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eFoodSafety (OTC BB: EFSF): From Cripple To Triple

Apparently, the stock market loves the recent move by EFSF's board to oust the existing management and move in a new direction. Freedom2's Martin Schmieg is being embraced by microcap investors who are bidding up the stock.

I have been following the company for over 2 years now, and have borne witness to a starting point of $.18, a high of $.45, and a recent low of $.03.

One quick glance at the chart reveals how the market is greeting the new management team. Clearly, investors have a renewed enthusiasm for the company. Of late, the stock had been trading around the $.03 level and given up for dead.

Congratulations to those who simply held their nose and toughed it out. Based on the data, the company was headed in a downward spiral, and it took some courage to hang in there. I often think of "FAITH" as belief in the absence of data.

It's simply amazing what a little communication can do. Mr. Schmieg's first public action after the announcement he would be taking the reins was to hold a conference call for investors- this is exactly one more conference call than the company has held in the past 2 years. If you want to listen to the replay, you can do so through today. Here's the information: The replay number is (877) 660-6853 (US) and (201) 612-7415 (international). To listen to the replay you need the account code: 3055 and conference ID number: 310351.

Today, EFSF announced it has entered into an agreement with the University of Minnesota to conduct a research study on Citroxin to determine if it could be a useful therapy for Swine Influenza Virus. The stock promptly ticked to $.10, the highest level it has seen since last July. In fact, the stock has now recovered entirely from the September to November stock market Armaggedon- quite an achievement.

I'll be the first to admit I did not see this coming. When I learned the old management would be ejected, and new leadership with new ideas and a better pedigree would step in, I suspected the stock price would improve.

I didn't see this easy triple this quickly, and there's a lesson to be learned here. Take a look at the volume bars on the chart- do you see a massive surge in volume driving the stock to higher levels? I see a little volume spike, but nothing to suggest investors are piling on in huge numbers. In fact, it has yet to trade 1 million shares in this rebound phase, and 1 million shares only equates to about $100k's worth of stock changing hands.

Here's the lesson to be learned, and one that I am taking to heart. No one has ever seen a market environment like the September to November '08 time frame. It was shear panic, and a mentality of "liquidity at any cost". Investors were shedding stocks with little regard to price, losses, or upside potential.

In short, in the case of EFSF, it's obvious that everyone who was going to sell went ahead and sold. Now, thanks to a major change in the story to the positive, EFSF has tripled in price on relatively light volume. It was so blown up and blown out that there was an easy triple on your money if you had the courage to invest during the darkest day.

Here's something to think about for 2009. There will be many more EFSF's coming down the pike. This is a pattern that will be repeated many times over. Blown out and Blow up stocks will trade up beautifully on lighter volume as sellers will simply be scarce and/or non existent.

Consider your own portfolio of blown up microcaps. Is it possible there are any in the fold who's business isn't as bad as the market has priced in? We'll see many more of these in 2009, and the easy money will be the initial surges. 

As far as EFSF goes- the easy money has been made, but the company is far from out of the woods. I can't say how much higher the stock might trade on this move, but it will certainly pullback at some point in time. From there, higher levels will have to be fueled by corporate achievement. 

Give me great management and a mediocre business over an exciting business and weak management anytime. Mr. Schweig is clearly getting the benefit of the doubt from the market right now, and since he has proven his worth in the past he clearly deserves it. We're in the Honeymoon period. Let's hope the marriage goes just as well.
 

XLF- The ETF of Financials- So Far, So Good

I'm temporarily looking like a genius on last weekend's idea to go long the XLF's for a trade. 

The XLF is the ETF that trades up and down along with the financial sector. I made the call to buy for a trade at $9 because this ETF hit a new all time low last week. 

Every market strategist is looking for the DOW and the S&P 500 to retest the November lows. The financial sector is the worst performing sector through this mess as the market isn't sure the financial system can even survive the current debacle.

Technically, I liked XLF making a new all time low. In a way, it's a bit like EFSF. Everyone who had any hope for a rebound was completely blown out when it dropped to nearly $8, and of course it then turned around.

If you didn't get in, but want to participate, the ideal level would be my original entry point of $9. This is not only a 61.8% Fibonacci Retracement of the entire rebound, but it also fills the gap on the chart.

Currently, the market is pretty fickle and range bound. One day our New President gives a speech, talks about a recovery program, and sends a gigantic stimulus package up to Capital Hill. The market gets optimistic, and trades up.

The next day corporate earnings come out, companies are negative on their outlook, and the market goes back down. The market really wants to go up, but the sobering reality of today keeps a lid on any real appreciation.

I like this trade for $11 to $13. I like XLF making a new all time low last week. Clearly, the financial sector is going to survive in some form as the US Government has made it clear it will do whatever it takes to keep the system solvent. If you believe in a total failure of the entire system, you really believe the US Government is going to fail. 

I'm not ready to make that leap into the abyss quite yet.

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