Dow Jones 11138.05 -89.97 8:54 am PDT, July 5, 2006 NASDAQ 2150.76 -39.67 For info, visit access.smallcapnetwork.com S & P 500 1268.04 -12.15 Change your subscription status here Russell 2000 717.51 -13.29 VOLUME 06: ISSUE 50 Is the Market Vulnerable to North Korean Missile Worries?  A couple of weeks ago, in the June 21st edition of SmallCap Digest, we first discussed the possibility of the market being at a short-term bottom. At the time, our rationale was simple - the number of NYSE-listed stocks hitting new lows on June 13th totaled a whopping 291, which was in line with readings commonly associated with capitulation. Although we didn't mention it then due to time and space constraints, it was equally telling to see only eight new NYSE highs hit on June 14th. Again, it was a clue investors had finally given up, and any potential sellers were being flushed out. Theoretically, after such a move, only buyers are left. Of course, that's bullish.  Well, it's only been nine trading days since then, but it looks like the signal is starting to get some traction. The Russell 3000 closed at 713.45 on June 14th - the date of the second capitulation signal. After Monday's (July 3rd) close of 745.85, the Russell index has put up a 4.5% gain. As for our particular market call, we didn't take the stance until June 21st. But even then, the Russell 3000's close of 727.05 from that day still leaves us with a gain of 2.6%. It's certainly not been a white-hot move and political unrest from North Korea has thrown the market a curve ball to be sure. But considering the environment and the limited time we've had to deal with, it's not bad. Plus - and perhaps more importantly - some key issues have been resolved, which may have helped clear the path for more upside movement.  Are we gloating? Not at all. Aside from not wanting to jinx the call, we're also remaining humble because it's far from anything to gloat about...at least so far. We said it on June 21st and we'll say it again now - anything can and will happen, without warning (e.g. an unexpected missile test). Besides, it's not like a 2.6% move is going to suddenly usher all of us into a luxurious retirement. The only point we were trying to make is how new high and new low data can indicate extremes in investor sentiment, which has historically been the point when market tides turned. In fact, our historical data verified it - a lot of new lows and very few new highs meant the odds of an upside reversal were strong. So far, the odds have played out as generally expected. End of story.  That said, as a result of the recent bullishness, some other factors have come back into the picture. Seeing how the market is affected by (and affects) all of these moving parts, we'd like to focus in on a couple of the more important factors today, as they may allow the bulls to keep building on the renewed momentum.    Chart Technicals  Most investors would agree that price momentum fuels even more price momentum. It's not logical, nor is it easy to predict. However, it is the way it is...once a trend is set into motion, it tends to stay in motion (think back to the 'inertia' lesson from middle school science class). That's why Monday's 0.77% gain for the Russell 3000 is a big deal. The size of the gain itself isn't monumental, but we saw some evidence the market is running higher on its momentum.  On the nearby chart, we've plotted a 20-day exponential moving average (blue) and a 50-day simple moving average (purple) on top of the Russell index price bars. Last Thursday's surge carried the index well above the 20-day line, which was an important step for the bulls considering the 20-day average had been a resistance spot for most of June. With that barrier now broken, the bulls have a little less to worry about. But the breach of the 20-day moving average wasn't the only problem to be resolved. As of Monday, the 50-day line was also breached. Given that we haven't been above the 50-day moving average since may 12th, we have to say something significant has changed in the last few days.  Don't misunderstand us...it will take a couple more closes above the 50-day average to really convince us investors are comfortable enough with the progress so far to actually keep buying. And as of early today, there's a clear possibility of falling back. Just keep it all in perspective - a slight pullback doesn't mean the uptrend is done. After all, there are some recent profits to be locked in, and the North Korean missile test has given a few folks the jitters. So, we wouldn't be shocked to see a little bit of weakness now. As long as we can hold onto most of our recent gains and stay within striking distance of the 50-day moving average, we'll continue to give the benefit of the doubt to the bulls.   Renewed Confidence?  The real measure of where the market is headed next is the confidence with which investors are buying. In that light, there are two key bullish clues.  First, think back to last Thursday, before Bernanke even said a word. The market opened up quite strong, went even higher for most of the morning, then went even higher after the Fed said what everybody knew they were going to say anyway. Could it be that investors had planned on being bulls well before he spoke, even though most everyone said they were waiting to hear what he had to say? It sure looks that way. We saw a similarly bullish move on June 15th, when the Russell 3000 gained 2.3% in one day, but without any real reason for the sudden change of heart. The point is, we're seeing subtle hints most investors really want to be buyers. All they need is an excuse.  The other suggestion of growing investor confidence is with the CBOE Volatility Index (or VIX, for short). This fear gauge had been stuck above support just under its 15 level for the better part of June. But, after last Thursday's bullish breakout, the VIX also managed to push under 15, and move to levels we haven't seen since early May. With the VIX now trending lower again, it will be much easier for stocks to keep trending higher.  By the way, the VIX hit a multi-year high of 23.81 on June 13th, then rolled over the very next day. Since the reversal on June 14th, the new high hasn't even been challenged. In fact, the case has been quite the opposite. If the dates seem familiar to you, they should. Lo and behold, those are the same two days the NYSE saw radically skewed levels of new lows and new highs. Coincidence? Hardly.    Just For Perspective  As always, assume the best, but plan for the worst. Although the market call we made based on the new high and new low data (and to some extent, the VIX) has worked thus far, it's still no excuse to not play smart defense. Use the profit cushion we have to push your stops up a little bit...maybe to break-even levels. And keep an eye on charts, with particular respect for the 20-day averages. The last few days have been bullish, but we're far from out of the woods yet.  Also, keep an ear open for worries about the North Korean missile testing ramifications. The act itself is really no more troubling for the market now than the threat of it was then, but investors can be fickle (see today's action for proof). If they get spooked by it enough, things can change for the worst pretty quickly. So far though, we'd have to chalk up today's initial weakness more to profit-taking, and less to the missile test. Just for some perspective, Japan's Nikkei 225 index dropped 0.73% today. That's not good, but it doesn't indicate a widespread panic or geopolitical tension. Mostly, it reflects a well-deserved break for Japanese stocks, which had gained more than 5% over the four sessions before today's loss.     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 Commerce Planet Resolves More Debt Commerce Planet (OTCBB: CPNE) is at it again. Last week, the company paid off a total of $705,000 in principal debentures. The loan was originally taken from two institutional investors, and two individual investors...and the payment was made in cash. Why cash? Because they can! Look back over some of the recent blogs and news for Commerce Planet (formerly NeWave). You'll find the company is consistently generating cash from operations...enough to pay off debts a heck of a lot faster than initially foreseen.  Just for the record, Commerce Planet CEO Michael Hill stated, "Over the past month, we've repaid $705,000 in debt from cash flow. As previously stated, during fiscal year 2006, we were looking to reduce our debt by 50% overall. We have certainly exceeded those 2006 initiatives by reducing our debt by about 70% year to date."  And the year isn't even over yet! There's a distinct possibility the company could be debt-free by the end of the year.  You gotta' love it. There's just something about a company that can and will pay off debt, and doesn't have to stretch to do it. As for the company's cash flow, we'll just remind you NeWave's net income went from a ($1,291,480) loss in the quarter ending March 31st of '05 to a profit of $194,380 in the same quarter of '06. So yes, they can afford it.    New CEO for Execute Sports Todd Hahn has been named the new CEO of Execute Sports (OTCBB: EXCS). Based on his experience, it appears as if he will be a very positive influence on the already-impressive sporting goods outfit. Mr. Hahn's background includes several years as an action sports agent, including the co-founding of his own agency Action Sports Management. He was also the marketing director for BigDeal.com, and a sales representative for World Enterprises. Execute Sports has done a fantastic job with expanding its footprint, and translating the effort into revenue. Now, shareholders should be even more excited to see what Mr. Hahn will be able to do for the stock once he brings his industry expertise to the table. 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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 300,000 newly issued restricted shares by Execute Sports for coverage of the company. In addition, one of the prinicipals of TGR Group purchased 100,000 shares of Execute Sports at a cost of $.25 per share prior to the public offering. The shares are now eligible to be free trading.That individual may choose to sell the shares at any time. This should be viewed as a potential conflict of interest. TGR Group LLC has been paid a fee of $60,000 by Commerce Planet for coverage of the company. 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