing yourselves, but….there’s an investor fact sheet available for anybody wanting to learn more about the investment potential of our small cap stock pick Spicy Pickle Franchising (SPKL).

The document is available via the Spicy Pickle web site, and can be accessed simply by clicking the link. Don’t worry - it’s not some 80 page dissertation. The whole thing is a couple of quick pages.

One thing they did add that I liked was a revenue growth estimate for 2008. We’ve been trying to hit a moving target in that regard.

New restaurants are being added all the time (which creates one-time as well as ongoing revenue). But, we’d have to know exactly how many they’re adding and at what point in the year they’re to be added to nail down a hard number. The company just posted a dollar figure….making my job much easier.

It’s worth a look, though don’t plan on finding a lot you didn’t basically know already.

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After writing what I wrote early this morning about Robert Kiyosaki’s philosophy, I really started thinking about the ‘technical versus fundamental’ debate the majority of the market’s participants are still waging. It made me realize it’s been a while since I’ve discussed my own personal opinions about ‘what works’ when it comes to investing. Since you guys are on the receiving end of most of those ideas, I think I owe it to you (particularly to our new readers) to explain where I’m coming from when it comes to, well, just about everything.

My techniques and expectations are not out of left field, but I’m one of those few who’ve melded the practice of reading charts and studying a company’s performance.

Where most traders/investors define themselves as one or the other, I’ve never seen them as mutually exclusive. Or, to say it another way, when someone asks me whether I’m a technical analyst or a fundamental analyst, my answer is usually ‘both’. And, my bottom line results actually improved dramatically when I started screening stock picks by applying the best rules from both worlds.

I’m not going to get into my specific trading rules, nor do I need to. Instead, I’m going to simply give you a couple of exceptions to ‘conventional logic’. In so doing, I think I’ll be able to better convince you - whichever school of thought you’ve adopted - to start looking at things from both points of view.

1) Why would a fundamental analyst want to worry about becoming a chart technician? Because fundamental analysis doesn’t tell you what the stock’s price will be…only what it ’should’ be.

Fundamental analysis is nothing more than a history lesson and a guess about the future. Take Americredit (ACF) for instance. At first glance it looks like the stock’s price (top) basically mirrors the trailing-twelve-month results (bottom). Perfect, right? Not so fast…take a closer look.

More than once did we see the stock’s price and the earnings rate move in opposite directions. ACF was at its lowest point in years just three months after they had their best earnings ever. Afterwards, earnings sank for over a year to record lows, yet the stock gained during this time.

As the chart shows, there are four ‘turns’ for the stock that in no way at all reflect actual results at the time.

Point? The ‘logical’ choice - based on fundamentals - would have been wrong pretty much every time. The chart, however, would have told you very clearly what was looming on the fundamental horizon. (Yes, I’m saying the charts predicted the company’s results, and not the other way around. Go back and take a really close look at the chart if you don’t believe me. The results mirrored the stock, with about a three-month lag.)

2) Why would a technical analyst want to to worry about becoming a student of fundamentals? Because strong-performing companies have considerably more reliable (bullish) technical charts.

I’d be the first to tell you technical analysis is far from perfect. When it’s a good company though, properly-applied technical analysis (which seems to be the tripping point for some) can tell you when it’s a good time to jump on a stock.

Let’s use World Acceptance (WRLD) as an example. Their earnings - albeit it not unwavering - were reliable and growing in the early part of the decade. Yet, even though they were generally on the rise in 2001 and 2003, the stock was struggling then.

But take a look at what happened in 2003. For the first time in year, WRLD found itself at new 52-week highs, and breaking past a key resistance level. What happened then? The stock really took off. Nothing, however, had actually changed about the company’s performance.

OK, but isn’t this a technical idea and not a fundamental one? Not really. Dozens of stocks hit new 52-week highs every day - a classic bullish hint. Yet, MOST OF THEM JUST FALL RIGHT BACK UNDER THOSE LEVELS!

Point? For a stock to stay above that 52-week high mark - and hopefully keep moving higher - the company has to justify it with real results.

The reason I’m telling you all of this is two-fold. One, I just think it’s a good lesson to learn no matter which side of the fence you’re on. Two, this is how I look at things when it comes to this site. I mix fundamentals and technicals because they both help me ‘buy low and sell high’.

Since you’re the ones reading the commentary, I figured the least I could do is tell you where I’m coming from.

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I’m going to go ahead and do my best to spread the word about the former Stockgroup’s (and former ticker ‘SWEB’)  name change to Stockhouse (and new ticker ‘STKH’). So…

This morning, Stockhouse announced the date and time of their next earnings release. Be sure to keep your ears and eyes open on August 13th (Wednesday) around 4:00 PM EST. They’re going to release results shortly after the market closes. The conference call/webcast will begin at 4:10 PM EST (as always), and can be accessed via the company’s website.

The one thing that wasn’t exactly clear to me was whether or not they’ll have a separate press release for their earnings results prior to the call, or if the announcement will come only during the call. I’ve been following Stockgroup/Stockhouse for a year and a half though, and I’ve yet to see them not publicize the news prior to the call. If it looks different this time, I’ll let you know.

As usual, the company’s top management will be fielding live questions for those who dial in (sorry, the webcast can’t accommodate two-way communication) and listen over the phone. The number is 1-866-400-3310.

I’ve said it before and I’ll say it again…you can learn far more about a company with those questions and answers than you can from the somewhat-scripted presentation. And at this point - based on recent results and events - Stockhouse has a lot to explain.

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…and no, this isn’t some lame joke.

I don’t consider myself a fan of Robert Kiyosaki. I don’t dislike him or disagree with him; his type of investing is simply different than mine, so I just don’t follow him. However, I was reading something he wrote recently, and he ended the article in a way I’ve been trying to explain for years, but could never come up with the right words to do so effectively.

Kiyosaki wrote…

“Most of us know the bull climbs slowly up the stairs, but the bear jumps out the window.”

About the closest thing I could ever come up with was…

“A bear market is not an upside-down bull market.”

Kiyosaki’s general take is more fundamental-based, and his quote above is intended to describe how investor’s handle panic differently than confidence. My techniques are more chart-based, and intended to warn traders that the same technical analysis tools found to be effective in a bull market don’t work the same way in a bear market. Both quotes go to the same place though…the rules change altogether when the market’s going to hell in a handbasket.

It’s pure philosophy, which I try to steer clear of here in the blog. This is worth an exception though. The idea of a bear market and bull market not being mirror images of one another is (1) one of the few things I’m sure of, and (2) one of the best lessons a trader or investor can learn.

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I’m running out of support lines for crude oil, though I’m not complaining. Gasoline is back under $4.00 a gallon now…it’s like winning the lottery. (Just bear in mind the current price is the same price we were all horrified over only a few weeks ago. Perspective is everything.)

Anyway, check it out. Crude oil’s dip to $124.52 on Friday pulled it well under both of the key support lines (blue and purple) I was watching. Now I’m on support line #3 (red), and it’s on the verge of cracking too. Even a slightly lower close on Monday could do the trick.

At this point I’m wondering just how far oil could slide before hitting bottom. Though I was previously in the “it can’t freefall forever” camp, now I wouldn’t be so shocked to see it happen. I still contend the run-up was more speculation than fundamentals. When these inflated bubbles pop, they don’t do so very gently.

To really get a (technical) grip on where the next potential landing point is, let’s zoom out to a longer-term oil chart. The next nearest support line (green) is currently around $102. Sound crazy? Don’t scoff just yet. Remember, crude was trading in the $30’s five years ago, and in the $70’s less than a year ago.

Obviously you have to have some allowance for inflation, demand fluctuation, and volatility, but you’re telling me the world is using 40% (or more) oil than we were a year ago? I don’t think so. I’m not ruling out oil falling back to the $100 area again….though not tomorrow.

There is one more dimension to all this…Fibonacci lines. If they are indeed relevant right now, then they’re highly relevant RIGHT NOW. The first key retracement level (38.2%) is at $124.68, which is basically where crude closed Friday.

If it’s gonna’ bounce, it really needs to do so soon. If not, a trip down to the $100/$110 level becomes much more likely.

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Yesterday I said I’m looking for a little more downside, and I’m sticking to my guns…despite the fact that the market is up right now. The closing price is the most important price of the day, and we aren’t there yet.

But what about the incredible surge in durable goods orders? They rose 0.8% in June, after all.

Great, but as I said (while standing on my proverbial soap box) on Tuesday, the economy isn’t the market. I’ll remind you the market was down more than 2% yesterday on a string of bad earnings announcements. Did those companies suddenly not have bad earnings because of today’s news?

I’m not saying today’s news isn’t good - I’m just saying the next batch of news could just as easily unwind these gains. In the short run, I’m far more interested in whether or not the market can string together two or more days of movement in one direction. The economic data is only long-term data for me…nothing I have to react to today.

So, here are the two scenarios I see, and how I’m going to handle them.

1) The market closes higher today. If we do close higher today, I’ll be on the lookout for another selloff for part of next week. Thursday wasn’t enough to burn off all the overbought pressure we had established - we’ll have to pay the piper sometime. Once again, as long as stocks don’t get totally crushed, I’m looking for more short-term gains after we bleed off some more of the euphoria.

2) The market closes lower today. This would actually be the desirable scenario for more bullishness next week. Let’s go ahead and take a dose of medicine now, cleanse the palate, and move on with a clean slate next week. If we see this happen and get off to a good start next week, I’m piling back in. The buy signals we got two weeks ago are good for more than just two weeks…..they’re more like two month signals.

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I’ve mentioned it a couple of times this week, but today’s action from the market and the VIX confirms it a little more firmly - stocks look like they’ve peaked. The day isn’t over yet, but for the first time in seven days we’re on track to make a (1) lower low, (2) lower high, and (3) lower close.

At the same time, the VIX is showing us a higher range, and a higher close (a mirror image of the market).

Like I said, the day isn’t over yet - things could change between now and 4:00 PM EST. Given just how overbought we are though, I have to think we’re gonna’ give some recent gains back.

Ultimately it’s no big deal - even if you’re a bull - as long as the market doesn’t fall so much it cracks investors’ fragile confidence. We only need/want to slide for a couple of days to burn off the overbought pressure, but we need to do so without going overboard. And for me, I think ‘overboard’ is the S&P 500 falling under 1260. That’s roughly where the 20 day line is.

As an alternative landng spot, maybe 1257 is the better level to watch. That would be a 38.2% retracement of this recent rally.

Either are fine to use….I’m just trying to give you rough idea of what you should reasonably tolerate.

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It was a good run, but, it has to end sometime. I think today may be a short-term top. Don’t worry too much though…I think the next bullish wave will kick in within a couple of days.

The reason I think stocks are at a top is two-fold. The first hint is just being plain-old overbought. The second reason…take a look at the shape of today’s bar. We saw very high highs, but a pretty substantial pullback to the market’s opening levels. That’s often a sign that the market ran out of buyers, and that sellers are starting to trickle in.

After a huge run-up over the prior six days (from 1214.91 to 1280.26 for the S&P 500), there are certainly some profits to be taken. And, you probably don’t need me to tell you it would be tough for any late-comers to jump on board now….after the fact. A modest pullback would be healthy ‘reset’ for everyone.

As for how much of a pullback we’d need to burn off this overbought pressure, probably not much. I use the 20 day moving average line - currently at 1263.25 - as something of a litmus test. If the SPX can pull back to that level, it should alleviate a great deal of this overbought pressure without completely destroying the bigger uptrend.

All of this could happen later this week or early next week. Bear in mind we may not rebound precisely at 1263, but I think it’ll be somewhere around there. Stay tuned though….stocks are perking up a little as I write this.

Bottom line - I wouldn’t be a buyer at this point. I would be a seller of some short-term bullish trades though.

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Call me contrarian (because I am), but I think the recession  - and yes we were in one despite what the government did or did not say - is pretty much over. Why do I think this? When the ‘what to do about it’ chatter finally hits the mainstream, there’s not much downside left to go. The non-financial media is habitually late to the party….though the financial media isn’t much better.

Anyway, check out this Yahoo home page headline…it says it all.

My confirming evidence actually came last week, when Ben Stein published a somewhat-related column on the Yahoo Finance page…”Bear Market Advice”.

I like Ben as an actor. And, perhaps as an economist he’s fine (though sometimes his cause-effect models are a little questionable to me). As an investment advice-giver though, I think he’s dangerous. He’s been giving the old ‘buy indices now’ sermon for the last several months, and the market has been falling the entire time.

Last week he finally came around to say we’re in bear market territory. When someone of his status goes down with the ship beating the “we’re ok” drum the whole time, and then finally switches gears when the boat is at the bottom of the ocean floor….well, you know where I stand.

I still wonder if there’s one more good pullback in store for stocks. I thought there was; now I’m not entirely sure. Of course, ‘good pullback’ can mean different things to different people. For me, it meant we were going to make new multi-year lows one more time before starting the next bull market. Like I said though, now I’m not as sure.

That being said….

If I think the economy is on the mend, then how can I think stocks have one more bearish leg to go before hitting their ultimate bottom?

Easy - stocks don’t trade at what they’re worth. Stocks trade at what investors feel they’re going to be worth about six months from now. Of course, that feeling changes almost every day. Thus, fluctuation, as new data is incorporated all the time.

The economy is much bigger than that though. When it turns, it turns for a long time. The day-to-day noise may affect investor opinion, but the ‘economy’ is unfazed by the daily news.

Eventually the economy will send stocks higher once and for all. In the interim, I foresee one more dose of bad news giving investors a reason to sell.

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Like all market rebounds, this one has strong leaders and clear laggards. Of course, the leaders this time around are not the same ones that we saw leading the way with the last rally.Listed below are the sectors that I’ve observed to outperform the overall market since early last week. There’s also one industry I consider “on the verge”. And, there’s one industry that I’m surprised to say has been convincingly bearish.

Bullish

Commercial Vehicles And Trucks - These stocks rallied nicely on Monday, gaining 3.16%. It’s a pretty fairly big deal because they also made a small gain last week after literally a year’s worth of negative performance. It’s not that they’re not capable of making gains. Their problem has been the inability to hang onto gains. For that reason I don’t know that I would expect too much. But, there could be a trade somewhere in here.

Gambling - The last several months have been one of those few bearish periods where the casinos actually did not rally, but rather fell with the market. That may be about to change though, after watching these names rally last week. There’s a ton of room for these stocks to rebound.

Hotels - For the same reason that the gambling stocks perked up, so too have the hotel stocks. The recovery potential may not be as great as it is with the casinos and gambling equities, but it’s still pretty good.

Industrial Machinery - Talk about obscure. Still, this group has made one of the strongest breakouts of the overall rebound effort. To some degree, they may go hand in hand with the commercial vehicles and trucks category; in other ways, not. We just like the recent move.

On The Verge

Mobile Telecom - The charts of the stocks haven’t exactly made upward progress in recent days, but they’ve made continual effort. If they can just get a little better push off, we can see a substantial rebound here as well.

Bearish

Soft Drinks - the soft drink companies have been in a freefall since April, and are still trading at 52 week lows. There’s not even been a hint of upside pressure here.

We’ll follow up later on in the week with some specific ideas for each of these categories. I just wanted to plant a few seeds today in case you’re looking for ideas or the market’s hot spots.

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I’ve said it before, but I want to make sure any newcomers are also aware….we welcome any and all feedback, good or bad. We read every e-mail, and every message posted in the blog. We try and respond where merited, and when it’s something worth discussing publicly, we’ll do so (but will withold your full name and e-mail for the sake of anonymity). You may not like our response, but sometimes having an honest and open forum requires that possibility.

Anyway, we’ve got such an e-mail today. Mark writes…

First off, let me say that I am an investor in the Spicy Pickle, and a huge fan of their food.  However, you latest musings on the company and the stock had so much spin that it made me dizzy.  I just re watched the promotional video.  Mark Geman had stated that they would have 40 stores by the end of 2007, and hope to open another 40 or so during the course of 2008.  Having just opened up the 42nd store in the 7th month of 2008, there is no way they will have another 40 opened by year end.  Therefore, they have not done what they said they were going to do, which in my opinion is why people are bailing on the stock.  Also, wasn’t it you guys a couple months ago saying that some technical “gap” had closed and now we don’t have to worry about the stock dipping below a certain price, yada yada yada?  No mention of this in the latest release.  Facts are facts guys and you cannot ignore them.

Thanks for the e-mail Mark. Let me respond in (roughly) the order you presented things.

1. No spin intended. The company is growing stores at a consistent pace. The stock did sink, but the stock also bounced pretty firmly. I acknowledged all of those things, but the over-arching theme has always been (go back to the very beginning of our coverage) perpetual revenue once stores are up and running. If it sounded like spin to anybody else, my apologies.

2. They had about 40 stores by the end of 2007. They have more stores being built right now (more than we know about), but I think you’re right - 40 more stores by the end of December may not be possible at this point. I don’t think that’s the reason people are selling the stock though…at least not directly. I think they’re selling the stock because the stock’s just not performing. Open to debate.

3. TO BE CLEAR, I NEVER SAID ANYTHING CLOSE TO YOUR SUMMARY “wasn’t it you guys a couple months ago saying that some technical “gap” had closed and now we don’t have to worry about the stock dipping below a certain price, yada yada yada? ”

I don’t know you, so I’m going to be as respectful as possible, but I think you’re seeing and remembering what you want to, and ignoring or overlooking what you need to. Please don’t put words in my mouth. Here’s actually what I said then….

“I believe there were two things going on in the first quarter….The other one, I believe, was the gap between 71 cents and 74 cents that had been lingering since September 24th. Gaps tend to act as vacuums, because traders just can’t tolerate an untidy chart. Well, with the gap filled and the market environment hinting at improvement, at least one (if not both) of those burdens have been lifted. Immediately after the gap was closed, shares perked up. Since then, we’ve seen higher highs and higher lows, not to mention a break past a short-term resistance line. Somebody’s buying this stock at these levels….If you were waiting to re-enter (or enter for the first time) a position, I have to say I really like the way this chart is taking shape. I feel a move back to $1.25 is possible in the near-term. I think a revisit to $2.00 is a possibility further down the road.”

I would never, have never, and will never say you never have to worry about a stock dipping below any level. You won’t find anything even close to that kind of arrogance anywhere on our site. Even my bullish stance on SPKL was obviously not set in stone.

4. We never ignore facts, good or bad. Don’t believe me? Take a look at these facts we’ve acknowledged about several of our companies….

Smart Energy (SMGY)

“I confess I’m not sure if I’m shocked or not. I knew Smart Energy Solutions (OTCBB: SMGY) was struggling - quite a bit - to grow their already-anemic top line. However, I’m not sure I expected to see such a significant drop in sales. I did though - this quarter’s revenue was 37.7% less than the same quarter a year earlier. They did $397K in Q1 of this year versus $637K in Q1 a year ago. The reason they gave? “…sales of the Battery Brain product fell as a result of delays in receipt of purchase orders from key distributors and orders for private label products that are not carried in inventory and needed to be manufactured.” I’ll provide a translation - the things aren’t selling. This company has just been a disaster. They’re not bad guys - in fact. the management team seems quite intelligent. They’re just not getting the Battery Brain on enough shelves, and then pushed through into consumers hands. They thought they could do it, but have yet to get any traction. At this point I’m inclined to go ahead and dump the company from our watchlist; there’s no sense in any of us wasting any more time on ‘em.”

Zupintra (ZUPC)

Zupintra’s ability to over-promise and under-deliver makes Orchestra’s ability to do the same look like child’s play. You can change the company’s name and focus all you want - eventually you have to make some money doing whatever it is you’ve decided to do that year. How could you not know you needed letters of credit to do telecom business, and how could you not get them for months? (To our knowledge, they still don’t have them.) 

Titan Global (TTGL)

Many of you have been asking what my thoughts were (and are) regarding the fiasco known as Titan Global Holdings (TTGL, or TTGLE…depending on the day). I tried to respond to the best of my ability, but didn’t want to permanently pass judgment until I could really figure out if the mess was real, or just perceived. After having had some time to scour all the recent filings, my official and professional conclusion is this - Titan Global is a joke…a complete and utter joke.

And I could go on and on. I’m not going to though….no need to.

My point (and message) is this - we’re not always right, but we are always complete, and honest. That’s a lot more than most site’s can say.

We acknowledge success and failure…even our own. We were wrong about SPKL a couple of months ago. It wasn’t the first time, nor will it be the last time. What you’re ignoring is the incredible gain we’ve made on BMSN, THC, and the fact that we pretty much pin-pointed the market’s recent bottom (last weekend). You seem to have forgotten that we told you biotech was a ‘buy’ on June 25th. (Biotech is up 9% since then.)

Like I said, I’m not trying to be disrespectful. But, you said it yourself…”Facts are facts guys and you cannot ignore them” We totally agree, but you can’t ignore them either, for the exact same reason.

Anyway, here’s the bottom line…if you’re looking for perfection, look elsewhere - we’re not perfect. You won’t find it anywhere else, but at least you won’t waste any of our time time expecting it from us.

If you want honest and founded opinions on small cap stocks, sectors, and the general market, keep reading our stuff. If you want better than average picks, stick with us. If you want something you’re not going to get anywhere else, that’s what we do. You may well decide to unsubscribe (which is fine), but there are a few hundred thousand people that would disagree with the decision.

In the meantime, we remain bullish on Spicy Pickle. The stock does not yet reflect the company’s results, but we think it will eventually. That was our message….give it time.

It didn’t really bother me, mostly because I was intimately familiar with the company and its proprietary website from the onset. But, I can see how it might be a welcome change to investors. What I’m talking about is the logical - though unexpected by me - name change for the company formerly known as Stockgroup Information Systems Inc. They’ve changed their name to Stockhouse Inc….which is the same name as their primary website.

No biggie; the operation won’t change from an investor’s or a site user’s perspective. This just brings everything under one umbrella, so there won’t be any confusion about which site you need to go to to find information - it’ll all be at the same site.

Oh, there’s a ticker change too. Don’t use ‘SWEB’ anymore following the switch. The new ticker will be ’STKH’.

The official word is that the name change (and I assume website changes) will take place in third quarter.

On a side note, you may have noticed their site called Small Cap Center (smallcapcenter.com) has been diverting you to Stockhouse.com. That’s by design. The new stockhouse.com site can do everything smallcapcenter did, and more. Also, some of you have inquired to use about how you can get the smallcapcenter.com back. We don’t know - it’s not our site even though the names and focal points sure are aligned. We recommend you embrace the stockhouse.com site. It’s really cool once you learn how it all works.

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.

Don’t get me wrong - I’m loving this week. Everything I said this weekend about all the signs of a bottom being made, I meant from the heart. I went long on a variety of call option trades Monday and Tuesday. As it turns out though, Tuesday was the bottom, meaning I was in a day early. Better early than late though…and definitely better to be a little early in light of yesterday’s monster-sized gain. That’s actually what I wanted to talk about….

I pretty much knew it was brewing, but a 3% (or more) gain for the market is a tough act to follow. Adding to the burden was today’s bullish gap at the open. If it was 1999 or 2003 or 2004, stocks could probably keep going at that blistering pace. We’re still in a bear market though, and stock just don’t move that far that quickly without giving something back.

The indices slipped into the red today, which I think was healthy. They’ve also recovered, which I think is healthy, but I fear could set up some profit-taking tomorrow afternoon. Throw in the fact that options expiration is tomorrow, and I’m wondering if Friday could be a big bearish mess. No big deal if it is; this isn’t a one day game. I just don’t want any of our readers to think get ‘convinced’ of bullishness right at a short-term high.

The healthiest thing I think could happen is actually a weak day today, and a mildly bullish day on Friday. Nobody’s going to feel like taking profits then, and I suspect more buyers will want to jump back on next week when they see this week’s results.

Of course, that’s not how things always work. Lately, it’s not been that way at all. I’ve found the current environment just exhausting, as there is no ‘trend’ to speak of….just jumps. You have to be in a trade the day before to make any real money. That’s not my favorite way of trading, but I don’t aways have a choice. I call it a Jekyll & Hyde mode.

My point is, the current environment pretty much requires you stay on top of things all day long. The rally - I believe - is still on shaky footing. I’d like to see one more good pullback followed by a solid rebound, just to send the message out that yes, this isn’t a fluke.

Stay tuned to the blog, as I know many of you have been. If you had, you would have actually been wildly bullish Wednesday morning when I first mentioned the thing about 1304 new NYSE lows. Perhaps you could have captured the bulk of Wednesday’s gain. Each hour of the next day and a half are just as critical. More this afternoon.

Just an FYI - Applied DNA (APDN) is going to reschedule their annual shareholder’s meeting. It was going to take place on September 16th in Stony Brook, New York. The company has postponed the event though, and will release a new meeting time and location in the near future.

The September 16th meeting was for shareholders on record as of July 15th. That record date, however, will not apply for the rescheduled meeting; a new date of record will also be announced soon.

Since I featured this reversal indicator in Saturday’s edition (and for the last month), I definitely want to give you the latest on the number of NYSE stocks hitting new lows. Why? Well, it hit reached levels we’ve never seen before….literally.

I thought Friday’s 869 new lows was big. Tuesday’s 1304 new NYSE-listed lows is the biggest number I could find since the data has been re