To OTC Journal Members: 

Xinhua Sports and Entertainment (NASDAQ: XSEL) technical comments- go to the following link and turn on your speakers:

http://www.otcjournal.com/Technical-Analysis-of-XSEL-August-24-2009/af/elearning/12/
 

The NF Energy (OTC BB: NFES) Reverse Split: Get Ready For Possible Fire Works

It's time for a little education, and I hope you find this helpful. Later this week NF Energy (NFES), one of my recent huge wins, is going to reverse split 3 for 1. 

If you're wondering what this means here's the scoop. One day this week, probably either Tuesday or Wednesday, NF Energy will close and reopen for trading under a different symbol. The new symbol will represent ownership of 1 share for every 3 you owned the day before, and the price will be set at 3 times the level it was the day before.

Just to clarify- let's say you own 6,000 shares today with the stock trading at $1.65 under the symbol NFES.  The next day the stock will reopen under a different symbol (I don't know what it is yet), and the price will be $4.95 - you will now own 2,000 shares. Even Steven. From there, the price will go up and down based on normal market supply and demand dynamics. Your brokerage firm will automatically make the position adjustment for you.

Micro cap investors might think a "reverse split" is a bit of a negative, but there's two kinds of reverse splits. First- there's the bad one. This is the reverse split that takes place when a penny stock has spent years diluting its capital structure with all kinds of toxic financings, and the number of shares I&O has become so unwieldy a reverse split is the only way to make the capital structure manageable again.

Then there's another kind of reverse split. Like Glinda says to Dorothy in the Wizard of Oz- Are you a good witch, or a bad witch? In this case, are you a good reverse split, or a bad reverse split?

A good reverse split is done by quality companies with one goal in mind- to qualify them for an upgrade to a higher listing (AMEX or NASDAQ), which encourages institutional participation and higher volumes. 

For example, the initial listing standards for the AMEX include shareholders equity of $4 million and profits of at least $750k in the last fiscal year. At the end of last year NFES had $15.4 million in shareholders equity, and $3.6 million in profits- a slam dunk.

For the NASDAQ, the initial listing requirement is $11 million in pretax income over the past three years, or a bit less over the past 2. Each exchange has Corporate Governance standards and requirements which include Independent Board Members.

In the case of NASDAQ and Amex, there is also a minimum price requirement. For NASDAQ it's $4- for AMEX it's $3.

So, look at your clues. NF Energy has announced two new independent board members in the last two weeks, and is now effecting a reverse split that will take the stock to around the $5 level. Could they be gunning for an upgraded listing? You do the math.

So, what's the recent precedent for price performance with an upgraded listing? There's two recent examples. Consider the template- Universal Travel (AMEX: UTA). I rate this stock a strong buy with a price target of $20 over the next 6 to 12 months. I recommended a strong buy at $8, and wish I had found it sooner.

You will note UTA was a BB stock back in April trading under the symbol UTVL, and stuck in the mud at $.90 for six months. As you can see, UTVL effected a reverse split of 3 for 1, moved to the AMEX, and then really went crazy. From a low of $2.70 the stock has since traded to $15 for a 455% return this year. As importantly - you can see from the chart price appreciation equated to dramatic volume improvement as well.

There's another example of a China company making the jump this year. Check out China Green Agriculture (AMEX: CGA). This one did not require a reverse split to qualify for AMEX, but look what has happened with the stock since March when CGA was granted an upgrade from the Bulletin Board to the AMEX. 

As you can see, at the time it was a $3 stock. Since then, the stock has seen a high of nearly $15. That's a 400% since making the jump to the AMEX in March.

There's nothing I'd like better than to see NF Energy followed the path that has been blazed by these two stocks. The higher price and the addition of the new independent board members are clearly signs the company is positioning to go down that road, but ultimately the exchange has the right to allow the upgrade, and there are no guarantees it will happen. 

However, I like our chances. 
 

Xinhua Sports (NASDAQ: XSEL): An Audio/Video Chart

I really like the way XSEL is setting up technically. To that end, here's one of my audio/video charts to help you understand what I see when I look at the chart. Turn on your speakers, and then just click on the link. It should blow open your player and give you the 411.

http://www.otcjournal.com/Technical-Analysis-of-XSEL-August-24-2009/af/elearning/12/

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