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Market Update: Still Not Over the Hump
Fri, December 11, 2009 12:10:07 PMFrom: SmallCapNetwork

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Russell 2000 599.22 +3.84 VOLUME 09 : ISSUE 68



In This Edition...



This week's edition begins a string of major improvements in the newsletter. Full details are below. After that, we'll take a closer look at the community's most important discussions from this past week. We'll wrap that up with a special market outlook feature from the SCN analytical staff.
A Note From the Editor: Another Small Cap Network Evolution


Readers and fellow traders,

Whether you've been a fan for years, or just a few days, you've at least seen some degree of change - all for the better - with smallcapnetwork.com, and the Small Cap Network newsletter in particular. As exciting as those improvements were, we're even more excited about the ones you'll be seeing over the next few weeks.

The community pages have been under construction and in beta testing for a few months. Though we're still putting the final touches on them before we open up its full-functionality to everyone, we have little doubt the Small Cap Network community will become a premier destination for investors seeking good ideas and information. And, we expect the community pages to also become a premier aggregator of the web's best user-generated content. That's only a fraction of what's coming though.

Without letting the cat too far out of the bag, let's just say there's no other resource as complete and robust as this one's going to be... stock picks, rankings, investor discussions, and exclusive commentary are just a small handful of things that will be fleshed out in the very near future, And we repeat - there's nothing out there on the web quite like what it will soon be.

Along with the upgrades to the site, we'll be re-formatting of the newsletter. Nothing will really change in terms of the kinds of commentary you'll have access to. But, since we're going to play host to a lot more quality commentary, we'll use the newsletter itself to present the 'best of the best' to you. Today's edition is the first of the new ilk; bear in mind we'll be tweaking it for a few more editions.

On that note, do you think you have what it takes to be featured as a top contributor? Or, do you want access to information and ideas that casual browsers can't get to? Then sign up from the home page today. We'll contact you when it's time to go live with the community.

Yes, the Small Cap Network's next evolution is going to be the best one yet. Stay tuned.

Editor
This Week's Hot Topics



To review the details for each of our highlighted commentaries below, simply click on headline above each description. (And don't forget, you can respond to any of these write-ups at the bottom of each respective page.)

A Potential Winner of Health Care Reform - Gentiva Health Services Inc. (GTIV)

Contributor Dennis Askew points out that Gentiva Health Services Inc. (GTIV), after a brief pause between October and now, is starting to move higher again. The reason? Odds are good this nursing and therapy service stock will jump when the health care reform bill is passed. Gentiva Health Services is doing just fine without the legislation, but could thrive under a different set of rules. Either way, Dennis is calling it a pure momentum play, with a holding period of a few months.

Telecom Poised to Lead as 2010 Begins - MetroPCS, Centurytel, Qwest, NII Holdings

Looking for the next hot sector? James Brumley thinks he's identified it. The telecom group - which had gotten no love whatsoever over the last nine months - has finally started to get traction. In fact, telecom stocks have gotten more traction than any other group in the last two weeks. James feels it's the beginning of a bigger tend, specifically suggesting Qwest Communications International Inc. (Q), Centurytel Inc. (CTL), NII Holdings Inc. (NIHD), and MetroPCS.

A New Threat in the Biomedical Waste World - Biomedical Technology Solutions (BMTL)

It seems like the best opportunities come from industries that investors didn't even know were actually industries. Thankfully, biotech contributor M.E. Garza fleshes out some details on one of the medical world's most obscure but fastest growing fields.... management of biomedical waste. In fact, he also names a potent newcomer to the arena - Biomedical Technology Solutions (BMTL). Whether you're interested in the stock or not, you should still read the eye-opening review of the industry's opportunity.

Gold Pullback Nailed On the Head - GLD, GDX, HMY, NG

Wow. Nice call from James Brumley last Thursday about gold. He said it - and the SPDR Gold Trust ETF (GLD) - was looking toppy, and was headed for a pullback soon. As it turns out, gold started to head south the very next day, and hasn't looked back since. GLD is down 8.2% since then. Though there's no way to get in a time machine or get a do-over, the way he identified the impending selloff makes for an interesting read.

That said, traders should know that GLD has arrived at its first of a few major support lines today. It may be wise to shed some of any short positions, particularly if you're a short-termer, or have tapped the leverage of gold futures.

Economic Recovery a Boon For Printers - InnerWorkings Inc. (INWK)

Dennis Askew identified InnerWorkings Inc., (INWK) as a long-term buy earlier this week, citing how the economic recovery was renewing the need for printed materials. It's actually a pretty savvy move, tapping into an industry that's totally off the radar yet quietly makes a ton of money in an amazingly-simple business, while most investors are too busy to notice because they're searching for the next breakthrough technology investment.
Feature: Still Not Over the Hump



It's hard to believe it, but with the exception of the Dow, the major indices are right where they were as of mid-October's peak.... and the Dow's not exactly miles above that mid-October high. That's right - two wasted months.

When will the stagnation end? From our view, it's not so much a question of 'when', but one of 'how'.

The 'when' will come whenever more bulls acknowledge the facts that (1) stocks are overbought in the bigger picture, and (2) accept the fact that the pace of gains we saw between March and September can't be sustained indefinitely. For that matter, the trend itself - at any pace - can't be sustained indefinitely. That may happen tomorrow, next week, next month, or five minutes from now. That's the part we just don't know.

The 'how' though, will be easier to identify. We need to see a temporary capitulation and selloff. It will need to be more drastic than anything we've seen in a few months, but it doesn't have to be earth-shattering. It just needs to be a pullback big enough to remind the bulls the market isn't risk-free, since a bad case of euphoria has allowed them to forget that reality.

We further believe that's the reason the market hasn't retreated in a big way since September... there are still a few too many buyers who are a little too quick to buy on any dip. Once we get them out of the way, the bulls can 'reset' the clock after a healthy, normal correction.

On that note, we've got something of a projection about how far the market needs to fall to do just that.

Don't be intimidated by the nearby chart - it's not as complicated as it looks. The red horizontal lines are Fibonacci lines (which tend to act as support and resistance levels), while the blue lines are support and resistance arcs.

In short, either set of lines can and should act as a floor for the S&P 500 Index. The lower arc line is at 1040, which would represent a 7% pullback from recent highs. The nearest Fibonacci line is resting at 1016, which would mean a 9.2% dip from the market's recent peak. Both are reasonable projections, but neither would be devastating. In fact, hitting either level would be a quite normal correction. More importantly, it would bleed off a great deal of overbought pressure and let stocks begin their next bullish leg.

In the meantime, things remain on hold.






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