In Case You Were Wondering
Just in case you were wondering, I thought it was time to provide and update on my latest ideas- one that has been rather disastrous, and one that is yet to be decided.
Shorting Magic Jack (CALL) for a quick trade and owning iTrackr (IRYS) have been my ideas over the last month, so here’s an update on both:
Shorting Magic Jack (CALL)
I’m not opposed to taking a bite out of both sides of the apple. Magic Jack (CALL) provided us with a generous meal this year as we notched a 400% gain on the call options I recommended back in January when the stock was $16. Now it’s $24.
When you think about the gain, it’s extraordinary. Let’s look at stock market darling Apple (AAPL)- over the same time frame, AAPL has risen from $400 to $600, while Magic Jack (CALL) has risen from $15 to $24. AAPL is up 50%, with CALL is up 60%. So far this year, CALL has been the better stock to own.
Last Friday I recommended going short CALL into their annual earnings report which, according to Yahoo!, was due out Monday after the market closed. I describe this kind of trading idea as an “Event Driven Trade”. The events leading up to recommending the trade are the upside movement in the stock over the past two months, combined with the earnings release.
It’s been my observation over many years of trading that whenever a stock runs up into an event- in this case the year end numbers, 95% of the time it will sell off once the proverbial cat is out of the bag.
In the case of Magic Jack (CALL), apparently Yahoo! and the management at CALL are not talking, and Yahoo! has it wrong. CALL has not released it’s 2011 audited financials, and as such the event I’m betting on has yet to happen.
In fact, if you look at the daily earnings calender, Yahoo! how has the company releasing its numbers every day. Sooner or later their calender will be right.
Fortunately, I chose to buy the April $25 put options at $3, which leaves me plenty of time to wait for the release.
Under normal circumstances, CALL is required to file their annual 10k audited financial statements today- March 15th. However, there are several factors which could affect the timing. If the numbers are not disclosed today, I believe the company has a grace period of a week or so, and then it can file for an extension to buy another 10 days if required to do so. When companies file for an extension, the market generally views this as a negative, so I would expect the stock to ease down during this time frame.
There’s one other factor that could effect the timing- CALL is actually a “foreign issuer”- the company is domiciled in Israel. This could effect the amount of time they are given to disclose their year end numbers.
So, we have no choice but to wait it out- at present, we are simply on CALL Waiting. The company itself has provided no disclosure about when its numbers will be coming out, but this could be one of those situations where they make some sort of announcement a day or two before.
I’m still long the April $25 puts.
iTrackr (IRYS) Clobbered -Attention Kmart Shoppers
My most recent penny stock idea- iTrackr (IRYS) is a bit troubling. There’s really no nice way to say it- this stock has been an absolute mess. This could end up being a great opportunity for those who either sat on the sidelines or sold on the way down, but the chart is just butt ugly.
There’s been a number of explanations bandied about. My own personal conclusion- I believe short sellers pounced on this stock and beat it down back on Monday, the 5th. The sudden drop caused existing shareholders to panic and just sell with little regard for price. Shorts targeted this one due to some rather inflammatory information that was published about the company.
As an young and under followed penny stock, the bottom simply fell out. The volume in this stock has been rather insane against an estimated “effective” public float of about 3 to 4 million shares. At present, the volume would suggest the entire float is turning over every 2 to 3 days.
I suspect this stock could be good for a bounce for a few reasons. For starters, their platform for marrying local consumers to local merchants is just getting off the ground. It’s only available in Beta Test version, but it’s very robust and has a lot of features that should eventually play well with both sides of business.
Secondly, if there is a big short in the stock, eventually the shorts will buy back and close out their positions. That’s how they lock in their profits.
A Fibonacci bounce suggests this stock is entitled to regain 38.2% of the ground it lost. If it does, the target price is circled in green on the chart. The stock would be entitled to bounce back to about $.38 which coincides with the 50 day moving average.
From today’s level, that would be a 52% gain, and a suitable risk. At this point, it’s unlikely there’s a lot of downside risk technically for the next few weeks, as it’s likely everyone that wanted to sell has done so- or pretty close to it.
I sold very little of my rather large position in this one on the way down, so I’m still holding quite a bit and hoping for a turn around.
There’s the update on both situations- just in case you were wondering.
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Flipping the Pancake
Two of my 2012 calls have gone insane this week to the good and the bad, and it’s time to turn the pancake over on both of them. Magic Jack (NASDAQ: CALL), which has been a monster win, is offering us another opportunity to make money in my view. More below.
Recently introduced iTrackr Systems (OTC BB: IRYS), has been a absolute mess and I believe has been targeted by market makers who are aggressively shorting the stock. The stock might have now sold off enough to be good enough for a bounce, and that’s the other side of the pancake.
Here’s a review:
iTrackr (IRSY) Under Attack
My recent idea on IRYS looked pretty darn good out of the gates- having made a short term move from my $.68 entry level to about $.85- a quick gain of about 25% in the first two trading days. Yesterday, however, was a different story.
While I was making an appearance as the guest host on the Big Biz Show (www.bigbizshow.com- btw- sorry the online broadcast got screwed up- it should be working now)- the stock got absolutely annihilated.
To me, this looks like a classic manipulated short raid on the stock by market makers. You simply don’t see stocks trade like this for no reason.
Actually, in my view, there were some reasons behind this little penny stock getting tagged with the short seller bulls eye- there was some content published on the company from other sources that was highly inflammatory in my view, and brought poor little IRYS squarely into the short cross hairs.
The stock has traded an incredible amount of volume since making it’s debut last week. There are only about 8 million shares in the public float. The stock has traded 8.8 million shares since last Wednesday- there’s no way every single share in the public float has changed hands.
A quick look at the chart tells the whole story. Stocks don’t drop like that with no news. The two day drop is insane.
The stock may have made its bottom today. There was mid morning news that seemed to turn the tide, and it’s an endorsement of the company’s potential from a really strong investor.
About mid morning IRYS disclosed it has received an executed term sheet from Cornucopia Fund- managed by Omar Amanat. According to the news, Mr. Amanat is the co-founding board member of Twilight Studio as well as Summit Entertainment’s largest shareholder; Peak Group Holdings. He provided and raised 50% of the capital during Peak’s $1 Billion financing of Summit Entertainment. Recently Summit was sold to Lions Gate Entertainment Corp. (NYSE: LGF - News) for $412 Million.
Summit Entertainment owned Twilight Studio- the studio of the Twilight Movie Series Franchise. Just Google Omar Amanat - you will see this guy is one big hitter. The fund executed a term sheet which allows them to invest up to $1 million in IRYS at a fixed price of $.40. It was not disclosed how much has been invested so far. The shares the fund is purchasing will not be free trading for 6 months.
The stock is regaining some ground since this news came out. Perhaps short sellers are rethinking their view on this company after the indirect endorsement of one of the most astute investors and successful businessmen around.
In the meantime, my SSL, as published on the home page, for IRYS was $.60. If you’re out, you might want to consider coming back in. This could be a “V” shaped bottom if short sellers decide to start covering.
This one could be good for a bounce. I haven’t seen one attacked like this in sometime, so it’s a little strange, but could be a tremendous opportunity.
BTW- Full disclosure-I’m still long every single share I had when I published on IRYS last week. I have my own money at risk. I have not been paid anything by the company.
Magic Jack (NASDAQ: CALL) - Let’s Have Another Look
CALL has just gone nuts, rolling through $20 without much problem as settling in around $23. Fantastic move, and I hope everyone clipped 400% off the call options I recommended.
It might be time to either buy a put, sell or call, or short this stock. Next Monday the company comes out with the 2011 year end audit numbers after the market closes.
Now, I have no idea how good the earnings will be, but here’s what I do know.
95% of the time, when a stock makes a big run into earnings, it blips up briefly after the release, then sells off as the hot money comes out on the news.
I see no reason why that pattern wouldn’t repeat itself here.
Tomorrow I’ll have a specific recommendation for a trade on a post earnings pullback.
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The “CALL” Has Been Good To Us
Mark it on your calender- the week of March 12th. My big win for 2012- the March 15 CALL options recommended in early January at $1.40 needs to be liquidated before that week. Here’s why.
This is a good one for your market experience “hard drive”- burn it onto your mental disc drive. When a stock runs up into an earnings release, 99% of the time it will sell off immediately after the news comes out. The one exception would be Apple Computer (AAPL)-the company absolutely blew away analysts estimates and the stock went up.
I called this perfectly on Baidu (BIDU) last week- choosing to suggest to subscribers at www.emergingchinastocks.com they sell covered calls against their position on the earnings news. Kaching- 65% gain in 3 trading days.
As you can see from the chart, the stock had traded up beautifully into earnings. The company beat the estimates by 10% on a strong top line, then the stock sold off 4 consecutive trading days before heading back up.
This happens when hot, short term money makes a bet on an earnings surge a month or two ahead of earnings, then looks to harvest profits when the news comes out.
In the case of the Magic Jack (CALL) Call options I recommended at $1.40- they are now trading at $3.50- down from their high of around $5. Today, it’s 150% return in 6 weeks- not bad.
Magic Jack (CALL) has announced it will release Q4 and year end audited results the week of March 12th. These options expire on March 16th. The time value is eroding on these options, and the stock will likely sell off after the news comes out.
Therefore, you would be well served to be out of these options by the end of next week of the latest, if not earlier. If the stock has traded up or remains close to the $20 level when the numbers come out, I will suggest a quick trade on the short side to take advantage of the inevitable sell off. If you see the stock approaching the $20 level, sell immediately. That will likely be the ceiling in the short term.
The First of a Blockbuster Trio
As alluded to in previous editions, I’ve been working on 3 incredibly strong penny stock opportunities, to be released consecutively over the next 3 months. These are a different breed of cat from the few hit or miss, quick trade ideas I’ve delivered this year.
 On these 3 ideas, you will have a “First Look” out in front of millions of investors who will learn about these three ideas a week or two after you get the “first look”. There will be lots of follow up on these ideas.
I’ll be releasing my first “Monster Idea” next Wednesday, and you’ll want to be first to make a trade ahead of the rest of the world. Here’s a little preview:
Groupon (NASDAQ: GRPN) has been highly touted as the company to get to $1 billion in revenues faster than any company in history. I guess $1 billion in revenues ain’t what it used to be.
I believe the entire Groupon model is fatally flawed, and unless the company makes some changes, this ship is destined to sink. The market is catching on as well - the stock is now permanently camped below its IPO price.
There’s problems on both the user and merchant side. Speaking as a user, I can’t recall the last time Groupon notified me of any “flash sale” on any item I was actually interested in purchasing. Every day it seems like I’m bombarded with a myriad of offerings that include bikini waxes, yoga classes, and tanning beds. I have zero interest in any of those offerings.
On the merchant side, Groupon is getting the bottom of the barrel. When you “pre pay” Groupon for a 50% discount at a restaurant, Groupon keeps half the money, and sends the other half to the merchant in about 90 days. Therefore, only the most desperate of merchants are using the service in most cases.
Groupon does have the largest network, so there’s value in their ability to distribute. However, this model is doomed. Without adjustments, Groupon will go the way of many of the early entrants into explosive digital markets- does anyone remember Netscape, AOL, or MySpace? All early entrants with flawed models.
Move over Groupon- the first online site that creates a direct interface between consumers and local businesses is about to launch, and it will allow the consumer to reach out to local merchants and negotiate a discount in advance.
For example- you could pick 3 dry cleaners in your neighborhood, ask for a 25% discount between from any or all of the 3, then go wherever they will work with you. For me- this has value.
Stand by to learn more next Wednesday. I’ll have more early next week.
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Quick Review of 2012 |
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I’ve covered two penny stocks so far in 2012. FrogAds (OTC BB: FROG), and Liberator (OTC BB: LUVU).
Here’s a quick update on both situations. I tried to pick a bottom for a bounce in FROG (yes, pun intended), and missed by a couple of days. The stock is bouncing now. We started with this idea back in December, and it was really good to us the first go round. The first entry level was $.41, and the stock ran up to a high of $.58 over the next two trading days.
Over the holidays FROG pulled back in quiet trading, and hit a low of $.25. Last week, I suggested it was ready to rally in the $.30 to $.33 range, but I was off by a couple of days. The stock dropped a bit lower before beginning a serious rebound, which is underway now.
FROG traded big volume yesterday- 1.4 million shares- it’s highest day ever, and today has traded over 500,000 shares already.
Early this week, FROG announced a substantial increase in traffic- Alexa ranks their site 61,228 globally, and 35,300 in the US. Anything under 100,000 is considered top tier. The stock is getting some nice traction on this news, and trading really strong volume.
I hope the stock can find its way back into the $.40 range on this surge. If so, traders might consider taking a profit- investors just hang in there for a while as their traffic grows.
Liberator (OTC BB: LUVU) is trading rather quietly. I introduced the company at $.15, and today the stock is $.20, for a solid short term gain of 28% over a couple of weeks. This stock is still trading rather quietly, but volume has increased nicely over the last couple of days, hitting about the 120,000 share level both days.
While that doesn’t seem like a lot of volume, it’s worth remembering this stock had never traded until it was introduced in the OTC Journal, shortly after which it hit a high of $.225 for a 50% gain in the short term if you jumped in early.
LUVU will have a record Q4 ’11 of $4.2 million, and is nearly certain to be a $20 million plus company in CY 2012. I also expect the company to turn cash flow positive in CY’12. In other news, research firm Goldgaber Research pegged the stock at $1 in the next 12 months, citing “The progress the franchise is becoming a main stream brand.”
If you’d like to read the Goldgaber Research piece, just click here, and off you go.
In summary, FROG is highly volatile and trading a lot of volume- LUVU is not as volatile and starting to catch the attention of investors. IF FROG surges 20% to 30%, you might consider taking a trading profit. LUVU is at a good level to hold or open a new position.
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Two Earnings Trades |
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I’ve been reaching out to my vast network of contacts in the small stock world, and believe I have two candidates that will deliver big earnings upside surprises when they release their Q4 and full year audited numbers. Since this publication is committed to low priced stocks, I’ll show you how to make a lot of money if you pledge just a little capital.
The two names are Dexcom (NASDAQ: DXCM) and Magic Jack (NASDAQ: CALL).
Magic Jack (NASDAQ: CALL) is the company that advertises incessantly about its $17 annual fee for your phone service. Sources who reported to me after the recent Consumer Electronics Show in Las Vegas last year inform me that a recent technology change is allowing the Magic Jack solution to function extremely well, and adoption is consumers are not adopting the product far more rapidly than in the past.
As you can see from the chart, the stock is already starting to price in a big change. The stock recently split 2 for 1, and investors generally expect splits to lead to higher prices. Analysts are estimating the company will earn $1.01 in 2012, up from EPS of $.07 in 2011.
I haven’t been able to find out when CALL will release it’s audited 2011 year end numbers. The company legally has until March 15. However, I would expect it to be sometime in February.
I believe CALL is going to beat estimates quite handily, and there’s a lot of upside in this one from current levels.
Dexcom (NASDAQ: DXCM) is a stock I’ve followed since it’s IPO in 2005. I ecommended this stock in 2005 out in front of the company’s first FDA approval. The stock went from my original entry level of $16 to $26 on that trade. I recommended selling the stock at $24, and made $50,000 on that trade myself.
DXCM is a medical device company focusing on the diabetes market- specifically the difficult to treat Type 1 version- at this time. FDA Approvals will be sought for other versions as well. In the past couple of years sales have improved markedly as the company was able to get an insurance code which allows for insurance coverage of their device.
DXCM has developed a small sensor which is implanted into a patient’s abdomen- it’s not much more invasive than an injection. The sensor provides real time blood glucose data to a device that is about the size of a cell phone. The patient can monitor their blood chemistry in real time, and administer the proper amount of medication to keep their blood glucose levels in the normal range as needed.
Analysts are underestimating the rapid growth at the company as diabetes is reaching nearly epidemic proportions on a global basis. I expect the company to turn in far better numbers than the street expects.
Yahoo’s earning calender has DXCM announcing on Feb 29th. Analyst are expecting a loss of $.17 per share.
When trading on anticipated earnings surprises to the upside, it’s important to recognize the stock is likely to trade up into the earnings report, surge at the open, and then retreat swiftly as sellers who were betting on the numbers lock in their gains.
Since this is primarily a penny stock newsletter, let’s look at how we might be able to make a lot of money with a little capital. If you want to bet on the year end earnings releases for both of these stocks, your best bet for a little money is using options.
To go long, you can either buy call options, or go short the puts. With options, you always want to be a seller if possible. However, if you go short the puts, the most you can make on the trade is the amount of money you have at risk. You hope the put goes to zero, and you double your investment.
Going long the calls provides more upside, but you’ll generally pay a higher premium.
In the case of CALL, I would recommend:
- The March $15 calls which you can buy at $1.40. if you buy 10 calls, it runs $1400, and it represents the right to buy 1,000 shares.
- For a greater risk/reward, go to the March $17.50 calls at $.50. $500 gets you the right to buy 1,000 shares at $1.7.50.
In the case of DXCM, I would recommend:
- The March $10 calls which you can buy at $1.40 as well. If you use a limit order, you might be able to get them cheaper. Again, a $1400 investment in 10 calls controls 1,000 shares at $10.
- For a greater risk reward scenario, the $12.50 March calls are only $.45. That might be the way to go. $450 controls 1,000 shares at $12.50. With the stock at $10.50 that might seem a little silly, but if the stock ends up at $15, you’ll be ringing the cash register.
There’s a couple of earnings trades for you for the upcoming earnings releases, and a way to pledge a little money to either make a lot, or lose a little. Be ready to sell these ideas on the days their year end earnings are released. With both stocks in strong uptrends, you should lock in now if you like these ideas.
More soon.
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