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Weekly Update January 7, 2007

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As Goes January, So Goes the Year. An old Wall Street saying that's more than just superstition. Since 1970, whenever the S&P 500 advanced in January, the market posted a further increase in the remaining 11 months of the year 86% of the time, gaining an average of nearly 12%. Whenever the market fell in the first month of the year, the S&P 500 subsequently declined an average of 1%.

While the full month of January is the typical benchmark, its this first week of January that is often equally important. After holidays and tax loss season, its a good barometer of investor optimism or pessimism for the new year. This week we had the following:

Nasdaq, S&P 500 and the Dow fell less than 1%
S&P/TSX composite index fell 3.3% (driven off weakness in the resource sector)
TSX Venture Exchange lost almost 6%

Direction of U.S. large and midcaps is tough to determine based on this first week. But in resource heavy Canada, it was obvious what the mood was. With natural gas about to test a bottom, oil on the verge of breaking below $55/bbl, copper hitting nine month lows, and other commodities struggling for direction, investors have reason to be cautious.

Its not exactly how we want to start out January and things could easily turn in a couple weeks, but its worth being cautious right now. Throughout the year we always see rallies in various sectors no matter what the broader market looks like, but I would have realistic expectations for 2007. There are several ways to make money in microcaps by chasing the money flow in specific sectors, but at times you also need to focus on capital preservation. Until we see what happens over the next couple weeks, I would be reluctant to take excessive risks or buy stocks already trading off December highs. If we see weakness in resources, hopefully we'll see a nice bounce this year in techs. Still too early to tell but this first week is definitely worth noting.


Candax Energy (CAX/TSX $0.58)
www.candax.com

Sept 30th Net Cash $37 million
Petroleum Properties $55 million
Plant & Equipment $14 million

Asset Value per share: $0.62

Shares outstanding: 169 million
Options Outstanding: 11 million at $0.80
April 18, 2006 35 million warrants were exercised at $1.20

This is a high risk, high impact oil/gas exploration company focused on Africa. Several weeks ago on ROBTv it was featured by a large fund manager as one of his best smallcap picks for 2007. I can't remember the name of the fellow other than he had an impressive track record and this was his only junior pick. The stock subsequently ran to $0.75 from $0.60 on millions of shares of buying that week. It has since fallen back to that original level.

Candax was formed through the combination of a highly experienced executive management team with successful Canadian founders and financiers, to develop an international upstream oil and gas project portfolio. Candax is initially focusing its growth activities on production and development projects in the Middle East and North Africa, where the group has strong relationships. The company believes that current opportunities exist in the Middle East and North Africa. Candax is currently reviewing prospective projects in several countries in the Middle East and North Africa, including Egypt and Oman.

Plenty of liquidity right now at $0.60 with strong support near $0.57 This is high risk, high impact exploration so it could be subject to abnormal volatility in Q1.



Miscor Group (MCGL/OTCBB $0.20)
www.miscor.com

Tightly held but good diversification for the price when it trades near $0.20 The company provides industrial services in niche markets - Motors, Magnets, Engineering Services, and Power Systems. Q3 revenues up 25%, YTD revenue up 32%, ranked as one of the fastest growing companies by Inc. magazine, growing list of blue-chip clients.

They have three principal subsidiaries;

Magnetech Industrial Services - provides maintenance and repair services to industry for electric motors, lifting magnets and power distribution systems.

Martell Electric, LLC, provides a wide range of electrical contracting services for industrial, commercial and institutional customers.

HK Engine Components, LLC manufactures, repairs and engineers power assemblies for large diesel engines for the rail, utilities, maritime and offshore drilling industries.

These industries are getting older and companies turn to preventative, predictive and remanufactured goods as a valuable cost saving tool.

On November 13, MCGL announced its financial results for the third quarter ended October 1, 2006. The company reported revenue for the quarter of $15.5 million, a 25% increase over the $12.4 million recorded in the same prior-year period.

The company posted a net (loss) for the quarter of ($1.2 million), or $(0.01) per share, compared to a net (loss) of ($5 million), or $(0.05) per share, in the same quarter last year.

For the nine months ended October 1, 2006, MCGL reported revenue of $43.2 million, a 32.92% increase over the $32.5 million recorded in the same prior-year period. Operating income grew to $1.2 million as compared to an operating (loss) of ($16,000) for the same period in fiscal 2005.

MCGL was recently ranked #3 on the Inner City 100's list of fastest-growing inner city companies in America with a five-year growth rate of 3,413%.


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The Microcap Blog is updated Monday to Thursday evening with a summary of noteable microcap news for the day. Also send me your stock tips, rumours, etc. and I will post them for others to read. Direct link is available from the home page of www.microcap.com or by clicking on the Link Above.



Danny Deadlock
Microcap.com

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