Good Friday, one and all. Before I forget, the market's closed on Monday in observance of Martin Luther King Jr. Day. We won't be publishing anything that day because, well, there won't be much to talk about then. We're sure going to cram today's newsletter full though. Don't worry - we can keep it short by letting our charts do most of the talking, and keeping our comments to a bare minimum. Still, we've got a lot to get through today for you, like a new pick and an apology for something that may have been confusing in yesterday's newsletter. Let's begin with the mea culpa first. Not a Math Error, But an Error of Omission We have to give kudos to a couple of readers with detail-spotting eyes. They pointed out something important enough to clarify for you today. In yesterday's newsletter I posted a table of all the SmallCap Network Elite Opportunity's open positions, touting the fact that every single one of them was profitable. Had you looked closely at the trade at the top of the table, however, you would have noticed the "Picked Price" of $85.40 was greater than the "Current Price" of $83.29, which couldn't have possibly translated into a gain of 2.54%. It should have actually been a loss, right? Well, the math was right - the trade from January 10th is indeed a winner. The error was me not explaining how the trade from the 10th is a short position that actually gains in value when the stock goes down. That stock has fallen since the entry, which means the trade is profitable. The rest of the trades are all long trades, and their current prices are higher than their entry prices. I should have explained it then, but honestly, I just didn't think to. My apologies. With all of that being said, what a great reason to point out something I don't say often enough.... The SmallCap Network Elite Opportunity service doesn't care which way the market's moving, because it can find profitable trades in bullish as well as bearish environments. Most of the newsletter's picks are long/bullish trades because most stocks go up most of the time. When the time and opportunity are right, however, the SCN EO can keep the profits rolling by betting against a stock or two. It's this kind of flexibility and know-how that makes the Elite Opportunity one of the most potent, all-weather stock-picking services out there. Knowing all of this, do you want to take a closer look at the SmallCap Network Elite Opportunity service now? The free trial is still being offered. Here's how to get it. Or, cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/. Mixed Economic Data Real quickly, we got two major sets of economic numbers on Friday... the capacity utilization/industrial productivity data, and the housing starts/permits totals, all for December. None of it was "bad" per se, but none of it was inspiring either. Let's begin with the construction numbers. Housing starts fell from a pace 1.107 million per year to 999,000, while building permits fell from November's pace of 1.017 million to 986,000. Part of the lull could be weather related, even though the seasonally-adjusted figures are supposed to weed out that kind of stuff. Take a look at the longer-term trends for each. While December's tallies weren't awful, what the mainstream financial media didn't explain very well is how December's numbers confirm something of a stagnating (albeit erratically) housing and construction market. We'll get another - and bigger - dose of real estate data next week to round out this week's information for you guys, but as it stands right now it looks like we're hitting a headwind. As for capacity utilization and industrial production, we're using more of our factory floor space and machinery than we were a month ago, and we're actually making more stuff with it. The Industrial Productivity Index advanced 0.3 points to reach a multi-year high of 101.8, and we're now utilizing 79.2% of our production capacity. They aren't great numbers, considering the market's at record highs, but they do point to a reasonably healthy economy... one that stocks don't have to struggle in just to survive, you know? Remember, our bigger concern with the capacity utilization and industrial production data is that it's rising. We're not nearly as concerned with the pace of that growth. The New Pick OK, as we promised you earlier in the week, we've got a new pick for you. But, since we're low on time and space today, we'll dispense with the usual puffery and just tell you it's Digital River (DRIV). Most of you may be at least vaguely familiar with DRIV, but for those who aren't, the company provides e-commerce solutions for organizations that can't or don't want to build those solutions for themselves. The brief description doesn't do Digital River justice, however, as the company has a hand in everything from search engine optimization to affiliate program management. You get the idea though - it's the backbone behind a bunch of web-commerce operations. And yes, like every other pick we've made for the past year, DRIV looks good from a fundamental as well as a technical perspective. On the sales and earnings side, the last couple of quarters haven't been great ones for Digital River, and the next two quarters aren't expected to be kick-butt quarters either. But, that weakness is already priced into the stock's value. In fact, I'm pretty sure investors are already starting to price in 2015's projected growth, assuming 2013's slowdown has fully run its course. To tell the truth though, the sales and profits turnaround is just a backdrop to the more important bullish factor here, which is the chart. Simply put, DRIV shares are coming out of a long-term slump. In fact, I'd go as far as to say they're out of the slump and already in a new uptrend. The weekly chart below illustrates the idea. What finally convinced me Digital River is ready to roll is the way the lull seen in the latter half of 2013 - after the red-hot runup in Q2 - ended when the stock found support around the key 200-day moving average line (green) for several weeks, and turned a string of lower lows into a string of rising lows. And, after today, it looks like DRIV is ready to start making higher highs. The fact that it took months to hammer out this slow, upward-arcing shape suggests the end result is also going to be a long-lived one. Take a look. The setup looks even juicier when (knowing what we know about the weekly chart) we zoom into a daily chart. On the daily chart we can see a few weeks' worth of consolidation, capped by a ceiling just under $19.00 (a resistance zone, actually), while the stock's also been squeezed further into the tip of a wedge pattern. Putting it all together, Digital River is knocking on the door of a pretty good breakout move with the long-term wind at its back. One more nudge could do the trick. You know what though? I'm convinced enough as it is to go ahead and add it to the SCN portfolio now. We're seeing this pick as a longer-term trade. The stock was trading in the $30's a couple of years ago, and it wouldn't be a stretch to get back to that level. It could take some time to get there, though, so we'll be patient. Also, while we're working with the portfolio, let's go ahead and pull the plug on First Cash Financial (FCFS). We're not deep in the red at all; it's only down about 7% from our entry point. But, I just don't like the way it's acting. We have too many other ideas waiting in the wings that could perform better (and sooner). As for the market, we'll dive headfirst into that topic when trading resumes on Tuesday. While today was a bearish day, we still haven't broken under all the key lines the bears need to cross before we've passed the point of no return. But, the sellers sure were putting pressure on most of those lines as today's session came to a close! We'll look at those lines under a microscope on Tuesday.