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In
This Edition |
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Should We Worry
When the Market Starts Setting Records?
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Graduation Day:
New Exchange Listings Include KITD, CMFO, SIHI
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Whatever Happened
to Brilliant Technologies and Qtrax?
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Upcoming IPOs Worth
Watching: Dollar General, HealthPort, and More
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This Week's Watchlist
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Something
the Market's Never Done Before, Time to Worry? |
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While
we certainly applaud the 13% gain the market's already made this year (and
the 50% gain since March's low), the 4.7% gain over the last four days
of last week has taken the situation from 'impressive' to 'dangerous' ....dangerously
overbought,
that is. Yet, the last few days are not unlike the uber-strong rally in
mid July, which was followed by a less strong rally in late July (but
a rally nonetheless). Lesson learned? Being overbought isn't
necessarily a guarantee of a pullback.
There is something
different now than the situation we were facing in July though. Stochastically
(a simple and moderately-effective trading tool), we were as overbought
then as we are now. If it didn't matter then, why would it matter now,
right?
There's a far
lesser-known measure of overbought/oversold, however, that may have a bearing
on the current chart.
The ides is
simple enough.... an index is only likely to move so far above or below
a particular moving average line before reverting to its mean. In other
words, if the S&P 500 runs too far away from, say the 200 day moving
average line, it's very apt to be drawn back towards it.
 There's
no 'magic number' for how far away a market index should be able to move
above its 200 day moving average line before being reeled in, but between
2003 and 2007, all the major peaks occurred when the S&P 500 was between
7% and 13% above the 200 day line. Though it's tempting to simply split
the difference and say 10% is the magic number, that's a dangerous (and
unscientific) practice. It's wiser just to know the danger zone is between
7% and 13%, and then use other tools to spot the beginning of any pullbacks.
Why do we
bring it up? As of right now, the S&P 500 is more than 17% above
its 200 day moving average line. That's the widest bullish gap we could
find - EVER - between the index and its 200 day moving average.
That's not to
say it's impossible for the market to keep going higher; strange things
can and do happen. But, when we start to observe things that have
never happened in modern history, it pays to be skeptical.
Bottom line:
The bulls are on borrowed time here, and the market is still due for a
dip.
Coincidentally,
September is historically the worst month of the year (and one of only
two net losing months on average). Following an abnormally strong summer
that carried the market to overbought levels, the September vulnerability
is a serious concern.
(By the way,
we're going to add this 200 day line/percent distance tool to our arsenal
of tools we discuss in the newsletter. Be sure to keep reading.)
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Graduation
Day: New Exchange Listings |
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A handful of
stocks recently graduated from a bulletin board listing to an exchange
listing, which theoretically should help the stock's liquidity. The added
credibility can't hurt on the bullish scale either. Yet, they're still
micro caps.... and fair game for our review.
This isn't all
of them - just the highlights:
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KIT digital,
Inc. (KITD):
KIT
offers on-demand software IP-based (digital) video. And, apparently they
do it pretty well.... the recent 10Q showed a 9% increase in revenue between
Q1 and Q2, and a 91% increase from Q2 a year earlier. KIT swing to a GAAP
loss in the second quarter, but on an EBITDA/operating basis posted a 239%
increase in earnings. The recent alliance with Akamai makes this one worth
watching.
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China Marine
Food Group Limited (CMFO):
If you like value, you'll love China Marine Food Group. The P/E is a mere
9.8, which is low even by processed food standards. Boring can be beautiful
too. (Side note: The company's food selections include roasted squid, roasted
file fish, roasted prawns, shredded roasted squid, and smoked eel. Mmmmm,
yummy.....j.k.)
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SinoHub, Inc
(SIHI):
Sinohub is another value-seekers dream, with a twelve-month P/E of 8.0,
and a forward-looking price/earnings multiple of 6.2. Margins are decent
as well for this electronics wholesaler. Q2's revenue grew by 137%, and
earnings were up nearly 500%. The company's proprietary supply-chain software
is the key to its success.
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In
Case You Were Wondering.. |
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Several months
ago, the Micro Cap Press mentioned a near-startup company called Brilliant
Technologies Inc. (BLLN.PK).
However, you may recall them better by its business name - Qtrax. Either
way, when what was supposed to happen for Qtrax/Brilliant never actually
started to materialize, the company fell off our radar. Some recent news
has put Brilliant Technologies back into play though.
 Here's
the Q&D refresher.... Qtrax is a digital music download website. What
makes it unique from iTunes, Napster and Napster clones, eMusic, Kazaa,
and all the rest is that Qtrax is (1) free to use, and (2) legal to use.
How so? In the simplest terms possible, it's ad supported, and the company
works with the artists rather than against them or around them.
In any case,
our
interest was peaked in January when it looked like Qtrax was finally going
to make a hard launch and start generating revenue. The money needed
to do that though - the money the company though it had in the bag -
didn't come through.... until last week it seems. Per the August 17th press
release, Qtrax
will officially open for business in most of the eastern hemisphere
on October 29th; most of the western markets will open up later in the
year. As you might have suspected, the stock took off and hit new 52-week
highs. (There's your proof that it can pay to be patient.)
We have no opinion
yet of the company, and we may never have an official one. We do
think it's an idea worth exploring though.
For obvious
reasons one would prefer to see that the company can actually drive revenue
using this business model before taking an investment plunge, but
the stock may be priced much higher by the time that happens. Conversely,
something detrimental could happen between now and late October to trip
up the site's launch. That's investing - the risk and reward trade off.
We'll continue
to monitor Brilliant Technologies' progress with Qtrax, but suggest you
put it on your radar as well now that there's a light at the end of the
tunnel.
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Upcoming
IPOs Worth Watching |
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Since our discussion
of interesting IPOs
a couple of weeks ago was so well received, we've decided to make them
a semi-regular topic for the newsletter.... as long as there's a need (sometimes
there's nothing worth discussing). There aren't any new launches slated
for this week, but here's a list of some of the recently-filed IPO requests.
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Dollar General
- Yes, the discount retailer.
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AEI - A
utility company with operations everywhere but the U.S.
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HealthPort -
Electronic medical records management, a hot spot of late
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Dole Food Company
- Nope, they weren't public yet.
There's no word
on when these companies will actually go public. Two weeks, two months,
two years - it's hard to say. Most should float sooner than later though.
We'll keep tabs on them and review them as merited. Any perspective our
readers may have is invited as well; just send us an e-mail.
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This
Week's Watchlist |
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It's been a
couple of weeks since our last updated watchlist, so you'll find a lot
of additions and subtractions this time around. Also note that we're entering
a lethargic - and historically weak - period of the year. So, don't
expect the same kind of strong, quick movement we've been seeing of late.
Still, there should be some opportunities that are better than others..
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U.S. Gold Corp.
(UXG) - still going strong, the recent dip is an entry opportunity
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Aristotle Corp.
(ARTL) - waffling now, let's drop this one from the watchlist
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Oncothyreon Inc.
(ONTY) - now consolidating at $5.30
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VCG Holding Corp.
(VCGH) - attempting a recovery, let's dump it
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Echo Therapeutics,
Inc. (ECTE) - the rally's slowing is a healthy one, looks good
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Spark Networks,
Inc. (LOV) - broke out, then totally broke down, let's drop it
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ICO Inc. (ICOC)
- another breakout move on Friday, above resistance
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BRT Realty Trust
(BRT) - took off two weeks ago, round 2 of bullishness
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Reading International
Inc. (RDI) - just sideways movement, no longer worth following
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ERF Wireless, Inc.
(ERFW) - despite no traction, we remain interested here
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Evergreen Solar
Inc. (ESLR) - now drifting lower, let's dump it
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FCStone Group,
Inc. (FCSX) - getting, and staying, above $5.10 is the key
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Harvest Natural
Resources Inc. (HNR) - hope you took some profits, let's cut it loose
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Aradigm Corp. (ARDM)
- if support at 19 cents breaks, look out below
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COPsync, Inc. (COYN)
- resistance at 20 day line is still intact, lower lows made
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Lifevantage Corporation
(LFVN) - the bears are still gaining momentum here
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China Solar &
Clean Energy (CSOL) - it's a slow start, but there's a rally attempt here
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Kemet Corp. (KEME)
- consolidating, watch for support at $1.12
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Superlattice Power
Co. (SLAT) - not falling yet, but should soon, let's drop it
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Amicas Inc. (AMCS)
- still going, and going, and going, take some off the table though
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Superconductor
Technologies (SCON) - let's drop it too, just not enough interest
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Frontier Energy
Corp. (FRGY) - finally broke ceiling at $0.0015
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
