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In
This Edition... |
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Market
Update: From Drizzle to Rain - Is a Storm Coming?
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Updated Ideas...
a Lot Can Happen in a Week
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More Penny Stocks
and Micro Caps 'Of Interest'
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From
Drizzle to Rain - Is a Storm Coming? |
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It took a few
more days than we figured it would back in the May
13th edition, but the bear finally took a big swipe at the bull, and
got it good.
 On
Thursday, the S&P 500 closed under its 20 day moving average line for
the first time since March 11th. You could also argue the market has made
its first lower low and lower high since early March, though barely.
Almost
needless to say, we think the pullback we've been expecting is finally
starting to materialize.
It's not the
actual technical breakdown that leads us to that conclusion though, since
we know charts can be deceiving. No, we see two underlying reasons this
dip is apt to stay alive a few more days. Those reasons are (1) breadth,
and (2) depth.
We don't have
time to get into the mechanics here, nor do we need to - you can go back
and review the
February 22nd edition for the complete explanation of this analysis.
For those of
you who can't wait though, here's the simplified version.....
If a rally is
to last any time it all, the market needs more buyers than sellers (volume,
or depth), and more stocks need to rise than fall (breadth).
 We
know that's one of those 'obvious' nuances. However, we also know most
investors - professional or amateur - can't or don't quantify breadth
or depth into an actual signal-generating trading tool. If they did
quantify the data though, those investors would realize breadth and depth
are far more reliable indicators of momentum (or lack thereof) than the
market's overt hints.
You probably
already figured out where this was going, but if not, here's the bottom
line - breadth and depth both turned bearish a few days before the market
topped on May 6th. And, the relative bullishness and bearishness hasn't
changed since then.
In other words,
the market's recent dip isn't something we can just chalk up to a little
volatility. The bearishness is a true 'trend' in terms of breadth and depth.
The nearby charts
are self-explanatory to that end. You can see the moving averages of bearish
volume and bearish breadth rising, while you can see the moving
averages of bullish volume and bullish breadth falling.
We used the
NASDAQ's data this time, just for kicks, but we could have just as easily
used the NYSE's data.
How long
is the downturn likely to be? That's a little more difficult to glean
from these charts, so we have to rely on other methods to set downside
targets. Generally speaking though, we don't expect this dip to be excessively
disruptive to the long-term recovery effort. A 10% pullback from the peak
would be healthy, and we've already given up about half of that.
And yes, we
expect to see a bullish market reversal coincide with a reversal of the
breadth and depth trends. In fact, if we don't see it, we'll have
no choice but to doubt the market's apparent rebound effort.
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Update
of Last Week's Look at Penny Stocks and Micro Caps |
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In our previous
edition we mentioned a handful of stocks we like, and a listed a whole
slew of micro caps and penny stocks we found interesting (even if not actionable
yet). Here's a brief update on some of those tickers.
 HKN
Inc. (HKN)
Though we hate
to mimic Jim Cramer, yesterday truly was a boo-ya (or is it boo-yah?)
day for HKN Inc.
When we mentioned
it on the 13th as one of those stocks that was finally pulling itself up
by its bootstraps, HKN was actually back-pedaling from a peak of $2.39
to the closing price of $2.00 that day. We had to wonder if the uptrend
was going to get stopped before it even got started, particularly when
it reached a low of $1.69 the next day.
As it turns
out, HKN is one of those stocks that proves you can and should buy
on a dip.
The stock has
rebounded to a price of $2.31 as of yesterday's close. Not bad, but that's
not the 'boo-ya' trigger. The rally yesterday was made on the highest
volume we've seen since June of 2008... 115K shares.
That could get
the attention of a lot more investors, solidifying the opportunity here.
Dolphin Digital
Media Inc. (DPDM)
This stock's
not really gone anywhere since the 13th, but we think it's interesting
how shares were pushed backwards to the support of the 20 day moving average
line twice, and rebounded both times (chart not shown here). This
certainly hasn't been an environment that lends itself to resilience.
On the flip
side, we've hardly seen a breakout yet. There seems to be some resistance
around 70 cents, and then another layer at 76 cents where the stock peaked
in early May. That's also where the 200 day moving average line is, which
could make for a meaningful buy signal now that we're starting to see more
support than resistance.
Allied Defense
Group Inc. (ADG) and Flow International Corp. (FLOW) have basically treaded
water since our last look. For the time being we think they're both worth
keeping on your watchlist, but are not necessarily your best bets just
yet. The same goes for Mirani Brands Inc. (MRIB) - our only bearish
idea at the time.
In the meantime,
a few of last week's tickers we put on the watchlist have been promoted
to mention-worthy status.
ParkerVision
Inc. (PRKR)
This stock,
which got our attention last week because of a high volume rally, hasn't
really done much in the meantime... on the surface. If you look closely
at a chart though (not shown here), you can see PRKR pushed off its 20
day moving average line on Thursday, boosted by another big volume session.
Could the sideways
action since May 4th just be a consolidation phase in front of the next
pop? It's hard to say, but this chart has a certain je ne sais quoi.
 EnDevCo
Inc. (EDVC)
EnDevCo's chart
is a little like ParkerVision's, in that it's only 'almost' attractive,
and only for indescribable reasons.
Well, maybe
it's not entirely indescribable - we've seen a massive number of
buyers make their way in since late April, with the bulk of Thursday's
inflow likely prompted by the company's quarterly filing from Wednesday
afternoon.
Still, we've
not seen the stock pop out of its rut... at least not yet. That's
the weird part. How come all those buyers can't get the stock going?
The potential
answer to our question is the reason we point out the chart in the first
place - the stock and all its buyers may be building up some steam, and
could unleash all the pressure with little to no warning in the near future.
Resistance is at 60 cents.
This is definitely
one you want to keep on your radar.
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This
Week's New Stocks 'Of Interest' |
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You'll notice
some of last week's watchlist tickers have been removed, and a few new
ones have been added. As we did today, we'll follow up with these penny
stocks when-and-if merited.
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Richardson Electronics
Ltd. (RELL)
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U.S. Gold Corp.
(UXG) - still heading into the tip of a pennant
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Gabelli Healthcare
& Wellness (GRX)
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Plastinum Polymer
Tech Corp. (PLNU) - relatively big volume on Monday
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Glowpoint Inc.
(GLOW)
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Geovic Mining Corp.
(GVCM)
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Aura Systems Inc.
(AUSI) - testing support a little too frequently
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G-Willi Food Intl.
(WILC) - may be worth buying just for the name
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Intricon Corp.
(IIN) - sometimes misery never ends
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Green Plains Renewable
Energy (GPRE) - itching to break out
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Riverview Bancorp
Inc. (RVSB) - can't get past resistance
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Rosetta Genomics
Ltd. (ROSG) - watch resistance at $3.80
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PDI Inc. (PDII)
- big volume, small gain... could be a wind up
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CFS Bancorp Inc.
(CITZ)
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Aristotle Corp.
(ARTL) - 'on the verge'
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Collectors Universe
Inc. (CLCT) - now above the 200 day average
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
