07/09/2006
VOLUME 246
Companies featured in the current edition of the newsletter: ARSC, ASPN, BGES, CLRI, EMIS, ENZ, FSN, HOM, HYTM, ISON, ITUI, PTCH, QTXB, RTK, SCLL, SFP, SOG.V, TAGS, UDTT, USAT
Although growth in the economy appears to be slowing, key reports issued last week did little to set a clear tone regarding the Fed’s next move for interest rates. With the start of a new quarter and a holiday shortened weak usually providing a positive bias towards market activity, conflicting economic data put a damper on overall market performance. The holiday shortened-week ended with the Dow declining 60 points, lowering yearly gains to 3.5%. The Nasdaq shed 42 points, increasing annual losses to 3.4%. The S&P lost 5 points for the week bringing its year-to-date performance to1.4%. The Russell fell 15 points resulting in a 5.4% gain for the year.
Again, the underlying pressures over the last month caused investors to reduce their risk profile, as reflected by sharp declines in technology and small-cap issues. While investors hope the Fed is able to engineer a “soft landing”, a slowing economy combined with inflationary pressures presents additional challenges. Inflationary pressures caused by strong energy and commodity prices, combined with rising hourly wages (up 0.5% in June) may weigh more heavily with the Fed than lower-than-expected June nonfarm payroll figures of 121,000 (consensus 160,000) and a declining ISM Index of 53.8% in June versus expectations of 55%. Even as retailers reported June sales figures at the low-end of the projected range highlighting the impact of higher energy prices and rising interest rates on investors’ wallets, the main question will be whether or not moderating growth is at levels the Fed is comfortable enough with to pause rate hikes. Oil prices above $75 per barrel are not helping. Adding more pressure to the mix is international tensions with North Korea’s missile testing program, which threatens to destabilize the region and Iran’s continued nuclear ambitions.
What should investors look for this week? After the close on Monday Alcoa (NYSE: AA) kicks off earnings season with the release of results. Genentech (NYSE: DNA) posts results on Tuesday after the bell. PepsiCo (NYSE: PEP) posts earnings before the open on Thursday. General Electric (NYSE: GE) issues results Friday morning. Lam Research (NASDAQ: LRCX) meets with analysts on Tuesday, with Sun Microsystems (NASDAQ:SUNW) launching its New x64 Enterprise Systems that same day.
The conference schedule is relatively light with JP Morgan holding its five-day SEMICON West 2006 conference beginning on Monday in San Francisco. CIBC World Markets will be hosting its two-day Consumer Growth Conference in Boston starting on Tuesday and C.E. Unterberg, Towbin kicks off its two-day Emerging Growth Opportunities Conference also on Tuesday in New York. Stinger Systems (OTCBB: STIY) presents at the conference on Tuesday, while Bio-Bridge Science, Inc. (OTCBB: BGES) presents Wednesday.
On the economic calendar May Wholesale Inventories will be reported Monday morning followed by May Consumer Credit in the late afternoon. Wednesday morning, the May Trade Balance will be announced before the bell with Weekly Crude Inventories coming in shortly after the open. Weekly Jobless Claims will be released Thursday morning with the June Treasury Budget being released later that afternoon. Before the bell on Friday, June Import/Export Prices will be announced along with June Retail Sales figures. After the opening, the July Michigan Sentiment Index and May Business Inventories will be reported.
With last week being a slow week for news, due to the July 4th holiday, we thought we would examine the technical considerations for several of our more actively traded Special Situation ideas which were recently added to the Russell 2000. We have written much about Home Solutions (AMEX: HOM), a provider of recovery, restoration and rebuilding/remodeling services and the ongoing battle between longs investors and short sellers (short interest approximately 27% of the float). Shares have traded in a relatively narrow range since the company announced on June 26th that the Nasdaq would delay listing the company’s shares. The company did not say when the Nasdaq would make a decision, but nearly two weeks having lapsed since the announcement. Here are some areas of interest according to the charts. The first level of interest would be $6.99, which represents last week’s high and approximates the closing level the day the company announced the Nasdaq news ($6.97). Look for congestion after that at just under $8. Support for the stock is in the $6.11-$.618 range, which represents the intra-day low for 4 days in mid-June. Note, that the stock closed at approximately its 200-day moving average on Friday. Shares ended the week at $6.52, up 35 cents, its first weekly gain since mid-May, suggesting that the stock may have put in a “bottom”.
Another high-beta stock, with substantial short interest, is healthcare services provider Hythiam, Inc. (NASDAQ: HYTM), with approximately 26% of the float short. Shares have recently been weak, reflecting trends in the small-cap market. Although the stock closed below its 200-day moving average for the first time since February, it closed Friday above solid support in the low $6 range (March support) and last week’s intra-day low of $6.20 on Wednesday and Thursday. Look for initial resistance at its 200-day moving average (approximately $6.80) with additional resistance in the $7.60-$7.87 range. The stock ended the week at $6.42, down 55 cents.
Shares of drug delivery company Emisphere Technologies (NASDAQ: EMIS) have recently come under pressure, after the stock established a new 52-week high in June of $11.40. Short interest, representing 14.5% of the float is actually understated, as one investor owns approximately 20% of the company and would find it difficult to trade its position. The recent pullback in the stock brings it to a notable level of interest, representing chart congestion from mid-March to early May. Initial resistance is in the $9.35-$9.46 area, representing intra-day highs in mid-June, followed by more significant resistance slightly under $10. Shares ended the week at $7.89, down 64 cents.
Shares of Enzo Biochem (NYSE: ENZ) have been one of the best performing stocks on the NYSE the past month, and in the process have cleared significant resistance. Helped by strong volume (more than three times previous 90-day average) and possible short covering (short interest approximately 13% of float), shares recently cleared the $14 range, representing chart congestion and significant resistance as far back as November. The stock also recently cleared its 200-day moving average, for the first time since mid-2005. The next level of resistance appears to be in the $15.80-$16 range, which reflects the level of the stock in the September-October, 2005 time period. Support appears around $14. Shares ended the week at $14.62, down 46 cents.
One of the best performing stocks during the recent weakness in the market has been alternative energy concern Rentech, Inc. (AMEX: RTK). Shares are up approximately 21% year-to-date, and are actually up 2% since the end of May. Despite the stock’s strong performance, shares have struggled to break through $5, failing at that level intra-day four times in June. The stock currently sits just above its 50-day SMA, which has served as support since late April. Shares ended the week at $4.60, down 5 cents
Fusion Telecommunications International, Inc. (AMEX: FSN), a provider of advanced VoIP services, expanded its Efonica Plus suite of paid services with the addition of its new efoLink service. This premium service allows subscribers to enter any two phone numbers and schedule a call where at the pre-selected time, Efonica’s advanced system will call both numbers and create a connection. As Fusion continues to center its product offerings on convenient, user-friendly services it should continue to attract new users and enhance sales growth. This efoLink service complements Fusion’s recently announced efoOut service, which allows subscribers to call any landline or mobile telephone number in the world at extremely competitive prices. The stock closed at $1.94, down 6 cents for the week.
Isonics Corporation (NASDAQ: ISON), developer of innovative solutions for the homeland security and semiconductor markets, updated shareholders on steps being taken to bring the company closer to operating profitability. The newly refocused life science division is expected to generate positive operating income as a result of reduced operating costs and renegotiated contracts with certain suppliers. It is anticipated that the semiconductor wafer operations will continue to exhibit strong revenue growth and report operating income this fiscal year as a result of Isonics’ entry into the 300mm silicon wafer products and services market over a year ago. Continuing this positive trend is the substantial upside opportunity presented by the company’s security services division as a result from obtaining several new contracts during the year. Additionally, the company is actively seeking strategic acquisitions of accretive businesses that are synergistic with its present offerings. Addressing the weakness in the current stock price, it was stated that a portion of the funds raised from its recent financing will be used to repay holders of its 2005 convertible debenture resulting in fewer shares sold into the market by such debenture holders. Shares closed at $0.65, down 4 cents for the week.
Junior oil and gas producer Strategic Oil & Gas, Ltd. (SOG.V) closed the final tranche of its previously announced private placement where additional cash proceeds of $889,600 were raised bringing the total gross dollar amount raised to $5 million. Funds from this private placement were used to repay a $1.9 million note payable incurred on the acquisition of the oil and gas lands in Wyoming and for additional drilling costs. Note that the company owns a significant stake in the Pinedale/Jonah area, a prolific oil and gas field that has been a catalyst for shares of Ultra Petroleum to increase more than ten-fold over the past four years. Shares of its partner in the venture, Jed Oil, have recently rallied sharply, suggesting that there could be positive developments surrounding the first well in the multi-well drilling program. Shares of SOG closed at $1.68, up 3 cents.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, was featured on CBS Television News in the Philadelphia market last Friday evening. The broadcast highlighted how the company’s patented technology is driving new business opportunities and revenues for global brand customers such as MasterCard, Coca-Cola and many others. As USA Technologies continues to successfully implement its business strategy and build its brand name, increased national attention on its leadership in developing wireless technology to network everyday devices such as the millions of vending machines in America should enhance shareholder value. The stock surged 60 cents to close the week at $8.40.
Junior energy company Aspen Exploration Corporation (OTCBB: ASPN), successfully drilled a new gas well in Sacramento Valley California called the Patterson #27-1 well. This well was drilled to a depth of 5,250 feet and encountered over 100 feet of potential gross gas pay. Aspen continues to achieve success in this field as this was the eighth successful gas well out of nine attempts by Aspen. During the last 5 1/2 years, Aspen has participated in the drilling of 42 operated wells, 36 of which were completed as gas wells resulting in a success rate of 86%. Aspen currently operates 53 gas wells and has non-operated interests in 20 additional wells in the Sacramento Valley of northern California. Shares gained 7 cents to end the week at $4.82.
Volume Alert:Shares of Clearant, Inc. (OTCBB: CLRI), the developer of the patent-protected CLEARANT PROCESS® for pathogen inactivation, traded more than 5 times average volume after the company announced it achieved yet another significant milestone. Two of its Clearant Sterile Implants were used in a successful two-level cervical fusion surgery done last week at the University of California, Los Angeles representing the first use of sterile bone allograft implants supplied through Clearant’s new direct distribution program. Despite the weakness in the stock price, management continues to successfully achieve its stated goals and build its brand name as it becomes recognized by leading medical institutions such as UCLA throughout the country. The stock ended the week at $0.50, up 2 cents.
QuantRx Biomedical Corporation (OTCBB: QTXB), a medical technology company with leading edge products targeting worldwide health needs, expanded its intellectual property after announcing the completion of a Worldwide Technology License Agreement with The Procter & Gamble Company. With the addition of this key technology to the QuantRx® PAD portfolio of products, the company is planning to enter the hemorrhoid treatment market. The stock rallied 20 cents to close the week at $1.50.
Junior oil and gas producer Patch International Inc. (OTCBB: PTCH) entered into a Participation Agreement with Vanguard Exploration Corp. to farm in on a Banff/Leduc oil and gas prospect located in the Rich/Rumsey area of Alberta. Drilling of a test well at an estimated depth of 2,047 meters is anticipated to start early this week that should take roughly two-weeks and cost $1.5 million. The test well will also test a Leduc seismic anomaly for oil at an estimated depth of 2,047 meters. Patch will pay a prospect fee to cover a share of seismic and land acquisition costs and will acquire outright an undivided 26.25% working interest in a quarter section of mineral rights below the base of the Viking formation to the base of the Mannville formation. Patch will also participate in the drilling of a D3 Test Well covering P+NG mineral rights below the base of the Mannville formation for a 35% working interest to earn an undivided 21% working interest after payout in the test well and farm-out lands in one section with an option to a drill an option well on the same terms in an adjoining section. In addition an Area of Mutual Interest has been established in which Patch has a 26.25% participating interest. Shares closed the week at $1.50, up 20 cents.
Volume Alert: Shares of cell biology company Stem Cell Innovations (OTCBB: SCLL), traded over 15 times average volume as investors were encouraged by the results published by Johns Hopkins scientists in the “Annals of Neurology” study that highlights the achievements of fully working motor neuron circuits in paralyzed adult animals. In this study, the Johns Hopkins team showed in a video the transformation of a previously paralyzed rat regaining its ability to walk again following stem cell transplantation 12 weeks earlier. Such positive results reinforce the path that Stem Cell Innovations is taking relating to the production of its own human motor neurons and progenitors as it filed patent applications earlier this year targeting this space. The stock rallied 9 cents to close the week at $0.40.
Volume Alert: Shares of American Security Resources Corporation (OTCBB: ARSC), a holding company that acquires and develops technologies that will advance the development of alternative energies, traded over 3 times average volume as the company continues to look to acquire solar and wind energy companies with which it has begun negotiations. The stock ended the week at $0.15, up 3 cents.
Universal Detection Technology (OTCBB: UDTT), a developer of early-warning monitoring technologies to protect people from bioterrorism and other infectious health threats, will be listed on the Commercial Service’s list of Featured US Exporters (FUSE). FUSE is a directory of US products featured on US Commercial Service websites around the world giving US companies an opportunity to target specific markets in the local language of business. This service targets numerous markets where listings are offered to qualified US exporters seeking trade leads or representation in over 50 markets around the world. As Universal continues to expand its global marketing efforts and sales in parallel with its domestic efforts, services such as those offered by FUSE further strengthen the company’s efforts in placing products in new markets which should increase the top-line. The stock closed the week unchanged at $0.04.
On the Wires: i2Telecom International, Inc. (OTCBB: ITUI), pioneer in ultra-portable high quality Voice-over Internet Protocol (VoIP) products and services, appointed Mark Hewitt to its Advisory Board. Mr. Hewitt is best known for his award-winning product and technology leadership in Internet appliances and broadband networks and brings over 24 years of experience from well-known conglomerates including Motorola, Frontier and I-Link. Small appliance maker Salton, Inc. (NYSE: SFP), presented a plan to the NYSE demonstrating how it intends to comply with the continued listing standards which the NYSE has up to 45 days to either accept or reject the plan. Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, amended its credit agreement with Guggenheim Corporate Funding LLC enabling TAGS to borrow its term loan of $7 million at any time within 180 days of the date of the Credit Agreement versus the original agreement restricting the company to borrow such funds only for repayment of convertible debentures.
