Dow Jones 11392.11 +60.67 2:11 pm PDT, September 8, 2006 NASDAQ 2165.79 +10.50 For info, visit access.smallcapnetwork.com S & P 500 1298.92 +4.90 Change your subscription status here Russell 2000 708.54 +2.07 VOLUME 06: ISSUE 70 Which Trees Are Set To Bear Fruit? After we posted a blog entry yesterday regarding telecom's strong showing (relative to everything else) we were reminded of a simple fact too easily forgotten within the investing community - being in the right sectors is half the battle. So today, we'll tell you which sectors the calendar says it's time to be in. We'll also highlight the sectors currently boasting bullish charts. Some of them may surprise you, but as we've observed for years, some of the very best trading opportunities seem unlikely in their early stages.  The application of a sector-based strategy can be as simple or as complicated as you make it. An easy way to play a sector trend is with an exchange-traded fund (or ETF). Or, if you're willing to dig a little deeper, you might choose to look at a handful of stocks leading a particular industry. Obviously individual stocks add a layer of risk to your portfolio, but you'll also have a little more upside potential with an equity position. Where we can below, we'll discuss an ETF as well some individual stock names worth a closer look. But first...  We've looked at a sector performance ranking before. However, an updated one is merited. On the nearby image, we've listed the major sectors, with their percentage returns over several time frames. What we're looking for is a 'then' and 'now' picture, or to be specific, significant changes between then and now. Our sectors are ordered from top to bottom based on one-month returns. See any monthly returns that stick out in comparison to other time frames? Although technology stocks have had it rough for a year, maybe there's a light at the end of the tunnel now. The same goes for telecom stocks. Simultaneously, we have to wonder if it's finally the end of the road for oil and basic materials. We'll see. As for long-term trends not hinting of a break anytime soon, check out the consumer staples names - they've been pretty consistent.    Calendar Trends Believe it or not, yes, there are significant sector trends that seem to be steered by a calendar. Most sectors traditionally start a nice bullish run in October, but there are a handful of sector trends with a September start date. This list includes telecom, pharmaceuticals, and healthcare. The uptrends usually last through January, with average gains ranging anywhere from 12% to 24%. Telecom was obviously on our watchlist already, but we had an eye on pharmaceuticals as well...as a potential recovery candidate. Healthcare was the only one of the 'September Strength' sectors we weren't really thinking about. However, since trading is always an odds game, we have no problem entertaining the calendar tendencies, at least as potential trading ideas.  We first mentioned telecom in a blog entry from August 18th. However, the story now is still the same story as then...telecom stocks went from being the worst performers to the market's big rebounders in just a couple of months. Even though some traders may have gotten an early jump on the seasonal trend, the calendar says there's probably plenty of time left to play the bullish odds. There's a telecom ETF offered - the iShares Dow Jones US Telecom Fund (AMEX: IYZ). Some of the stock ideas we mentioned in the blog entry were Verizon (NYSE: VZ), AT&T (NYSE: T), BellSouth (NYSE: BLS), Qwest (NYSE: Q), or the relatively unknown Embarq (NYSE: EQ). Since 1990, from September all the way through January, telecom stocks usually gain around 22.0%.  Pharmaceutical stocks - unloved for the better part of this century so far - have actually come back to life in 2006. Yet, most investors have failed to notice their 14.3% gain since the middle of October of last year (for comparison, the S&P 500 is only up by 9.1% since then.). Moreover, during the last few months, the pharmaceutical indices have broken many of their bearish trend lines. Between the renewed strength and its usual strength during this time of year, the Merrill Lynch Pharmaceutical HOLDRs (AMEX: PPH) might be worth a look. Bristol Myers Squibb (NYSE: BMY) and Merck (NYSE: MRK) are a couple of the large-cap names held in this fund. The Novo-Nordisk (NYSE: NVO) ADR or Valeant Pharmaceuticals (NYSE: VRX) are a couple of smaller pharma names off the beaten path, but still worth considering. On average, since 1990, pharmaceutical stocks have gained 10.9% between early September and the end of January.  Although there's some overlap between pharmaceutical stocks and the healthcare sector, the two should still be separated - at least in terms of trading opportunities. The iShares Dow Jones US Healthcare Fund (AMEX: IYH) is the most liquid of the healthcare ETFs. As for individual stocks, where do you even begin? The healthcare universe includes hundred and hundreds of stocks, spread across four major industries (one of which is pharmaceuticals). The average September-through-January return for healthcare since 1990 has been 12.9%.    Sectors (Industries, actually) With Currently-Bullish Charts What about current sector trends not based on a calendar? Yeah, we see a few of those too. We may not be able to say the same thing about any of them a year from now, but right now, here are the ones worth noting (besides telecom)...  As unlikely as it is regular readers have missed our prior mentions of it, we'll bring up the auto manufacturers once again. Our first look at car makers was actually a blog entry from July 19th. At the time, the Dow Jones US Automobiles Index (DJUSAU) was trading at 158.13, and practically nobody thought these stocks had any chance of pulling out of their multi-year dry spell. Our read on the chart said otherwise though, which is why we even brought the idea up. As of today, the Dow Jones US Automobiles Index is trading at 188.29. That's a 19.0% gain in less than two months (you can thank us later). Amazingly, some pundits are still absolutely certain auto manufactures are in trouble, despite the current charts, and in the wake of major gains.  We're obviously at the other end of the spectrum, thinking the auto industry stocks still have plenty more upside left to go. Ford (NYSE: F), General Motors (NYSE: GM), and Toyota Motor Company (NYSE: TM) are all worth thinking about.  The only other industry we have to mention today is just that - an industry, not a sector. Would you believe soft drink makers are on the rise in a big way? Most people might be surprised there's even an index following the industry, but there is - the Dow Jones US Soft Drinks Index (DJUSSD). Obscure? Yeah, but it's still up 9.6% year-to-date, which is considerably better than any of the broad indices. Better yet, soft drink stocks are just now getting into an acceleration mode. Without the problem of being overbought, or a bullish trend becoming exhausted, the odds favor a prolonged continuation of this relatively new upturn.  The index may be set to chill for a few days, following a rather strong runup in August. But, after a retest of some key moving averages (i.e. the 50 day line), you may want to consider mainstays Coca Cola (NYSE: KO) or Pepsico (NYSE: PEP). If you're looking for some small-cap names with a little more potential, then Cott Corp. (NYSE:COT) may quench your thirst. However, among all the possible beverage companies to choose from, our favorite pick would still have to be Clearly Canadian (OTCBB: CCBEF). We've been following the company's turn-around since the beginning, and based on what we've seen so far, its future looks good.      We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Xtreme To Unveil 2007 'Challenger' Line  This week's announcement of a reinvented Xtreme Companies (OTCBB: XTME) was big news for investors, but the performance boat market also has to know about the new Xtreme for this thing to work. So, Xtreme is going to unveil the 2007 'Challenger Offshore' line of performance boats this October at the Fort Lauderdale International Boat Show. It just happens to be the world's largest boat show, and therefore, the perfect opportunity for the company to showcase their incredible boats and patented DDC technology.  In the performance and sport boat world, trade shows are the primary venue to tout what you've got to offer. With virtually a new company behind a new line of boats with DDC engineering, you can bet Xtreme is going to make a big splash. So, this is a big deal.  And to reiterate the point we made in Wednesday's edition of the newsletter, priced at only a few pennies, we think XTME shares have very little downside in relation to their potential upside. Plus, you've got to remember the current price may be a reflection of the old Xtreme. That company, though, is not today's Xtreme. Today's Xtreme, focused solely on sport and performance boating, is a whole new venture...and potentially a very lucrative one. The Fort Lauderdale boat show is the first step towards meeting that goal.  Here's the complete press release.    Network Installation Meeting All Expectations If you're not a believer yet, then we don't know what it's gonna' take. Yesterday, Network Installation (OTCBB: NWKI) released an update on the success of its wholly-owned subsidiary Kelley Technologies. Without getting into the details, just know that Kelley completed two contracts worth a total of $9.5 million. For perspective, last quarter's revenues totaled $4.9 million, and the six-month revenue total as of the end of last quarter was $11.6 million. More than that, two more installations worth a total of $6 million are slated for later this month. Get the idea? Network Installation is back in business...big-time.  So, the turn-around picture we painted in our August 15th edition of the newsletter? Yeah, it's pretty much shaping up like we thought it would for the company...and its stock. if you're not familiar with Network and its story, be sure to go back and read our mid-August update. Also, be sure to keep the dollar figures above in mind as you read the story - it's getting very exciting out there in Las Vegas.  For the whole press release, click here.  As for the stock, what's not to like? NWKI broke free of a long-term drought, and has established a new base on the upper side of some key moving average lines. Right now 40 to 44 cents is the upper edge of the range.    Crude Oil Hits Our Target of $67.00, May Be At a Short-Term Bottom In the August 18th edition of our newsletter, we made a bearish call on crude oil futures. At the time, they were trading at $72.16 (and closed at $72.10 that day). Based on the strength of the short-term downtrend, and a lack of support anywhere near there, we set a rough target of around $66.00. In our August 29th edition, we revised the target to $67.00, as the long-term support lines we were keyed in on started coming into the picture.  Well, guess what? Crude oil hit our target price of $67.00 on Thursday. If you were trading the idea and haven't gotten out of any oil-based trade yet, you may want to now. Although the pressure is still bearish, you never want to get greedy - we're about 5 points under where we made the call...just enjoy the gain you have. (Bulls make money, bears make money, pigs get slaughtered).  Although we still see the same bearish trend lines in place, the risk-versus-reward profile is very different now than it was then. Back in mid-August, we didn't have a major long-term support line staring us in the face...now we do. We may indeed see crude futures sink a little lower, like to $66.00, but it's not nearly enough reward to keep any risk (i.e. a trade) on the table.  Subscribe Information is power and timely information is profitable. Become informed and profit from SmallCapDigest Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the SmallCapDigest Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the SmallCapDigest Member List. 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TGR is not a registered investment advisor or broker-dealer. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible.  Moreover, as detailed below, TGR accepts compensation from third party consultants and/or companies, which it features in the publication and circulation of SCD. To the degrees enumerated herein, SCD should not be regarded as an independent publication.  Click Here or go to http://access.smallcapnetwork.com/compensation_disclosure.html to view our compensation on every company we have ever covered, or visit the following web address: http://www.smallnetwork.net/profile_disclosure.html for our full profiles and http://access.smallcapnetwork.com/short_term_alerts.html for Trading Alerts.  TGR Group LLC has been paid a fee of $30,000 and 200,000 newly issued restricted shares of Network Installation for coverage of the company. In addition, one of the principles of TGR Group LLC is also a principle of MarketByte LLC. In a separate contractual relationship in 2003, MarketByte LLC was paid a fee of $25,000 in cash and 500,00 newly issued, restricted shares by Network Installation for coverage of the company. The term of MarketByte's obligation to Network Installation has expired. 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