New Year's Resolutions

Well, that time of year is upon us where everyone starts making resolutions to lose weight, get a better job, blah, blah...While there is nothing wrong with resolutions you are more apt to meet them if you lay out a specific goal and little steps to acheive that goal. So, what does this have to do with penny stocks or investing? I'm sure that many of you have a resolution/goal to become a better investor or trader in 2008, which is admirable. I would suggest getting a plan and figure out what you need to do to meet the goal. Some steps I would suggest are:

1) Look back at your trades in 2007 and see if there are any trends. Did you get out of trades too early? Did you add to losing positions? Were you stopped out on a regular basis? Once you determine this you can start formulating a plan

2) Create a trading plan. A great book for assisting with this task is Rules of the Trade.

• Determine what type of stocks you will trade
• Detemine rules for entry and exit
• Start a trading log

3) Educate yourself on the type of trading you are doing. Buy some books and read them.

4) Subscribe to newsletters. However, don't follow the advice blindly. Take the recommendations and due you own due diligence to determine if the trade meets your risk parameters, etc.

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10 Worst Performing Industries in 2007

Think back over 2007 to all the big stories you read about in The Wall Street Journal, Investor's Daily or heard on CNBC. What comes to mind?

I'm sure the bursting real estate bubble and the subprime mess is on your list. I'm sure high gas prices is on the list, if not I'm sure you complained about them during 2007. How about Citibank taking a HUGE loss. Well, it comes as no surprise that the 10 worst performing industries in 2007 are all related to those stories.

Without further ado, here is the dubious list.

10 Worst Performing Industries in 2007
DJ US Home Construction Index	-56.31%
DJ US Mortgage Finance Index	-52.36%
DJ US Specialty Finance Index	-45.28%
DJ US Airlines Index	-37.16%
DJ US Real Estate Holding & Development Index	-31.30%
DJ US Home Improvement Retailers Index	-30.81%
DJ US Banks Index	-29.02%
DJ US Consumer Finance Index	-27.73%
DJ US Business Training & Employment Index	-26.70%
DJ US Transportation Services Index	-26.67%
Average Return for 10 Worst Performing Industries	-36.33%

The lesson to the story here is just because the pundits are screaming doom and gloom doesn't mean there isn't money to be made. Plenty of people got very wealthy on the demise of the real estate bubble. There is always a way to play the downside. For example, this year I was heavily invested in an UltraShort Real Estate ProShares ETF (SRS) that did quite well, up 75% since it started trading in March.

While the stocks we profile aren't part of these indices there are penny stocks that could have been shorted such as: TOUS, DHOM and CHCI. In fact, DHOM and CHCI are still good canidates to short. They are both traded on the NASDAQ and are in jeopardy of being delisted.

As always do your own due diligence.

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Top 10 Peforming Industries in 2007

Below are the top ten performing industries during 2007, while there are really no surprises in the list. Keep in mind all commodity mining that went on in 2007 requires big machinery to mine and transport, hence the Heavy Construction Index up 91.5%. While the indexes below are Dow Jones and penny stocks don't belong to them, a great way to find penny stocks that may explode is to find companies in these high performing industries.

Tomorrow we will take a look at the worst performing industries and what can be learned from them.

10 Best Performing Industries in 2007
DJ US Heavy Construction Index	91.50%
DJ US Coal Index	71.70%
DJ US Mining Index	55.34%
DJ US Specialty Chemicals Index	46.27%
DJ US Oil Equipment & Services Index	44.30%
DJ US Nonferrous Metals Index	44.22%
DJ US Exploration & Production Index	42.85%
DJ US Commercial vehicles & Trucks Index	42.71%
DJ US Oil Equipment & Services and Distribution Index	41.50%
DJ US Tires Index	38.42%
Average Return for Top Ten Performing Industries	51.88%

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Songzai International Holding Up 1200%

On October 17, 2006, we profiled Songzai International (SGZI) at $0.07 per share. On September 25, 2007, the stock was trading at $0.93 per share. That is an increase of 1228%! A $500 investment in the stock would have been worth $6642, not a bad return. However, what can we learn from trades like this? Why did this stock go up so much? Why did we profile it to begin with?

First, Songzai is a Chinese company. The emerging/foreign markets were on fire during 2007. In fact, iShares FTSE/Xinhua China 25 Index was the second best performing ETF during 2007, it was up 61.51% for the year.

Secondly, Songazi is a coal company. The DJ Coal Index was up 77.30% for 2007.

Third, the price of coal was on the rise at the time of the profiling. What we wrote at the time was, "The average selling price of coal in the first half of 2006 was $22.5 per ton, compared to $17.5 per ton during the same period in 2005. The rising price of coal will assist Songzai in achieving profitability."

Fourth, at the time of the profiling, net sales were up and expenses were down.

Lastly, the stock was in an oversold state which allowed for a good entry into the trade.

Overall, what you can learn is, pick a stock in a booming sector(s), a company whose financials are improving - ideally the company should be profitable and look for a stock in an oversold condition that allows you to buy the stock "on sale".

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MicroCap Seasonality

I stumbled upon an interesting article involing the performance of microcap stocks in January. Mark Hulburt from Barrons crunched data provided by two finance professors, French and Fama, from 1926 to 2004 to see if microcap stocks really outperform large cap. The average return of the stocks in the portfolio containing the smallest-cap stocks was 17.1% on an annualized basis between mid-1926 and the end of 2005, versus 10.2% for the quintile that had the largest-capitalization stocks -- for an impressive difference of 6.9 percentage points annually.

However, when you drill down further into the data, you find that the bulk of the microcap return occurs in January. Here are the details.

Here are the annualized micro-cap returns by month from July 1926 to December 2004:

January.........159.82%
February.........25.10%
March...............1.21%
April................12.86%
May...................6.85%
June..................6.57%
July.................22.64%
August.............8.16%
September.......-7.75%
October..........-14.60%
November..........7.97%
December.........-1.94%

So, armed with this information, what investment/trading options do you have? There are a few.

1) Purchase shares of IWC
2) Purchase Januray calls for IWC (IWCAZ.X, IWCAC.X or IWCAD.X)
3) Purchase any number of small cap funds

We hold no position in any of the above.

Here is a link to the original article.

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Merry Christmas

We would like to wish everyone a Merry Christmas and a Happy New Year.

We will be sending out our next subscriber alert on 12/26 - don't miss it! Turbo charge your trading in 2008.

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Great Sites for Due Diligence

We use a number of sites when performing our due diligence for our Tuesday picks, however there are three sites that we use frequently, they are:

1) Tradersnation.com - it has an endless list of interview with CEO's
2) Smallcapcenter.com - the best source of small caps on the 'net
3) Stocklemon.com - it investigates many small caps to see if there is anything fishy.

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Shorting MicroCaps

If you are looking for a new trading idea in 2008, why not take a look at shorting some microcap companies. Granted many brokers will not allow you to short OTCBB stocks, however many are good candidates. If you take a look at many companies from 2004 or 2005 that were the high fliers, you may find that many of them trade at below penny prices these days - why not make money on the way down. Here is a good place to start finding some potential shorts.

List of OTCBB Filing Delinquent Companies as of Dec 21, 2007

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GoldSpring (GSPG) A Speculative Play

GoldSpring Inc. reached a new 52-week high of $0.0147 on 12/21/07 on volume of 70 million shares. The stock may be worth taking a look at for speculators, for the following reasons:

1) Ample volume and climbing stock price.
2) Receives much press via the "penny stock news release" companies
3) GoldSpring, Inc. recently announced today that it has entered into an agreement with Orbit Garant Drilling, Inc., one of the largest drilling companies in North America, to perform exploration and developmental drilling at its Comstock Lode Project. The drill rig and crew are scheduled to arrive today, and the Company expects drilling to commence this week.



Due your own due diligence.

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5th Characters in Stock Symbols

For any of you who have researched penny stocks you have seen stock symbols on the OTCBB with 4 and 5 symbols. The fifth symbol many times should be a red flag to you wheter you should trade the stock or not. Here is a list of the fifth symbols and what they mean.

Listed below are the fifth letter identifiers and a description of what each represents:
Character Description
A Class A
B Class B
D New
E Delinquent in required SEC filings
F Foreign securities, except ADR’s
G, H, & I Additional warrants or preferreds
J Voting
K Nonvoting
L Miscellaneous situations, such as stubs, depositary receipts, second units, or additional warrants or preferred
M Fourth preferred, same company
N Third preferred, same company
O Second preferred, same company
P First preferred issue
Q Bankruptcy - involved in bankruptcy proceedings
R Rights
S Shares of beneficial interest
U Units
V When-issued and when-distributed
W Warrants
Y ADR (American Depositary Receipts)
Z Miscellaneous situations, such as stubs, depositary receipts, limited partnership units, or additional warrants or units

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