PhotoChannel Musings

PhotoChannel has been quiet of late, but interesting news was out on the company early this week, and it’s worth having a look at what it could mean to shareholders.

In case you missed it, PNWIF disclosed it had completed a $15 million private placement. The company sold units at $3.40- each unit contained one share of common stock and one warrant convertible into common stock at $4.

The market seems to have viewed this event as a very mild negative- the stock was around $4 when the news came out. Today it closed at $3.78. It could have drifted down to that level in concert with the overall market.

In my view, there are both positives and negatives associated with this financing. Here’s a list of positives:

  • PNWIF will now have $20 million in cash and no debt. This strong balance sheet should open up new opportunities with potential customers who might have been reluctant to do business with the company due to its limited resources.
  • PNWIF now has the capital to accelerate some of the other digital products it is developing- i.e. music download kiosks.
  • PNWIF will now qualify for both a NASDAQ and a TSE listing. The company should be moving forward on both fronts.

Here are two negatives:

  • In my view, the biggest negative is the warrant associated with the unit. The warrant provides and incentive for the participating funds to sell the stock as soon as they can. If the funds can sell their stock for $3.40 or more, they can keep the warrant risk free and still have the upside. Open market buyers don’t have that advantage.
  • The dilution is a negative. This financing represents nearly 4.4 million shares of dilution, all of which might be for sale in pretty short order.

On the plus side, the price of the financing establishes a down side of $3.40 - my guess is it probably won’t trade at or much below that level. After all, $15 million of pretty smart money was willing to jump in at $3.40.

Another possible plus- the participating funds could be open market buyers. We’ll have to wait about this one.

So- buy, sell, or hold? I would call it more of a buy than anything. Clearly, $15 million just went into this stock, and those investors believe they can make money from $3.40. So, why sell it at $3.80 if the big money loves it at $3.40?

Their balance sheet will open up some new opportunities, and they could start popping up. Stand by for more information, but for the time being I believe this week’s event makes this stock a buy.

Comments and questions are welcome.

The Planet Falls Out of Orbit

Commerce Planet is behaving like the Planet Krypton- simply imploding- price wise. The stock is trading as if something has gone wrong at the company.

You can blame a certain amount on the current buyers strike thanks to the over all market conditions, but there comes a point where you have to start questioning the company’s future.

Is the market a Jar-El (Superman’s Dad on Krypton; is that the right spelling?)- warning everyone an astroid is going to destroy the planet, and no one believes?

I can’t say and don’t know for sure that something hasn’t become derailed after three quarters of outstanding performance and profitability. There have been doubters in this stock before, and so far they have been proven wrong.

It would be helpful if the company were to put out some guidance relating to subscriber numbers or some other metric to soothe the market’s fears. Right now, I believe the stock is going down because it is going down, and people are selling it because it is going down. I don’t have any indication the company’s business is floundering.

Some have pointed to the lower traffic rankings on Alexa. As I understand it, Alexa traffic is only ranked by the few who have an Alexa toolbar installed on their browser- I believe it is a very small percentage.

My SSL at $2.25 turned out to be a technically good call. However, suggesting a buy back in the $2 range about 10 days later has since turned out to be a bad call. It’s not the first time, and it certainly won’t be the last. I picked up 15,000 shares at about $2.23 for my personal account, and I’m still holding 12,500 of them, in addition to the roughly 200k in the corporate account. I’ve been holding those for over 3 years, and haven’t sold any in the last couple of weeks.

If the company’s business is floundering a bit, it is not going to disintegrate overnight. I believe we are due for a bounce, and it should be in conjunction with Q3 numbers.

I wasn’t terribly surprised to see the stock down at $1.90- after all, that is the price the fund manager paid for the huge block he bought recently. However, the move below $1.90 has taken me aback just a little.

Thinking back over the history of this idea, volatility has always been part of the story. Remember the Q3 numbers release? The numbers were great, the stock was trading at $1.80 the day before, and within three trading days it hit $1. Three and a half months later it was printing at $3.25- more than a triple off the low.

In my view this is simply a very sloppy stock right now. Some numbers should tighten things up, and a rebound is inevitable- it’s simply a case of when and at what level.

So, is the stock a buy right now? Is it a sell? Is the market telling us the company has turned south. As always, I will just look at the chart.

The 61.8% retracement still applies- we just have to look at it over a longer term. So, let’s go back to the level from which this company made its meteoric run starting last August at $.50. Here’s the chart:

The 61.8% retracement of the entire move takes us to $1.65. At the rate the stock is dropping, it could get to $1.65 tomorrow or Monday.

I believe this would be the ideal level to buy this stock. I can’t say for certain it will get this low, but if it does, that would be a very low risk entry point in a highly volatile stock.

If it ends up there and you jump in, your SSL will become about $1.48.

The longer term the chart, the better predictor of the possibilities.

Comments and questions are welcome.

eFoodSafety Thoughts

EFSF is a real champ. The stock could easily have fallen apart in this big market decline, but it is trading solidly within 10% of its all time OTC Journal high. The stock appreciated 150% since I first introduced it to subscribers; this is remarkable when considering the current market climate. Its stubborn refusal to give ground provides a hint that this one might just power much higher when the microcap switch flips back on.

If you are wondering where I would buy it right now, here’s a very short term chart that will give you an idea:

The chart measures the 61.8% retracement from the recent move the stock made in conjunction with the news of WalMart carrying the Cinnergen product.

Here’s what the chart tells you- On a very short term basis, the stock should be accumulated if it gets into the $.415 range.

If you wait patiently, and the overall market continues to grind as it has the last several weeks, I would expect this stock to probably drift down to that level. Of course, news could drive it up.

Here’s a chart of the downtrend line, which I believe is screaming a message at anyone who believes charts mean something in the stock market. This downtrend line goes back to the very first trade in the stock, and it has never been convincingly broken to the upside. It represents nearly three years. The longer term your look, the better predictor of behavior.

The stock has made two attempts to bust through this downtrend line this year. The stock is not giving much ground on the pullbacks, which means there is a loyal shareholder base with a long term perspective.

It might take 1, 2, or 3 more attempts to bust that downtrend line, but I believe it is inevitable. Once it breaks through convincingly, it will be tough to predict how high it could go.

Bottom line: My suggestion is don’t sell it if you own if you are trying to buy it back cheaper. It’s too risky- the company could deliver something big.

Accumulate at or around the $.415 level if it gets there.

Comments and questions are welcome.

The Planet Confounds and Confuses

Earlier today I published the BLOG you see below. Late in the day I learned CPNE filed a registration statement relative to the well publicized transactions of block purchases made in February.

Investors may interpret today’s filing negatively, but it really isn’t. It changes nothing about this stock, and fulfills the company’s commitment as specified in the February 13th news release concerning the institutional buyers who bought blocks at $1.90. If you want to know who they are, just read the selling shareholders list in the prospectus. Jeff Feinberg of JLF Partners is considered a top hedge fund manager. I am going to take the liberty of assuming Feinberg did not buy this stock at $1.90 to sell it at $2.10.

Nearly all the other shares contained in this registration statement were eligible to be free trading under Rule 144, 144k, or some other exemption with the normal restrictions on officers and directors.

You can also see the exact number of shares each of the insiders sold to the funds. Better to have the funds buy it at $1.90 than have it hit the open market. It raises the cost basis.

If the sells off at the open on Monday, hold off on any purchases. If it doesn’t, the BLOG below applies. It might sell off a little early, then come right back.

Technically, Commerce Planet became a bit of a mess over the past two weeks, and now it’s time to start looking at the possibilities.

First and foremost- you probably want me to comment on why the stock dropped so far and so fast. First let me remind everyone that this stock has a history of volatility. For those of you who have been following the situation since I pounded the table at $.50 last summer, you have seen this stock make wild swings. It’s almost becoming the norm.

I believe there are several reasons the stock has been so sloppy- 1.- the market climate- the big correction flipped off the “microcap switch”, and buyers are now in hiding. 2.- Recent 144 filings- old shareholders has recently filed to sell a bunch of stock- I don’t believe they are all sellers, but I do believe their filings precipitated a binge of selling. These folks are reasonably close to the company, and they know how well CPNE is doing.

So- the big sell off panicked others into selling- no buyers around thanks to the big correction- hence a sub $2 price momentarily.

Also- technically I thought $2.25 was a prudent SSL- so many investors with more of a trading mentality might have exercised some discipline- if you did so, you did the right thing. There was no telling how far it might have dropped.

For the time being, the stock seems to like the $2 level. It has been a big, nasty resetting of the bar, but it was inevitable there would be a correction.

Is this the bottom?- is it time to start accumulating again? I looked at the chart today, and here’s the first technical indicator that jumped up and grabbed me:

Here’s the long term uptrend line going back to the first big break out on Q2 numbers last July. As you can see, the stock came back to its long term uptrend line nearly perfectly. This chart is bullish for accumulating CPNE today.

However, in the back of my mind I can’t get away from the feeling the NASDAQ Comp could have another 140 points to drop before we get really healthy again.

Here’s your worst case scenario chart:

If the uptrend line breaks convincingly, I believe we could see a full 61.8% retracement of the move which began last July at $.50. That move down would take us to the $1.64 level- believe it or not.

Conclusion- I don’t think the stock is going to make another big leg down from its current level. I believe the stock is a very strong buy right now, especially in light of its recent firming on very light volume.

However, if it does break the downtrend line convincingly, look for $1.65 or so.

On the fundamental side, I still believe Q1 is going to be very strong. Beyond Q1 I don’t have much of a feeling.

If you sold CPNE at $2.25 or higher, now would be a great time to jump back in. The stock is stable and drifting up. In addition to extreme volatility, this stock has a history of trading up into earnings releases- the market should start pricing in Q1 right now.

Comments and questions are welcome.

Bad Toys: I Like Our Chances

For those of you who hung in there on the Southland dividend play from Bad Toys- time for an update- the situation looks more promising than ever.

This past week Bad Toys announced Southland received a letter of commitment for a $10 million debt financing - this capital would be used to cure the company’s defaults with the IRS and GE Capital. If completed, there would be a few million left over for working capital.

This is the news I have been waiting for to put me in a very optimistic mood about our odds of seeing Southland open at $4 plus on the NASDAQ.

I had a conversation with CEO Larry Lunan yesterday. He believes it will take about 2 months to complete the transaction. It’s a function of making a settlement with the IRS- they have to agree upon a final number, and the government does not move quickly.

GE Capital is less complicated- it can be handled in a day or so. The lender will pay both entities directly, and both defaults will be cured. The IRS and GE Capital defaulted debts will be gone, and the company will have substantial additional working capital and no black marks.

This will pave the way for institutional sponsorship of a NASDAQ listing for Southland- which it would fully qualify for in every way.

CEO Lunan believes Southland will trade before the end of Q2- by the end of June. No guarantees, but it’s becoming more believable all the time.

On another note: It will probably be about another 2 weeks before your Southland shares are sent to you. The company finally received a list from DTC last week.

I had previously stated all shares would be sent directly to shareholders- this may not be the case- your stock certificate may end up being sent to your brokerage firm. I will know in advance and will tell everyone when to start looking for the cert. If you owned shares of Bad Toys on the record date, you will get your stock certificate.

If you like the news and want to participate- at this time the only way to do so is by accumulating shares of Bad Toys. BTYH no longer counts Southland as a subsidiary of the parent company. However, BTYH still owns 25% of Southland.

If Southland opens for trading at $4, BTYH’s stake will be worth about $30 million- the company has about 7 million shares. BTYH has 21 million I&O- so if their stake in Southland is worth $30 million- that would give BTYH about $1.50 per share in value.

Here’s the recent chart:

As you can see, the stock dropped from about $1 to about $.25 with a day or two after trading x-dividend, and rightly so.

Since making its bottom, it has recovered slightly into the $.35 range- if you bought the stock in the $.70 range before it traded x-dividend you could get half your money back by selling and still have your Southland.

However, if you want to take a further shot at participating in Southland the only way you could do so now is to buy BTYH- it could be a triple. It will probably appreciate as evidence builds concerning Southland opening for trading.

I’ll keep everyone up to date as further progress is made. In the interim, comments and questions are welcome.

Titan Stealth Rally

The last week has been difficult for small stocks as the correction was violent and swift. Now, everyone is panting in the aftermath, wondering if this is indeed a correction in an ongoing bull market- and therefore a buying opportunity- or the beginning of a bear market.

Those who read last weekend’s edition know I am fully in the Bull Camp.

I don’t know why, or if there is any particular reason- but TTGL is enjoying a little stealth rally today.

It’s not so much that the stock is up on reasonably light volume- it’s more about the technical barrier the stock has broken that makes today significant.

Here’s the chart:

I have been writing about the $1.40 ceiling on this stock. It has now butted up against this level three times in 2007, but could never make it above.

Today, the stock has finally pierced the $1.40 line, and is now trading at a new multi year high and a new post OTC Journal coverage all time high.

I would like to see the stock close above the $1.40 mark today to really seal the deal. So- what does this mean to the stock?

It doesn’t mean the stock will never trade below the $1.40 mark again. It simply means the stock should trade through that previous resistance level quite easily next time it surges on volume.

This is a very good sign technically. I am encouraged now that we could see much higher levels once we do get a sustainable rally. This could be a precusor to the stock trading into the $1.80 to $2 range.

Comments and questions are welcome.

Planet Year End Numbers Simply Great

CPNE filed its annual 10k and released its audited year end numbers late yesterday. The market certainly likes the news as the stock is enjoying another upday after the massive three day swoon. If you jumped in earlier this week when I called it, you did yourself a favor here in the early going.

I am more convinced the sell off was not precipitated by 144 sellers actually making sales- it was precipitated by traders seeing the filings, then wholesale dumping the stock - trying to get out ahead of a perceived influx of supply. They were selling stupid. Here’s what they don’t know- those 144 investors are close to the company, and they, like many of us, suspect the company is doing extremely well and remains undervalued.

Here’s what I learned from a quick run through the 10K.

From the end of Q3 to year’s end the number I&O only went down by 100,000- therefore, they didn’t buy back much stock in the open market.

They made almost as much money in Q4 as they had for the entire rest of the year- They generated $4 million in Q4, and were standing at $4.75million up until then for the first three quarters.

Therefore- they are now making $1.25 million per month vs the $1 million they were previously making.

Membership revs for the full year were 81% of sales- 78% for the first three quarters- therefore, there is not much evidence of growth of sales outside of the monthly fees as a percentage of the whole- a minor negative.

EPS was $.09 through the first 9 months- $.20 for the full year. They merely doubled the year’s EPS in Q4. Outstanding. Here’s this past month’s chart:

I don’t mind tooting my horn a bit about the call I made earlier this week. I published an edition with an emphatic buy where you see the circle, and those who jumped in are doing very well. You never know when a low risk opportunity is going to come along.

From here, the larger market will probably grind around for a bit, and perhaps sell off again. This “rebooting” of the market is just what we needed.

I expect this stock to participate in the next market rally, and trade up into the next earnings release- It should do well later in March and in April barring a cataclysmic market. I have said this before, and I will say it again- I have read and heard all the rhetoric coming out of this company, and I believe Q1 will be strong.

If it can match Q4, CPNE could earn $.40 EPS this year. You tell me what the price should be.

Comments and questions are welcome.

eFoodSafety- Train Slows To Allow New Passengers To Get On

For who were reluctant to jump on EFSF as it cranked up the charts in pretty short order, this week’s market meltdown has opportunity written all over it.

If you look back to previous blogs and editions, I suggested caution if you were considering opening a position as the stock charged towards the $.50 level.

This week’s market meltdown has investors locking in profits in these high flyers. Finally, after three months of moving pretty much straight up, you have a shot and accumulating this one at a much lower risk entry point.

A market blow off was inevitable. The overall market has been streaking since last July, and this week’s 3% correction was long overdue. Everyone was simply looking for an excuse to sell and take a few shekels off the table.

For those of you who are new to the OTC Journal, you will find Fibonacci Retracements are a continuing theme in my technical comments. Leonardo Fibonacci was born in 1175 AD, and was a mathematician 300 years ahead of his time. His Fibonacci ratios constant recur in nature.

There are the ratios that constantly re appear- .382% and .618%. Its uncanny how often it works. One of these days I will write an article about it again.
Here is the current chart of EFSF- with the two Fibonacci ratios in the chart:

This chart measures EFSF’s one month scamper from just under $.30 to a high of just over $.50.

Note the perfect 61.8% retracement from the move is $.354, just above my SSL of $.35. Once the 38.2 gives way, stocks almost always go to the 61.8. If you believe this week’s market blow off was an abrupt and violent long over due correction in an ongoing bull market (as I do), now is definitely the time to snatch up this stock.

Here’s why- the best time to accumulate these kinds of stocks is when they are quiet, have pulled back, and everyone is afraid. That’s when you will always make the most money. Secondly, when you snatch a stock up on a 61.8% retracement, you can set your stop loss fairly close to the market. If it drops much more, technically there could be hard times ahead. Thirdly- when stocks drop due to macro market conditions, not events directly associated with the company, those generally become opportunities as well.

Therefore, if you like this one and have been worried about getting injured by trying to jump on a speeding train, now is the time to make your move.

Pick it up now. SSL- a minor adjustment to $.32- risk 10%. It could turn back up very soon.