Good Thursday afternoon, friends and fellow traders. You know, we have to give credit where it's due. The bulls could have collapsed today and turned the whole shebang over to the bears. They're clearly not going to just roll over, though. The S&P 500 looks intent on doing everything it can to reach and even move beyond the 2000 mark, and though we still ultimately expect it to crumble when-and-if it reaches the big line in the sand, we have to respect the persistence. Advertisement Your MarketClub Trial Has Been Paid For What's better than access to powerful, proven trading tools? Easy, someone else paying for you to use them! MarketClub is proud to announce a close partner has stepped up to cover the trial costs for a limited number of new MarketClub subscribers. You'll have a full two weeks to check the Trade Triangle entry and exit signals, scan for new markets to trade with Smart Scan, and get a feel for the Email Alerts to see if they will fit into your trading strategy. Start Your MarketClub Trial - Cost Covered Advertisement On the other hand, there's no way of denying the market is struggling here as it approaches key ceilings. There's certainly been no lack of interest; volume has actually been above average for the past three bullish days. There's just no real progress. We have to assume traders have serious doubts here, and none of them want to be the first to stick their neck out. This could end up being the downside catalyst few seem to expect at this juncture. Take a look. Our bottom line for the market is... well, there's not one for today. We're perfectly content to remain on the sidelines and let everybody else fight a war over nothing. We'll step in and actually play whatever trend develops when nobody else is left standing. As has been the case for a while, however, our bearish triggers are going to be the VIX pushing above 13.3 and the S&P 500's break under the 20-day moving average line at 1973. As for any upside move (which is still the less likely outcome), we'll need to see a decisive thrust off a key floor and past a key resistance level to jump on any bullish trades. Anything else - like this go-nowhere action we're seeing now - and there's just not enough opportunity to bother trying to trade. That's all we've got to say on the matter today. We'd rather spend some time talking about more important matters, like a question from one of our readers. You Ask, We Answer Just as a reminder, we read every comment and question you guys and gals send our way. When merited, we'll respond, and when it's a question worth answering in a public forum for everyone to read, we'll answer it right here in the newsletter. We got such a question today. Our reader asks (and we've paraphrased some of this): I am curious - why penny stocks vs. regular stocks? I am pretty concerned about penny stock liquidity. Could you please discuss this issue? I'd like to have an unlimited ability to trade stocks. Also, do you ever utilize normal stock valuation measures [when looking at penny stocks], such as financials, performance metrics, net/intrinsic value assessment? Thanks. Thanks for the question. You know, when we first started thinking about a response, we were worried an answer could be way too long to fit into one newsletter. After mulling it over for a bit, however, I think I've just decided to respond to each concern with our philosophy rather than dwell on any specific idea and provide a zillion examples. Here goes. Just as a reminder, we don't just trade penny stocks, nor do we think you should solely focus on them either. As a matter of fact, we closed out a 23% score on Hurco (HURC) just this week, and we locked in an 18% gain on Frontier Communications (FTR) a couple of months ago. While both are in the small cap stock realm, neither was actually in the penny realm. To answer the question though, we like penny stocks for the obvious reason - if you can pick the right one at the right time, you can make some very good money on them specifically because they're small. Case in point: Giggles N Hugs (GIGL). We recommended this micro cap on the morning of July 16th, right before the company was scheduled to present at the RedChip Online Investor Conference. These conferences can be a game-changer for a good company, and with demand likely to exceed the number of available shares once the presentation was complete, we simply wanted to be opportunistic. Sure enough, the strategy worked. GIGL opened at $0.51 on the 16th, and at one point reached a high of $0.95 that same day. It's still around $0.75, and acting like it wants to rally again. That could have meant a near-triple-digit winner for some of you who acted on the suggestion early on in the day. Do all penny stock trades work out that well or that quickly? No, but some do. The trick - and what we try and do for you - is finding the best of those potential winners. That being said, we'd never get married to any stock no matter how much we liked it, and we'd never let a winner turn into a loser, even if we believed a pullback was only temporary. That's just good trading discipline no matter how big or small the company is. Again though, we're interested in any good trading opportunity, regardless of its size and price. Moving on, you're right to be worried about liquidity. We're worried about it too. That's why we'd never (and you should never) try to buy a position that's more than 10% of any certain day's volume, and less than 5% of any given day's volume would be even better. Anything more than that and you could move the whole market yourself, and actually move the stock beyond the price you're willing to pay (or a price you're willing to accept, on a sale). Just bear in mind you may not get the entire trade filled in just one shot. More than anything though, USE A LIMIT ORDER TO MAKE SURE YOU DON'T OVERPAY. It's better to not buy a stock at all than to overpay for one. You can always find another great trading opportunity, but if you pay too much for anything, you're stuck with that price. Do we ever utilize normal stock valuation measures? We try to, but truth be told, we can't always do so. Sometimes a company is so young that there are no meaningful valuation measures to judge. In those cases, we're speculating more on the story and less on results. This is also why we don't take our eyes off of micro cap stocks and penny stocks we're currently in. Since we're speculating based on a story or concept and perceptions of stories and concepts can change quickly, we have to be ready for anything. More specifically, we have to be willing to act accordingly. The bigger and longer-lived companies we trade have more valuation measures to consider, so we're willing to give those stocks a lot more leeway. Numbers don't lie, you know? And yes, we do consider all of the numbers. We also consider charts, however, to help us time any entry and exit of an attractively-valued stock. We could say more, but not without opening a huge can of worms, so we'll have to cut it off right there. Honestly though, I don't think there's any number of words we could use to answer the questions that would be as valuable to you as sheer experience in the market. In fact, the bulk of what we strive to do here at the SmallCap Network isn't telling you what the market or our stock picks are doing, but rather, explain to you - based on our collective experience - what it really means, why it matters, and why we think things are going where they're going. It may sound a little ironic, but we'd be thrilled if the SmallCap Network newsletter gave you so many tools and so much knowledge that you didn't even need the newsletter anymore. Of course, we still hope all of you stick around for a long time. We'll be doing our thing as long as there are people out there like yourselves who continue to want it. Oh, and if you like the experiential "training" you get here in the end-of-day newsletter, these guys do even more of it for their readers. That's it for now, but remember, we're aiming to have a Q2 earnings report card for you tomorrow IF Standard & Poor's has the data ready. We're also going to have a copper and aluminum update for you soon.... maybe on Friday too. As we anticipated, both metals have perked up this week and appear to be itching for a breakout. We'll see.