Small Cap Network Blog

By now you’ve certainly heard the good news - the second quarter’s growth in GDP (gross domestic product) was actually 3.3% rather than 1.9%. Fantastic. However, in all fairness to Joe Investor, does it really matter at this point? This is why I’m interested in very little economic data any more….at least not the economic barometers. Woe to anybody who still puts their faith in it.

There’s a short list of problems I have with the whole mess…

1) First of all, Q2 ended 59 days ago. We’re only 34 days away from the end of Q3. Does Q2’s data really matter any more?

2) Let me get this right….the government’s first guess was only 1.9%, which was well under the initial expected growth rate of 2.7%. Then they come back later and so “Nope, sorry - it was actually much better than anybody even came close to imagining.”? I know there are a lot of inputs, but that makes the initial calculation not only pointless, but dangerous.

3) Is this really data that investors can worry about? The reason I ask….if it is data we need to respond to, we could drive ourselves crazy. Take a look at the chart below, comparing the S&P 500 to the GDP growth rate over the last several years.

It seems to me there’s not enough consistency in the GDP’s change to actually make any real sense of it…at least not in terms of spotting a trend. This chart’s just a mess.

If anything, the only discernible pattern I’ve seen is that market bottoms are made at incredibly low GDP growth readings, and market tops are typically made when GDP growth is through the roof. Kinda make the whole thing pointless, doesn’t it?

Ah, but the media would never let reality and history stand in the way of the easy and quick story. If they’re putting the ‘GDP Revised Upward’ story on the front page of all the finance portals, then it must be important for investors….NOT!

Lesson learned - there’s always more to the story, and if you’re looking for a journalist to provide you with context or a valid cause-effect relationship, don’t hold your breath.

On the other hand, I hear the guy down at the Small Cap Network is pretty good about looking at economic data and the real impact (if any) it has on your portfolio.

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I know hindsight is 20/20, but I still wish I would have waited to get into my Russell 2000 puts until today. The Russell closed 1.3% higher, and rather than the $20.40 per contract I had to shell out, the September 730 puts (RUTUF) could have been bought closer to the their closing price of 16.50.

Still, I like the trade, and I like my entry from yesterday - today could have just as easily been pointed the other way. If a little durable goods orders data just delays the downtrend a day, so be it.

Two things are keeping me encouraged.

The first is, did you see how all the indices backed off from their highs? The inability to hold into gains - particularly after a two-week pullback - hints to me that investors really aren’t ready for stocks to recover yet.

The second encouragement is volume…or lack of it. Today’s modest gains were made on weak volume - a trend that’s been in place for several days now.

Bottom line - no reason to worry yet. I’m down roughly 20%, which is nothing for an option.

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I hate to get on my soapbox say I told you so, but have you seen the small cap metal and glass container stocks today? The Standard & Poor’s Small Cap Metal & Glass Container Index is up nearly 5% for the day so far. In fact, it’s the second best performing index out of about 300 industry/capitalization indices. It’s worth noting, however, that it’s just the small caps that are doing well in this group today.

I only bring up to reemphasize the point I made yesterday afternoon… these stocks were looking unusually strong, and there had to be a reason. For those who took the hint, you’re already well up in just a few hours.

In other words, the strategy works.

Now I’m not going to be naive enough to think that one day means a lot, because it doesn’t. That’s one heck of a coincidence though.

In light of the success so far, yes, I think I will continue to ferret out these niche industries, and even continue breaking them down into capitalization groups.

Either way, of the company’s I mentioned yesterday, Northern Technologies International (NTIC) and Myers Industries, Inc (MYE) are the major contributors to today’s big gains. Northern is up nearly 7%, while Myers is ahead by nearly 5%. There are a lot of these names that I didn’t mention also producing big numbers today though, so don’t limit your search to just a few ideas I pointed out.

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I’ve been sitting on this trading idea for a few days now, not really sure how I wanted to play it. I knew the market was overbought, and I knew it was ripe for a reversal. What I wasn’t clear on was which index to trade…lately there’s been a bizarre disparity between the Dow, Russell, NASDAQ, and the S&P 500. Buying put options on one isn’t the same as buying put options on another.

After doing some math, I think the biggest downside potential lies with the Russell 2000. So, I’m buying some puts on it….the September 730 puts (RUTUF), at a price of 20.90. With the index currently trading at 724.36, that strike’s about 5 points in the money. The cost is about $2090 per contract.

Basically what I’m looking for is more range-bound action. The Russell 2000 has been bouncing between 760 and 650 for several weeks. I think the recent encounter with 760 spoke volumes, and it now looks like we’re pointed back down again.

I’ve got a feeling the late-summer doldrums are going to let the index slide all the way back to support at 650. If that happens, my Russell 2000 puts will be worth $80, or $8000 per contract. That’s about a 300% gain…if it works out. As always, I’m not getting married to this trade - I’ll bail if I start to lose too much ground. Defense is more important than offense.

I’ll be tracking this trade in the blog, if you want to virtually stand over my shoulder as I assess it each day.

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I think I may have stirred up a hornet’s nest with the whole ‘hot industry’ thing. I did it on a whim Friday, and followed up with some specific picks on Monday. As a result, we’ve now got several requests for us to keep digging - to pinpoint the exact stocks responsible for the industry’s strength. Here’s one of the requests from a reader….

Dear Sir,

In the newsletter you mentioned that food distributors were one of the groups you were looking at.  Will you be breaking that down to specific companies within that sector in a future newsletter?

I have been looking at Military Resale Group ( a food distributor ) for possible purchase, however I am unable to find much current information concerning the restructuring they have been undergoing. I believe there could be a lot of upside potential in this stock if the restructuring plan is successfully completed. They had mentioned a retail division in one of the press releases in the past, could you inquire about that and the overall progress of the restructuring plan.

Any information would be greatly appreciated.
 
Thank You

Thanks for the question. First of all, let me say to you and all the other readers….I’m really pleased that you’re thinking along these lines now. I’m convinced half of my success as a trader is directly the result of spotting the right sector at the right time, and then digging up the best stock in the group. The media - and most financial professionals - try it the other way around. But, that really doesn’t work the right way often enough.

Now, to answer your question….

I don’t know. I’d like to be able to highlight these trends and drill down into all of them. The thing is, time is an issue (for everyone, really). My plan was to dig deeper into the four groups I mentioned if I could find the time. I’ll try, but I can’t guarantee anything.

That said, I’ll make you a promise….if you help me, I’ll help you. If you vow to read the newsletter and blog on a regular basis - and contribute via the blog when you have something to add - then yes, I’ll break down all these trends into individual stocks. If there’s only a passive or mild interest in me doing this though, I really can’t afford to devote time to it.

Let’s try it for a few days and see what kind of feedback we get.

As far as Military Resale Group is concerned, your guess is better than mine. I’m not prepared to answer anything about it, but give me a few days and I’ll see what I can find.

In the meantime, I do have a curious observation about one of Monday’s rare bright spots. Small cap metal and glass container stocks were up pretty nicely….nearly 1%. I’m not always surprised to see a materials industry rally when the rest of the market sinks. However, Monday was a bloodbath, affecting every corner of the market - except small cap metal and glass container names.

Were it just one day, I might dismiss it. However, this group has had one wild-but-firm rally over the last month….following one wild plunge the month before that. With all that shakin’ going on, I think we at least owe it to ourselves to see if there’s a stock or two we need to look at.

Well, you can thank me later - I’ve narrowed the list down for you. If you get a moment you might want to do some due diligence on Pactiv (PTV), Northern Technologies International (NTIC), Myers Industries, Inc (MYE), Intertape Polymer Group (ITP), Crown Holdings, Inc. (CCK), Greif, Inc. (GEF), and Bway Holding Company (BWY). Here’s a quick fundamental snapshot; be sure to keep reading below for charts of each.

Now just so you know, I didn’t pick those stocks based on their fundamentals. I picked them based on their charts; it just so happens that the fundamentals are pretty good. (Kinda funny how that happens sometimes.)

And speaking of, here are those charts. What do you think?

If any of you have any thoughts or knowledge about any of these stocks, please let us know. The contact form is below.

In the meantime, a significant number of these stocks were heading higher on Monday despite the broad market’s big losses. That ain’t a coincidence, and I can’t chalk it up to a volatile dollar and the threat of inflation. Metal and glass containers…who woulda’ thunk it?

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It’s official - I’m a giant nerd. Anybody who would go to the trouble of ferreting out the market’s hottest and coldest industries is ‘overdoing’ it. Anybody who would then break those industries out by large, small, and mid caps is officially waaaayyyy over-analyzing things. My insanity is your gain.

Anyway, with a little extra time on my hands this morning, I’ve broken down the market’s best and worst small cap performers, by industry. Why bother? Primarily because birds of a feather flock together - these small cap industry indices are doing what they’re doing because the underlying stocks are either (1) rallying well, or (2) falling apart. Either way, there may be something trade-worthy in there.

And to answer the next question, yes, there is a significant difference between the small cap version of these industry indices and their large and mid cap brethren. That was surprising to me, but also encouraging that the lemming mentality hasn’t yet infected every style, cap, and industry.

Anyway, here are the numbers…the best 2-week performers in yellow, and the worst 2-week performers in pink.

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I’m certainly not always right, but this is one I mentioned I saw coming on Monday in our ‘Market Call’ blog. So now that it’s here, nobody should be saying they weren’t warned. What I’m talking about, of course, is the rebound in oil prices, and the reversal of the U.S. dollar. Frankly, I’m surprised stocks aren’t struggling more than they are.

All the same, the charts are what they are. Take a look below. In both cases I expect the reversal to persist for a while. That’s just the nature of oil and currency - they tend to not be as erratic the stock market.

More importantly, the sinking dollar and rising oil is going to be a burden on a stock market that’s got more than enough problems to deal with already.

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Thanks for all your comments and questions regarding this morning’s announcement that Applied DNA (APDN) was entering the anti-counterfeit wine arena. We agree - it’s a big deal, and could really boost the top and bottom line. It did raise a good question though…one we think is worth answering publicly. Richard writes…

You are missing one very important point in your evaluation of this company and product or service. When they find counterfeit product for their client will it be admissible in a court of law? What good does it do if a customer buys Applied DNA’s service and can’t protect a found counterfeit in court? Tell me law enforcement will accept the scientific findings of APDN and I will tell you that APDN is a rocket ship. Otherwise finding fraud with an methodology not accepted by a court means nothing.

Hi Richard. You are correct - all their ability is irrelevant without proper forensic-level testing. However, Applied DNA’s technology is indeed forensic-caliber, and therefore admissible in a court case.

We’ve touched on that a couple of times, though not recently….

http://www.smallcapnetwork.com/Applied-DNA-APDN-Enters-Into-Tentative-Agreement-with-Smiths-Detection-Biomatrix-BMSN-Submits-Documentation-for-Approval/af/archive/20080505-1/

http://www.smallcapnetwork.com/Hot-Penny-Stock-Applied-DNA-APDN-on-the-Verge-of-a-Breakout-Spicy-Pickle-SPKL-Announces-10-Stores-in-Houston/af/archive/20080204-1/

However, there’s also some discussion of this on their web site….
http://www.adnas.com/signature/dna_authentication

Also, the full details of their forensic capabilities can be studied in this recent SEC filing…
http://sec.edgar-online.com/2008/07/22/0001188112-08-002206/Section18.asp

In short, everything that has to do with SignatureDNA is court-admissible. Also, the testing of the wines’ grapes origins is forensic-friendly. It’s not based on SignatureDNA, but it can identify particular strands of DNA at a level detailed enough to achieve the same specificity as SignatureDNA, identifying a plant’s geographical origin.

In other words, everything we’ve looked at so far from Applied DNA will hold up in a court case.

One point to clarify though…the forensics test that a court case would require isn’t the field test, which only requires a hand-held scanner. If the quick, hand-held scan turns up something its user thinks is worth testing forensically, the label is then taken to a lab where proper forensic testing is done.

Hope that helps.

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I know Hewlett-Packard’s (HPQ) news was good this morning, as was BJ’s Wholesale Club’s (BJ). Neither of those earnings results changes the bad ones we saw yesterday (the ones I referenced in a ‘Market Call’ blog entry). So, don’t get too excited….earnings are still a mixed bag.

I didn’t come here to talk about earnings though - at least not yet. Check back later in the day.

No, I came to talk about the other two big drivers behind the recent market rally…oil and the U.S. dollar. The former has been falling, and the latter has been rising. Both trends are generally good for stocks. And conversely, when both of those trends reverse, it’ll be tough on stocks.

Well, as you might have imagined, I think that’s what we’re about to see.

(There, I’ve just caught you up on about a week’s worth of commentary…literally.)

And where are both of those charts now? Oil is still finding support, and the dollar is still hitting a ceiling. In fact, we saw huge reversal bars (higher highs, lower lows, and a closing level pointed in the opposing direction) yesterday from both chart. A little follow-through today for either chart could clinch a reversal. Ergo, today’s critical.

I’m not going to rehash the specifics - the charts speak for themselves. These are as of yesterday’s (Tuesday’s) close. I’ll update both on Thursday when we get today’s final closing data.

My point, however, was to not get sucked in by today’s good news….there’s a lot of recovery to be made if the market’s going to stave off a pullback.

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It had been a while since we heard anything from biotech company CEL-SCI (CVM), but that changed yesterday with a fat dose of encouraging news. Teva Pharmaceuticals (TEVA) has been signed as an exclusive licensee of CEL-SCI’s cancer treatment - Multikine - for Turkey and Israel. What’s interesting here is that Teva got on board even before Phase III testing for Multikine has started.

Of course, Phase III is mostly an FDA-mandated stage, so the same testing requirements may not apply in other countries before a drug is approved for public use. Even so, Multikine is not quite ready to be put on the shelf anywhere…at least not until some more efficacy and benefit data is gathered. So, for Teva to sign a contract at this juncture indicates a fair amount of faith that Multikine will indeed be approved in the two afore-mentioned countries. And, that ‘faith’ is also coming in the form of dollars - Teva is putting up some money for Phase III testing.

I don’t know how big the head-and-neck cancer market is in Turkey and Isreal. I’m sure it’s not the biggest market either company is eyeing. However, even a small market can get the revenue ball rolling.

The press release also mentioned something I think we should never forget about Multikine…all the work and regulatory hoop-jumping so far has focused on using the cancer treatment only for head-and-neck cancer. But, Multikine is also known to be effective for all types of tumors, regardless of location. It’s just particularly more effective than most alternative head-and-neck cancer drugs.

I think what the company is doing is taking the path of least resistance - a wise move. The drug has already been ‘fast tracked’ by the FDA, so the odds of getting it approved as a head-and-neck cancer treatment in most countries are very good. Once that happens, it’ll be much easier to win approval for its use against other tumors.

Good news? You bet. So what happens with the stock? It surges….for a few moments. Then it sank into the red and closed out with about a 10% loss.

If you’re asking how that can happen following the best news in months from CEL-SCI, you’re not alone. My answer is simple…when has the market ever been logical?

Specifically, I think what we saw as just a case where CVM had hit new 52-week highs, and impatient owners just started taking profits. That profit-taking, however, started an avalanche that tripped a lot more owners up along the way; I’m guessing there were a lot of stops around - and slightly above - 60 cents.

Here’s my take on the matter….eventually, all stock prices are justified. In the short run, they may or may not be. Personally I think CEL-SCI is a long-term holding anyway, since Phase III won’t be over for at least a couple of years. That’s why I don’t really care what happens in the meantime, good or bad.

On the other hand, other traders clearly don’t have the same point of view. They ended up being net sellers yesterday. Maybe it was a case of ‘buy the rumor, sell the news’ (though it was the fastest case of it I’ve seen in a while).

Either way, whether you’re an investor or a trader, I don’t think Tuesday is the day to worry about. I think today (Wednesday) and the next few days will really tell the tale. Hyper-volatility can skew the true picture.

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I’m tacking this blog entry into the ‘Market Call’ section, as it has mostly to do with my bearish prediction I’ve been discussing for a few days now. As the title asks, are there too many scary headlines today to actually be bad?

This is - as a contrarian - normally where I’d say the onslaught of grim news would actually be a sign of a short-term bottom. People tend to freak out at the least opportune time.

In this case, however, I think this is the kind of thing we’re going to see for a while….long enough to keep inspiring some selling. Considering the recent rally we’ve seen, there are actually profits to be taken (unlike most short-term bottoms).

Bottom line - I’m taking the news at face value, and assuming the market will view this as a reason to sell.

Of all the indices I think currently offer a good reward compared to the risk involved, I feel the Russell 2000 is the best….only because it’s rallied the most lately. That makes it the most vulnerable.

You could short the Russell 2000 ETF (IWM), or buy put options. Either way, I think a move back down to $65 is likely.

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Technically we’re still in the ‘too soon to call’ stage, but if I had to venture a guess right now I’d say the next few days may be trouble for stocks. Oil looks like it hit a short-term bottom, and the dollar looks like it hit a short-term top…two things stocks can’t really afford to deal with right now. So, add that to the bearish forecast I published this morning about the Russell 2000.

Friday’s low near $110 for crude pretty much tagged that key Fib retracement line - a 61.8% retracement - but we’d seen the downtrend get slower as that level was approached.

The dollar had worked its way into an overbought situation as well. The U.S. Dollar Index peaked at 77.25 on Friday, and so far today we’ve only seen a lower range. However, now that we’ve seen the dollar index pause here, the reason has presented itself. Take a look at where the U.S. Dollar Index topped out a couple of times in February. It was right around 75…where we are now. The dollar’s bulls can’t risk a repeat of that short-term high, so they’re probably apt to start trickling out.

All of these things should weigh in on stocks. Hence, I have even more conviction with my bearish argument from this morning.

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If the rest of the market were up for the day I’m sure I wouldn’t even mention it. But, when one of our bulletin board stocks is making a gain in this environment, I think it deserves at least a mention….particularly when it looks like it’s trying to stage a breakout.

I’m talking about our small cap pick Voyant International (VOYT). It’s up 11% for the day, which isn’t huge, but we’re also seeing this stock finally get past a fairly significant ceiling at 14 cents. Better still, it looks like the buying volume is growing again.

Nothing earth-shattering, but this move is going to put VOYT back onto my short list of stocks worth watching. It also makes me wonder if there’s some yet-to-be-released news some traders are trying to get a jump on.

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I alluded to the idea on Friday, but after seeing the market on poorly today, I’m leaning even further on the bearish side of the fence.

The Russell 2000 ETF (IWM) probably best illustrates my thoughts here. After peaking at $76 in June, it did so again on Friday….before fading. Today we’re watching the sellers take control again. Being overbought - stochastically - didn’t help any either. Oil’s a little higher, the dollar’s a little bit lower. Both of those ‘little bits’ are ripe to turn into something more than ‘just a little bit’.

From here I’m looking for the whole market to sink, led by the Russell 200 and the NASDAQ. That’s not a forecast of another full-blown bearish leg - just a pullback, for now.

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Well, here it is at 2:00 PM my time (Eastern Time), and what started out as an uneventful day got even more uneventful. (Is that even possible? Anyway…) I attribute a lot of it to expiration week….and expiration day to be more specific. With many investors on the last vacations of the season, a tepid week already, and with all the bears and bulls making some sort of exercise decision with their options that ends up collaring most stocks, the market’s pretty much stuck.

I don’t want to discount another contributor to the lethargy though…the market was basically flat for the week as of yesterday’s close. In the same way gains breed more bullishness and selling fosters more bearishness, stagnant stocks breed disinterest. Looks like a lot of people checked out before the day even started, so I’m not going to try and make something out of nothing…at least when it comes to a market call.

I do have a couple of other blog entries to get through the day though. (I find the market’s quiet time is when I can actually get things done, and post some meaningful comments.)

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It ain’t millions and millions yet, but I have to give credit where credit is due - Applied DNA (APDN) just posted their third quarter numbers. We saw their fourth straight increase in sales. They pulled in revenue of $252K. There were no revenues at all for the same quarter a year earlier, since - as you probably know - the company really didn’t get a revenue-bearing product to the market until about a year ago.

My take? It’s proof of life. I’d love to have more (who wouldn’t?), but considering they literally started from scratch not too long ago, I give their progress-to-date a thumbs up.

It’s also worth noting gross margins remained high. Their cost of sales was only $50K last quarter, leading to a gross profit of $202K. Again I’d rather have net profits, but with a positive gross margin we can at least assume more volume will eventually mean profitability.

It’s also worth noting the majority of the expenses booked in this most recent quarter were related to professional fees and the reorganization of its capitalization…converting notes to equity. I’m not one of those people who disregards the bottom line when those kinds of things are booked; a loss is a loss. Again though, it points back to viability…those things won’t last forever.

What didn’t get said in the 10-Q may be even more important. In talking to the people at the company, I learned a big chunk of Q3’s sales were from repeat customers. That’s encouraging, in that it tells me getting this product out the door isn’t going to be a constant battle. The more new customers they add each quarter, the more customers they’ll have coming back with orders in hand, leaving their rain-makers to cultivate more business.

Here’s the 10-Q for Applied DNA. There’s no press release…at least not yet. However, I suspect there will be one tomorrow. I’m going to be publishing an edition tomorrow (Friday) afternoon anyway, so look for some more thoughts on Applied DNA then - maybe with more details from a news release. I just wanted to get you the news as soon as possible.

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OK, they probably weren’t long-awaited, but I mentioned they were on the way. So, here’s what I’ve got to say about Stockhouse’s (STKH) second quarter, and more importantly, my thoughts on what they had to say about their Q2.

If you heard the call from yesterday, and if you heard any of the other recent calls, you were probably wondering (as I was) if it was a re-run. The same stuff they were saying then was the same stuff they said in the two prior calls.

No big-deal…boilerplate banter is the norm. The problem is, it was the third call in a row where they’ve said ‘next quarter will be better, once these expenses are out of the way’. (I paraphrased.)

So what? Not only have the quarters not been getting better, they’ve been getting worse. Last quarter was the most expensive quarter ever for Stockhouse, and sales saw their second consecutive decline. Cost of revenue was higher too. So, my question is, what constitutes ‘better’?

Don’t hear me wrong; most small caps have to spend money now to make more money later. I can deal with that. I just wish they had told me that. Instead, we got pretty much the opposite.

The reason this blog is so late today was simply because I wanted to go back through some recent company statements to see if it was just me remembering things that weren’t true, or if they truly did fail to deliver.

Here are some quotes from the press release that came out with their Q3 (2007) numbers, on November 14th of last year. Bear in mind we just heard about Q2 (2008), so this was three quarters ago…

Stockgroup completed its major development goals for Stockhouse during the third quarter and launched the beta version of the site on October 2nd.

In the third quarter, Stockgroup continued to make substantial progress in changing its back-end architecture to a Microsoft(R) .net platform, but due to the late launch of Stockhouse, this goal will not be fully achieved by year-end. We expect completion of this goal during our first quarter ending March 2008.

Joe McWilliams joined as VP Monetization.

Editor’s Note: The beta didn’t turn into the ‘live’ site until the end of Q1, the architecture change was still going on during Q2, and McWilliams left a few weeks after he started. 

We got these nuggets with the Q4 numbers on April 1st….

Our transition to the new Stockhouse was completed on March 28, 2008.

The Company’s focus is:…Increase traffic to Stockhouse…During Q4, the Company averaged over 1 million unique visitors per month to its flagship media property Stockhouse.com, an increase of 42% over the same period in 2006.

The Company entered into an agreement with Yahoo! in which Stockgroup distributes editorial content from Stockhouse to Yahoo! Finance Canada.

Inventing and building a sophisticated analytics system to act as an editorial filter for user generated content also took longer than we expected, and delayed the completion of the new Stockhouse web site from 2007 to 2008.

“In 2008, Stockgroup will start to leverage the unique media platform that has been two years in the making. We are now positioned to execute on our detailed plans to accelerate both the number and engagement of Stockhouse users while adding new content distributors and licensing partners,”

Editor’s Note: The Yahoo! Finance Canada link is buried to the point of being unfindable unless you know exactly where to look, and traffic (and engagement) was way down in Q2…delay or not. Engagement was still down. The delays mentioned, however, were accurate,

On May 14th, when the company released Q1’s (2008) results, we heard… 

“Advertising was impacted in Q1 due to having Stockhouse in beta which caused confusion for advertisers and advertising delivery problems caused by delivering to two sites. We feel these issues are now behind us. Going into Q2, we have a growing Stockhouse with one of the most lucrative demographics and the best engagement statistics in our category for advertisers, a new VP of Advertising Sales, and a new ad trafficking role filled.”

The company also added Dana Stetson as Vice President of licensing/subscription sales.

Editor’s Note: Huh? Maybe it’s just me, but wouldn’t you have the ad service thing figured out before you got paying advertisers involved in it?  

On August 13th, we heard this about Q2… 

During Q2, the Company reports an average of 700,000 unique visitors and 7.6 minutes average time spent per user. At the beginning of the second quarter, the Company launched the new Stockhouse.com.

This quarter, Theresa McVean joined the Company as Vice President, Advertising Sales. Ms. McVean brings more than 10 years experience in online advertising sales.

“We are disappointed with our Q2 advertising results which were significantly impacted by a gap in staffing and stock market conditions,”

Editor’s Note: Engagement was down though the new site was supposed to improve it. What gap in staffing? They’ve hired at least three marketing and sales (or monetization) VPs in the last three quarters. If it’s non-managerial sales reps they were low on, why would you not replace them ASAP? They’re you’re lifeblood. All three new marketing/sales managers were in place before Q2 started. If you were on the call, they also said an ad server was put into use in Q2. Again, why would you not have that ready months ago?

My bottom line is the same now as it’s been for three quarters….enough talk, and enough excuses, and enough ‘new’ one time expenses. You’ve made the promise - now start delivering.

They’re looking for profitability in Q4. A year ago I may have had faith they could do it. Now I want them to prove it to me first. I just can’t help but be skeptical after all the shortfalls and unfilled promises we’ve seen.

Just my two cents.

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Geez, that didn’t last long. After yesterday’s mid-day rebound (almost back to break-even levels), I was somewhat expecting a little follow through today…particularly when Wal-Mart (WMT) gave us some surprisingly good new. Then WHAM! Inflation grows at its fastest pace in 17 years. The market futures went from pretty positive to quite negative.

But, here’s my question….does the data still apply? Or, perhaps the better question to ask is if CPI is calculated using end-of-month prices, or the average prices throughout the month. (If you know, leave a note below.)

If it’s the latter, then I don’t care about today’s announcement. Why? Oil peaked at $146 in mid-July, but closed out the month at $124. That’s a big difference, and using the average price could really inflate the month’s numbers.

Don’t get me wrong - even with the best-case scenario, inflation is still too high for me. I just don’t want to make this more than it is. The ‘real’ inflation pain may actually be less than implied.

Nevertheless, I hope like crazy this is finally going to get the Fed and Bernanke off their duff. They just need to grow a collective pair, and do something….as in raise interest rates.

I know, I know….it’ll kill the housing market. Folks, here’s some bad news. - the housing market is dead anyway. Higher rates will benefit us more than harm us.

The next ‘anti’assumption is that rising interest rates are bad for stocks. It feels right to say it, but the math says it’s wrong.

Take a look at the chart below, which compares the S&P 500 to the Fed’s reserve rate. All the major directional changes in interest rates are marked on the SPX chart with an up or down arrow.

Conventional wisdom says falling rates should coincide with a bullish market, and rising rates should coincide with a falling market. Does it?

The only thing is see that’s even close to a correlation is this… rising rates are more bullish than bearish, and falling rates are more bearish than bullish. (I don’t make the data - I just pass it along.)

Counter-intuitive, isn’t it? Yeah, well, add it to the list of things your broker or your favorite media guru probably got wrong.

Anyway, back to today’s point….I sincerely hope this data will finally force the Fed to do something. Higher interest rates I can deal with; expensive gas and food, I can’t deal with. The irony is, we’d all be fiscally better off paying a slightly higher interest rate than paying significantly more at the gas pump. Ben still hasn’t called me to chat about it though.

As for my take this is likely to have on stocks in the near-term, check in later this morning….I want to see how deep this wound is.

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Let me get this straight….retail sales grow for five consecutive months, fall off a little last month, and the market tanks? Sorry - not buying it as “the reason”. Oh don’t hear me wrong…it was the catalyst and excuse, but not the reason. No, stocks are in the red today just because it was time for a little selling.

Bigger picture, the blip isn’t even registering with me. Why? We’ve seen this same thing three times already in the last month…literally. Those three dips were all short-lived, and countered with an even bigger rally. The pattern hasn’t been broken yet, so I’m not going to assume it will this time either.

In fact, I think today’s dip is a healthy thing - it’s bringing it all to a head.

As you can see on the chart, the S&P 500 is all the way back to what has become a fairly important support line (black). If we repeat the pattern, the index should push up and off from here.

In the meantime, we’ve also seen a cross above my ridiculously-simple bull/bear indicator…a 20 day moving average line (blue). [I like it because it works.]

We really haven’t been able to test the 20 day line all that well, having only crossed above it two surges ago. However, on the 7th and the 8th, the 20 day line sure looked like a rebound point.

As long as the S&P 500 can hold above the 20 day average - at 1270.80 - I’ll actually be in the bullish camp. Of course, I won’t be adding any new longs until we’re on the way up again. If the 20 day line breaks, I’m not interested in new longs right now.

(By the way, the Dow’s chart looks about the same. The NASDAQ’s and the Russell 2000’s chart are a little too erratic to get a good bead on right now, which is why we chose to use the S&P  500.)

For more on my ‘timing’ philosophy, you may want to revisit my recent blog/rant ‘Technical Versus Fundamental’. 

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We mentioned it when first announced, but that was back in July. So, here’s a friendly reminder about StockHouse’s (STKH) second quarter 2008 numbers and conference call.

Unlike previous announcement, the company intends to release its second quarter 2008 financial results on Wednesday, August 13, 2008 (today) after the market closes. They usually do it about 3 PM EST the day of, so this time’s a little bit different. Not sure why.

The conference call and webcast will be also be held at about the same time the results are released…. Wednesday, August 13, 2008 at 4:10PM EDT / 1:10PM PDT.

To participate in the conference call, please call 1-866-400-3310 five to ten minutes prior to the start time. To listen to the live webcast, please go to www.stockgroup.com (the old site still works for the time being).

We’ll be on the call as well, and plan to detail some of the highlights afterwards. Still, our take is no substitute for being able to ask your own questions. If you get a chance, I suggest calling in.

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