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In
This Edition... |
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Small Cap Fundamental
Outlook, By Sector
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Chart Close-Ups:
UXG, LOV, ARDM Lookin' Good
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This Week's Watchlist
(the best of the rest)
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Small
Caps by Sector: The Good, Bad, and Ugly |
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We've
spent the better part of the last few months talking about the economy...
what was wrong with it, how it could be fixed, and how to know when it
was. And, we're getting there.
Now that there's
a light at the end of that tunnel (i.e. it's actually possible to produce
earnings), we should also start thinking about which sectors we want to
avoid in the foreseeable future, and which ones we want to be in.
 To
that end, the nearby table tells the tale. It's the projected earnings
growth and P/Es for S&P 600 constituents, broken down by sector. 2008's
numbers are actual, while 2009's numbers are still estimates (obviously).
Granted, the
smaller the company, the slower the estimates are updated. These numbers
are still reasonably up-to-date though, and at the very least act as a
benchmark for comparison purposes.
One thing to
keep in mind.... the reason some of the 2009 projections look so good is
that 2008's numbers were very, very bad - the bar is set low. So, while
we question all forecasts, we don't blow them off just because they don't
seem possible.
On the other
hand, we have a hard time believing small cap telecoms will be collective
losers next year. Some of them are apt to lose money, but the whole group
(net)? It's questionable.
We also have
our doubts that technology stocks are going to see another 37% decline
in earnings this year after seeing earnings sink 45% last year... particularly
if the recovery takes hold in the second half of 2009.
Anyway, there's
some benchmark data for you, and perhaps a reality check. If/as the numbers
change, we'll post that information here.
With the fundamental
snapshot being shared, we'll remind you once again of our core philosophy....
the technicals (charts) are just as important as the fundamentals (profits,
or lack thereof).
Here's a quick
look at the recent
relative performance of all the major sectors, which may or may not
correlate with what "should be" happening based on the fundamentals alone.
Remember, corporate results can and often do influence a stock's price,
but they don't do so often enough to trust them blindly.
Just to explain
our watchlist and chart close-ups (since we haven't in a while), we always
look at more trading ideas than we know we'll ever need. Why? To make sure
we have enough good ideas when we want to take them. All of the potential
ideas are in the watchlist below, though we know most of them will never
be needed (or worth taking).
The ideas from
the watchlist that are either (1) really compelling, or (2) something we
can learn from, are featured in this section with a chart and discussion.
Even then, most of them are not necessarily full-blown trade recommendations,
though you are certainly more than welcome to use them as such. We simply
share them to supply ideas and lessons.
That said, here
were the six we found most interesting this week... three were already
on the watchlist, and three were new:
 U.S.
Gold Corp. (UXG)
This is actually
the oldest idea from our watchlist, dating back to April. It's just taken
that long for it to start getting traction.
The ultimate
breakout finally came with the push higher from late May. Though it's been
volatile, we're seeing higher highs and higher lows.
There seems
to be a bit of a ceiling around $2.77, but if that line can be knocked
out of the way, we suspect the subsequent breakout efforts will be easier
to muster.
 Spark
Networks, Inc. (LOV)
This one's been
a while in the making as well.
We became interested
in June when shares started to move upward on higher volume ....something
that was missing from the ridiculous surge in May. It's still been very
erratic, but that's more a function of thin trading volume than volatility.
During recent weeks, we've also seen higher lows.
On the other
hand, we haven't seen higher highs yet - we've just seen resistance at
$2.50. If LOV can break that ceiling, it would be very easy to love.
 Harvest
Natural Resources Inc. (HNR)
This isn't quite
a rock-solid idea yet, but we like the way shares have made a move back
above the 20 day average in a well-tempered fashion. These slower moves
are more likely to experience follow through.
On the flipside,
there's a stark lack of volume as of yet. That could change, but if it
doesn't, the bulls are going to have a very short trip.
For the time
being, this is one we think is worth watching very closely, but absolutely
not worth acting on yet.
 NPS
Pharmaceuticals, Inc. (NPSP)
NPSP got our
attention in June. The problem was, it also became very overbought in June.
We wanted to see shares reeled in enough to cool them off, but not reeled
in so much that the uptrend died an early death.... a very fine line to
walk.
As it turns
out, we saw what we wanted. The 20 day moving average line (a very simple
but powerful bull/bear tool) stepped in as support, and has pushed the
stock moderately higher. Buying volume has been picking up as well.
The resistance
at $5.13 is nothing to take lightly though. Not only are we seeing it now,
but we also saw it in March.
 Aradigm
Corp. (ARDM)
A quick glance
at the daily chart might lead you to think the big move was a one-day wonder,
and not worth any further consideration. If you take a look at a weekly
chart (which we did) and examine some of the back-story though, the picture
becomes a little more bullish.
The stock surged
because an affiliate of Aradigm's won approval for a medical device that
Aradigm actually designed. The partner company will basically develop and
market the device, and pay Aradigm royalties (not to mention a one-time
lump sum). Those royalties could mean multi-millions per year though, which
isn't a bad deal for ARDM considering the company had made exactly zero
dollars over the last two quarters.
Given the scenario
and the way the stock has made a bowl-shaped reversal since March, this
one's a very interesting long-term idea.
 COPsync,
Inc. (COYN)
Though the stock
hasn't completely imploded yet, the sellers can't get rid of it fast enough.
We've seen three
major distribution days this month, and the chart continues to knock away
at whatever support is left at 28 cents. We've also seen the 20 day line
continue to serve as a ceiling, as it has since mid-May.
The company's
been posting a ton of good news lately, and the stock's falling anyway....
which in some ways is even more troubling than selling on bad news. The
'something is just not right' factor is strong with COYN, and if 28 cents
breaks down, this one may get ugly in a hurry.
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This
Week's Watchlist |
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As always, the
weakest ideas were dropped, a few new ones to watch were added, and the
ones to watch were updated.
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U.S. Gold Corp.
(UXG) - quietly sneaking higher, this one is looking really interesting
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Flow International
Corp. (FLOW) - $2.20 did not hold, let's give it the boot
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Aristotle Corp.
(ARTL) - a lot of resistance at the 20 day line, may switch to bearish
view
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Herzfeld Caribbean
Basin Fund Inc. (CUBA) - getting a little healthier
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Far East Energy
Corp. (FEEC) - big plunge on Thursday, so let's drop it
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Solar Power Inc.
(SOPW) - this bearish idea has been volatile, but is indeed falling now
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Neogemomics Inc,
(NGNM) - despite resistance at $1.40, too much pressure - it's gone
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Oncothyreon Inc.
(ONTY) - the bulls have successfully regrouped, starting to move higher
again
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Affymetrix Inc,
(AFFX) - working on rebound, though still in question
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New Energy Technologies
Inc. (NENE) - launched this week, take some profits if you have them
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Petaquilla Minerals
(PTQMF) - still struggling, so let's cut it off the list today
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VCG Holding Corp.
(VCGH) - starting to perk up a little, but too soon to cut loose
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Blue Earth Solutions,
Inc. (BESN) - flat-lined, let's remove it from the watchlist
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Echo Therapeutics,
Inc. (ECTE) - the breakout took hold on Thursday, really compelling here
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Spark Networks,
Inc. (LOV) - higher lows, but resistance at $2.48 (could be a trigger)
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ICO Inc. (ICOC)
- continues to hit resistance at the 20 day average line
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BRT Realty Trust
(BRT) - starting to rebound, get set for round 2
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AtriCure, Inc.
(ATRC) - we're taking it off the watchlist, no recovery effort
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Reading International
Inc. (RDI) - the uptrend has resumed this week (in spades)
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Pro-Pharmaceuticals
Inc. (PRWP) - way too volatile to keep in our watchlist, off it goes
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Javo Beverage Company
Inc. (JAVO) - broke down this week, but some buyers went fishing
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XO Holdings, Inc.
(XOHO) - jumped last week, has no more value to us
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ERF Wireless, Inc.
(ERFW) - retreated from last week's highs, but consolidating now
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BioNeutral Group,
Inc. (BONU) - plunged this week, no longer of use to us
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Minera Andes Inc.
(MNEAF) - let's take it off the watchlist, just not getting traction
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Evergreen Solar
Inc. (ESLR) - starting to rally again after last week's decline
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FCStone Group,
Inc. (FCSX) - forget the downside move, is a better upside opportunity
now
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Harvest Natural
Resources Inc. (HNR) - nice slow crawl above the 20 day average line
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NPS Pharmaceuticals,
Inc. (NPSP) - found support at the 20 day line, uptrend resumed
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Aradigm Corp.
(ARDM) - big news knocked the stock out of a nasty rut, worth a look
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COPsync, Inc.
(COYN) - resistance at 20 day line, support at 28 cents
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Lifevantage Corporation
(LFVN) - ugly bearish outside day
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
