We’ve said it before, and we’ll continue to say it — small caps consistently lead the way out of periods of recession. But while penny stocks generally outperform the rest of the market as a class, they rarely move against it.

In effect, small caps are a lot like gain multipliers. When a major broad-based index like the S&P 500 gains 1%, small-cap stocks in our portfolio could see gains of 3%. And when the market slips, our tumbles are equally magnified.

There’s no better example of the correlation between small stocks and the market than October 2008. As stock markets all over the world shed trillions of dollars in value, more volatile small stocks took some of the biggest knocks — regardless of their fundamental soundness as investments.

And when the market began to rebound back in March, the small caps were racking up the biggest gains…

It’s that strong correlation between small stocks and the broad market that makes knowing the market’s movements so significant. And with investors riding an emotional roller coaster in October and November 2009, now’s a particularly important time to check in with what stocks are doing as a group.

When it comes to aggregate market moves, there are two main factors to consider: fundamentals and technicals.

Fundamentals include economic metrics like unemployment and retail sales, whereas technical analysis looks at trends and patterns in price charts to determine where stocks are headed. Put simply, fundamentals look at the actual health of the stocks, while technicals look at the perceived health of the market.

And while we generally focus on a stock’s fundamentals, when it’s time to look at a broad market index like the S&P 500, technicals can be invaluable in helping us determine where prices are headed…

Here’s a chart of the S&P 500 since April…

In the chart, those vertical gray and black bars — known as candlesticks — represent the price movements of the S&P 500 on any given trading day. The gray lines are the average value of the S&P over the trailing 200 and 50 days, respectively, known as moving averages.

There are a lot of factors that make fundamental analysis work — too many to go into in this issue — but the key things that we’re going to talk about today are support, the price level that stocks have trouble falling below, and resistance, the price level that stocks have trouble pushing above.

Looking at the S&P 500 chart above, the stock has been in an uptrending channel (defined by the thick black lines) for some time now. That’s a good sign because it means that the market is obedient to the channel right now — it should continue to trade within that range until some catalyst prompts a reversal.

It also means that we have a somewhat predictable range of movement that we expect the S&P 500 to move within. Depending on its direction, a break through the thick black lines of the channel would send a strong signal to either buy or sell.

But with the market’s movements still predictable right now, we can make a couple of projections for the near term. For starters, if the last two price cycles are any indication of the S&P’s trend, we should see the current upswing last until the last week or so of November, hitting around 1,150 before turning back for another two-week down cycle.

That down cycle is nothing to worry about as long as the index bounces back up off the black lines for the fifth time since August. That’s most likely going to happen in the early days of December.

There’s no question that our small-cap positions are affected by the movements of the market at large. But while many investors look at the market’s movements as random price swings, we’re going to continue to take an analytical stance by looking at the technical indicators that stocks are exhibiting right now.

Things continue to look strong in the market for the rest of the month. We’ll monitor the indexes closely and alert you to any significant changes.

Cheers,
Jonas Elmerraji

November 18, 2009

Why You Need to Watch the Market Closely Right Now was originally featured in the Penny Sleuth.

Every week, we drum up a list of penny stocks that are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week.

Last week was no exception – investors who played our GeoGlobal Resources (AMEX: GGR) pick had the chance to make 17.32% in the last give trading days…

And while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers again last week, giving you the chance to offer up more speculative penny stock plays — and win a special edition DVD of I.O.U.S.A. in the process…

Watch your email inbox to see if you’re one of this week’s winners…

Now, let’s cut to the chase and take a look at four penny stocks worth watching in the coming week:

Youbet.com (NASDAQ: UBET) – This online wagering company offers a service for its customers allowing them to securely bet on horse races at more than 150 racetracks worldwide. But are you willing to bet on this stock? Shares have recently broken out right at resistance amid significant positive volume. With the market opening strong this week, shares should continue to climb.

Waste Services (NASDAQ: WSII) – While the company may focus on trash, this stock is anything but. Increased positive trading volume and bullish technicals helped Waste Services make this week’s cut. Consider picking up shares after a dip.

ESCO Technologies (NYSE: ESE) – On the short side of things, scientific product supplier ESCO is currently showing investors a very bearish set of technical patterns right now. After posting dismal quarterly results, traders jumped on a triple top that had been forming for the last couple of months, pushing the stock through its support line (blue above), and prompting even more traders to sell off shares at Friday’s open. At current levels, this stock still has further to fall.

Western Alliance Bancorporation (NYSE: WAL) – This $300 million regional banking stock has seen its numbers fall ever since the credit crunch heightened. And now, with profit margins still 38.5% underwater, this stock has attracted trader attention. WAL could easily see another significant drop this week.

Share Your Penny Stock Picks

Once again, we’re going interactive this week…

Just post your recommendation in the comments section of this article between now and the market’s close on Friday, November 20 to share your favorite penny stock play with the rest of the world.

Cheers,
Jonas Elmerraji

November 16, 2009

Monday Penny Stock Watchlist: Bet on This Betting Stock was originally featured in the Penny Sleuth.

Every week, we drum up a list of penny stocks that are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week.

With investors’ interest in the market rekindled after a strong week for stocks, it’s time to look at four stocks that are set to move right now.

First, let’s see how last week’s Watchlist performed. Last week, all five stocks on our Watchlist moved in the direction we predicted on Monday, with one stock – LiveDeal (NASDAQ: LIVE) – brining in as much as 11.4% returns in just five trading sessions.

That’s a compound annual growth rate of more than 273%!

And while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers last week, giving you the chance to offer up more speculative penny stock plays — and win a special edition DVD of I.O.U.S.A. in the process…

Bringing in the top honors last week was Penny Sleuth reader Stanley S., whose Continental Prison (PINK: CPSZ) pick brought in 71.4% returns last week. Also in the winner’s circle was Sandra M., who eeked out a 30% jump in San West (OTC: SNWT) and Louise, whose BioLargo (OTC: BLGO) pick raked in 33%. All three of our winners will be getting a Penny Sleuth Prize Package in the mail for their trouble.

You’ll get another chance to win this week. More on that in a minute…

First, onto this week’s Penny Stock Watchlist:

American Science & Engineering (NASDAQ: ASEI) – This Massachusetts-based security stock delivered awesome second quarter earnings last week, prompting buyers to go on a rally, and pushing shares up more than 7% on Friday. Expect strong technicals and buyer sentiment to keep this stock rising in the coming week.

GeoGlobal Resources (AMEX: GGR) – This $91 million oil and gas exploration company focuses on finding commodity reserves in India. And while they’re far from profitable at the moment, as far as an intraweek play is concerned, the bullish technicals and uptick in volume on this stock right now make a good enough case for picking up shares.

Video Display Corp (NASDAQ: VIDE) – Video Display Corporation is a designer, manufacturer and supplier of CRT and flat panel display devices. While Video Display Corp. is higher on the volatility spectrum than our other Watchlist stocks this week, increased investor visibility should serve shareholders well.

Global-Tech Advanced Innovations (NASDAQ: GAI) – This week’s only short play, Global-Tech Advanced Innovations is a Chinese consumer products maker. This low-volume stock is currently trading just under significant resistance at its 200-day moving average. Watch for this stock to hit its head on resistance – otherwise an upward breakout could hurt those betting against the stock. Watch this one closely if you decide to play it.

How to Play SFNL

Penny Sleuth reader Mark D. wants your help this week:

“I would like to see your thoughts on a small company in the electronic payment processing business, Secured Financial Network (OTC: SFNL), the float is roughly 28M and tightly held so it trades thin, chart indicates long term accumulation and the company does not engage in putting out fluffbomb PRs and is growing Q over Q even during the current economic crisis. I am a long term holder in that stock and would like to hear your opinion on it…”

Have an opinion about SFNL? Just post your analysis in the comments section of this article. You can even post your favorite penny stock pick at the same time…

Share Your Penny Stock Picks

Once again, we’re going interactive this week… And giving readers the chance to win a free copy of I.O.U.S.A. in the process.

Just post your recommendation below in the comments section of this article between now and the market’s close on Friday, November 13. The two readers with the best performing picks each score a Special Edition DVD of the award-winning documentary.

Cheers,
Jonas Elmerraji

November 9, 2009

Monday Penny Stock Watchlist: Four Stocks Worth Watching This Week was originally featured in the Penny Sleuth.

Here’s how to know if your next penny stock play is legit…

For many investors, the idea that a stock could be representing itself incorrectly is unthinkable. After all, we’ve got the SEC, the exchanges – like NYSE and NASDAQ – and independent auditors taking a look at every filing that a company puts out to shareholders. But in the world of microcap stocks, many of those same protections just aren’t there.

While Securities and Exchange Commission (SEC) was created, in part, to protect investors from nefarious activities in the stock market, the countless securities scandals of the last couple of years have shown us that the agency simply doesn’t have the resources to make sure that the smallest companies are reporting accurately. And in fact, many of the smallest microcap stocks are completely exempt from reporting to the SEC.

Serious listing requirements (almost always) ensure that stocks trading on major exchanges are legitimate businesses, but for stocks that trade OTC or on the Pink Sheets, the requirements to get shares trading are slim to none.

And while most investors think of audited financials as a safeguard that keeps a company’s financials accurate, many companies also aren’t required to get their books audited because of their size.

Even if you’re thinking about investing in a Pink Sheets stock that’s exempt from registering with the SEC and getting an audit performed, you might still be looking at a perfectly good penny stock investment… but you have to do your homework.

Verify the Business

The first step to determining whether a penny stock is legitimate is to verify that the business exists and does what you think it does.

You can start off by entering the stock’s ticker on a major financial site – like Google Finance – and checking out the description of the company. Those descriptions come from SEC filings, so you can generally trust what they say since thanks to the Sarbanes-Oxley Act, it’s a felony for management to lie on company filings.

Also, log onto the SEC’s website and look for company filings to get the full look at a company’s operations. And don’t forget to look at its ticker… an “E” at the end means that the company is delinquent in providing its regulatory filings – a very big red flag.

For companies small enough to not file with the SEC, ask your broker for a copy of the company’s “Rule 15c2-11 file”. In it, you’ll find a slew of information that the company was required to provide to prove their exempt status.

Check the Auditor

When you’re reading a company’s financials on the SEC website, look for the audit opinion (generally near the end of a 10-K annual report filing). It’s a statement from the independent auditors that explains the steps an auditor took to verify a company’s financials as well as whether the financials are accurate in their opinion.

Checking who the auditor is makes a big difference too. Bernie Madoff’s “independent” auditor was neither – he trusted Madoff too, blindly signing off on the scamster’s financials and losing millions of his own in the process. Checking into the accountant’s CPA firm would have showed that it was a tiny storefront with only one CPA and without the manpower to audit a multi-billion dollar financial firm.

Getting audited by one of the “big four” accounting firms – PricewaterhouseCoopers, Deloitte, KPMG, and Ernst & Young – is generally the domain of big blue chips that can afford to have prestigious accounting firms handle the audit, so don’t stress if the auditor’s name doesn’t look familiar. Take the time to research who the auditor is, though, and whether they’re qualified to handle a company audit. A quick Google search should solve that…

Give Them a Call

Hard-to-find contact information is another red flag that should be watched out for. Since most companies are constantly on the lookout for new business, their sales team should at least be easily accessible. If you have concerns about whether or not the company is legit, go ahead and call the phone number on their website. If you can’t find a number or address, check back on the SEC website – companies have to include their corporate contact information on the cover of all 10-K and 10-Q filings.

New technology has also made it much easier to verify a business’s contact information. Just type in a company’s address into Google Maps, and select “Street View”, and you can actually see the building where its offices are located. If the offices for a publicly traded stock are showing up as someone’s home or a mailbox rental store, be very wary of going forward.

Follow the Money

If you really want to know about a company, you have to follow the money – its customers…

For any company that markets its products to consumers, a quick web search should give you an idea of how well – or poorly – the company is treating the people who use its services. Reading customer experiences will also give you an idea of whether or not people are jibing with the company’s offerings.

Googling your way to customer experiences isn’t always an option, especially when a company caters to enterprise or government clients. In these cases, where more money is generally involved, lawsuits are more likely as a result of business disputes. Check an online legal database – like the U.S. PACER System – to see whether your potential microcap investment is being sued by customers.

Check for Promotions

It’s possible for a company to be legitimate while the news that “independent parties” are touting isn’t. These so called “stock promoters” are publishing faux research reports and stock recommendations in hopes that investors will catch on to the penny stocks they’re selling. They do this through websites and newsletters that seem legitimate on the surface, but are essentially nothing more than schemes to get people to buy these stocks.

While we’ve never accepted money to write about any stock here at the Sleuth, some in the industry do… And believe it or not, it’s completely legal as far as the SEC is concerned.

There are a few ways that you can tell whether a stock’s being pumped by a promoter. For starters, go to the horse’s mouth – check out StockPromoters.com – the site features a listing of which stocks are paying for which promoters, as well as what the promoters are getting in return.

Promoters aren’t ashamed about what they do – they want companies to know how good they are at their jobs…that’s why they’re so easy to spot.

More Homework, More Profits

To be sure, doing the research is tough and time consuming. But it’s also the only way to be completely sure that the next penny stock play you’re putting your hard earned money on the line for is legit. Small stocks have some of the greatest gain potential out there – and if you know what to look for, you can make sure that you don’t get burned in the process of pursuing profits.

Cheers,
Jonas Elmerraji

November 5, 2009

How to Tell if Your Next Penny Stock Play Is Legit was originally featured in the Penny Sleuth.

And it’s a list worth watching… if you kept up with our Penny Stock Watchlist last Monday, you could have made 12%, 24%, even 89% on a single play. This week, we’ve got five more stocks that are worth watching between now and Friday.

There’s no question that last week’s Watchlist was impacted by a stock market that pushed investors down four out of five trading days. But still, we managed to leverage that negative sentiment with our short recommendation in Synovus Financial (NYSE: SNV) for a potential 24% gain.

And while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers last week, giving you the chance to offer up more speculative penny stock plays – and win a special edition DVD of I.O.U.S.A. in the process…

Well, the results have been tabulated, and last week’s best-performing penny pickers were Kevin H. who suggested shares of Signature Devices (PINK: SDVI) for an 89.19% gain and Jay V. who suggested shares of Artificial Life (OTC: ALIF) for a gain of 39.13%. Both of our winners will be getting a Penny Sleuth Prize Package in the mail for their trouble.

You’ll get another chance to win this week. More on that in a minute…

First, onto this week’s Penny Stock Watchlist:

Nabi Biopharmaceuticals (NASDAQ: NABI) – This $163 million biopharma stock has been facing intense pressure from shareholders of late. Right now the stock is sitting right below its key resistance levels, which could be a very big deal. If this stock pushes above its 50-day moving average, expect the ensuing breakout to send shares up double-digits. Otherwise, this stock should be left to the short sellers this week.

LiveDeal (NASDAQ: LIVE) – This internet Yellow Pages publisher has fallen on tough times as advertising rates have fallen through the floor, posting yet another consecutive loss in its latest quarter. That said, things could be looking up for shareholders this week as the stock bounces off of support and back up into gain-range.

Sunwin International Neutraceuticals (OTC: SUWN) – Sunwin is a Chinese company produces and sells a natural sweeteners and medicinal herbs. Right now shares of this small and volatile company look like they’re consolidating, which with the help of a bullish overall market could be one sweet stock for careful investors.

Newpark Resources (NYSE: NR) – As with LiveDeal, Newpark Resources just found support at its 200-day moving average, and could be signaling for a big bounce. Newpark, an oilfield service provider, has taken some hard hits this year as oil prices fell from record highs down to $30 per barrel. But as oil prices make a resurgence, this stock should benefit from additional drilling activity.

Imation Corp (NYSE: IMN) – This digital media company is exhibiting a bearish pattern right now despite solid earnings number in late October. An uptick in volume on this stock doesn’t bode well for investors who are long.

Share Your Penny Stock Picks

Once again, we’re going interactive this week… And giving readers the chance to win a free copy of I.O.U.S.A. in the process.

Just post your recommendation below in the comments section of this article between now and the market’s close on Friday, November 6. The two readers with the best performing picks each score a Special Edition DVD of the award-winning documentary.

Cheers,
Jonas Elmerraji

November 2, 2009

Monday Penny Stock Watchlist: And the Winner Is… was originally featured in the Penny Sleuth.

Here’s our list of penny stocks to watch for the coming week.

Last week, we told you to watch five stocks – three long and two short – that exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week. Sure enough, four out of five of our watchlist stocks moved in line with our expectations, generating an overall average gain of 6% in just a week – that’s 312% annually!

And while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers last week, giving you the chance to offer up more speculative penny stock plays – and win a special edition DVD of I.O.U.S.A. in the process…

Well, the results have been tabulated, and last week’s best-performing penny pickers were Randy Moory, who recommended shares of China Finance (OTC: CHFI) for a 235% gain and L. West, whose XTEND Medical Corp. (PINK: XMDC) recommendation yielded a 150% gain. Both of our winners will be getting a Penny Sleuth Prize Package in the mail for their trouble.

You’ll get another chance to win this week. More on that in a minute…

First, onto this week’s Penny Stock Watchlist:

Synovus Financial (NYSE: SNV) – Synovus has been having a rough year in 2009. Since January, shares of this regional bank have slipped nearly 67%. And investors shouldn’t expect that trend to change anytime soon. The beginnings of a bearish descending triangle are starting to appear, and newfound resistance at the stock’s 50-day moving average is a good sign for Synovus’ short sellers. This stock could ultimately fall to $2.50 before finding any kind of support.

United America Indemnity (NASDAQ: INDM) – While insurers took their knocks last year along side the rest of the financial sector, things are looking up for United America Indemnity. A swing to thick margins in the company’s third quarter financials prompted investors to turn bullish on this stock, and the technicals are now starting to support a case for going long. Watch the increased volume on this play.

Middleburg Financial (NASDAQ: MBRG) – Middleburg is another financial stock that has made this week’s list. This regional banking company may be small, but with operations based in one of the most affluent parts of Virginia and still strong margins, this bank should continue to do well as investors pile into shares. It’s worth noting that MBRG is thinly traded, so it’s more volatile than most of our watchlist plays.

Fusion Telecommunications (OTC: FSNN) – This small over-the-counter VOIP operator has been rallying hard lately, pushing up nearly 42% in the last three months alone. While FSNN’s financial’s make the stock a somewhat dubious long-term play, the short term financials look strong enough to sustain a rally through Friday.

Hallwood Group (AMEX: HWG) – This textile and energy holding company may be small and under the radar, but traders have taken note recently pushing share up 145% in the last quarter. While the volume is thin on this stock as well, the technicals look enticing enough to make this week’s watchlist.

Share Your Penny Stock Picks

Once again, we’re going interactive this week… And giving readers the chance to win a free copy of I.O.U.S.A. in the process.

Just post your recommendation below in the comments section of this article between now and the market’s close on Friday, October 30. The two readers with the best performing picks each score a Special Edition DVD of the award-winning documentary.

Cheers,
Jonas Elmerraji

October 26, 2009

Monday Penny Stock Watchlist: Don’t Miss These Five Small-Caps was originally featured in the Penny Sleuth.

The last time we talked about our Small-Cap Recovery Index (SCRI), we looked at how the SCRI was performing compared to the S&P 500. Today, we’re taking a look at how the SCRI can tell us precisely which industries are leading the charge to recovery…

Knowing precisely which industries to watch is exactly what we said the SCRI was capable of delivering…

Now we’ve made that level of data a reality, and we’re finally getting a first look at how different sectors of the SCRI are performing.

There are two very interesting takeaways from the charts — first, industry standings were pretty much in line with our expectations, and second, it’s important to note that even the best industries of the SCRI are having a rough month.

It’s no surprise that media and education are among the best performers right now — media companies got slammed in the aftermath of the credit crunch, and education companies have seen increased activity as job seekers look to beef up their resumes with advanced degrees. What is more interesting, however, is that real estate investment trusts (REITs) are already starting to come back.

REIT prices also got hit hard last year, but increased real estate values this soon in the recovery process could be a very big deal for consumer confidence.

The worst performing small-cap sectors of the last month are also little surprise to investors who have been following the economy in the last year. With dried-up discretionary spending, transportation, industrial and building material companies have continued to fight to keep the lights on. Taking the biggest hit, though, was our miscellaneous sector, which includes several hospitality companies and a gym chain.

There’s been a lot of downward pressure on our Small-Cap Recovery Index over the course of the last month. That’s especially evident among our best performing sectors, in which engineering stocks finished the month in the red, but still managed to make our “best” list.

That’s yet another confirmation of what the SCRI Oscillator warned about last month — that stocks would be headed back down in the coming weeks. Going forward, it’s essential to be wary of the worst performing small-cap industries right now, as their underperformance isn’t likely to change until the market changes its mind. And right now, it’s doubtful that we’ll see much of a jolt in the next couple of weeks.

As always, we’ll keep you updated on what the SCRI is indicating to us.

Cheers,
Jonas Elmerraji

October 21, 2009

The Four Small-Cap Industries Best Positioned for Gains Right Now was originally featured in the Penny Sleuth.

And this week, we’re going interactive. Share your favorite small-cap play for the chance to win a free copy of I.O.U.S.A. More on that in a minute…

These stocks are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggests they might be making a material move in the coming week.

Gold Reserve (NYSE:GRZ) – This tiny exploration and mining company is focused on its projects in Venezuela, and has benefited in a big way from the gold hype of the last few weeks. As a result, shares are up 98% in the last three months.

The technicals look good for this stock as well. GRZ rallied hard as gold fever began to catch, and is currently toward the end of a flag continuation pattern. That suggests that this stock is going to push higher – possibly even by the end of the week. Strong volume early in Monday’s trading looks like that prognosis should hold true.

GTx Inc. (NASDAQ:GTXI) – Pharmaceuticals have been big lately (and have even contributed to quite a bit of Penny Stock Fortunes’ gains), and the outlook for GTx Inc. is no different. This drug developer is looking at increased investor activity after taking its knocks in the last month or so. A reversal could be big for investors who are in the right place at the right time.

The Geo Group (NYSE:GEO) – Crime is big business, and not just for the criminals. Companies are also getting a taste of the crime business as they step into roles as government contractors. The Geo Group, which operates prisons in the U.S., Canada, Australia, and South Africa, is just such a company. The stock gapped up Monday morning on higher volume from investors, and the stock doesn’t show any signs of slowing down. This company could be a worthwhile intraweek play.

Exterran Holdings (NYSE:EXH) – Shares of natural gas company Exterran Holdings are down following Barron’s realization that the company could be overvalued by as much as 40%. This potential short opportunity flies in the face of conventional wisdom, which has had investors placing bets on natural gas companies as the commodity itself gained on trading floors across the world. But with the reach of a publication like Barron’s, expect investors to be wary of this small-cap for a while… Shares could dip more before the week is over.

Ultratech (NASDAQ:UTEK) – Last week, Ultratech hit a “double top” – a bearish technical pattern that points to a big drop in share prices. Sure enough, shares fell in the last couple of trading sessions as a result. But if the technicals hold for this small-cap semiconductor play, this stock has further to fall. With analyst day scheduled for October 21, the catalyst could come sooner rather than later.

Share Your Penny Stock Picks

This week, to usher in our new weekly Penny Stock Watchlist, the Penny Sleuth is giving you a chance to talk about your favorite small-cap play – and the chance to win a free copy of I.O.U.S.A. in the process.

Just post your recommendation below in the comments section of this article between now and the market’s close on Friday, October 23. The two readers with the best performing picks each score a Special Edition DVD of the award-winning documentary.

Hurry, though – the sooner you post your pick, the bigger its chance to appreciate. Good Luck!

Cheers,
Jonas Elmerraji

October 19, 2009

Monday Penny Stock Watchlist: Five Stocks to Watch This Week, Plus Score a FREE Copy of I.O.U.S.A. was originally featured in the Penny Sleuth.

Today, I’m going to reveal the biggest secret of them all. And perhaps the one and only reason you should start trading options right now – if you like making a lot of money, fast! It’s a simple strategy that you can use to squeeze penny stock sized gains out of even the biggest blue chips.

It’s why market legend Paul Sarnoff (Steve’s dad) said options are: “The best… Perhaps on the only way to get rich very quickly.”

I’m talking about the secret of “Super-Leverage.”

In a nutshell, “Super-Leverage” allows you to turn a small upfront investment into a potentially life changing payday.

Let me show you how…

When you buy an options contract you are buying the right (not the obligation) to buy 100 underlying shares at a specific price. But, you don’t pay anywhere near what those 100 shares might cost on the open market.

For example:

Steve recommended buying Navistar January $20 calls for $120. At the time, the shares were trading for $16.92.

His charts couldn’t have been more on the money. By the end of that week, the shares were up to $19.59 — a 16% jump.  When it was all over, by the first week of December, the shares topped out at $29.55 a share.  And the options he had recommended were worth $1,150 — an incredible jump of 858%.

You could have bought 10 options for $1,200, and less than two months later, you could have cashed out with $10,300!

That’s the power of “Super-Leverage.”

Can you see why options and “Super-Leverage” can make you rich, quick? Limited risk with unlimited gain is the perfect recipe for explosive profit.

And that’s why, especially now, I urge you to add options to your trading arsenal if you haven’t already. With the market the way it is now, “Super-Leverage” allows you to get in on the action without, gambling your life savings.

Before we wrap up I have one last thing to share. Or rather, options expert Steve Sarnoff does… It’s a FREE ($47 value) report fresh off the press!

It’s called “The Lazy Way To Pick Profitable Options Trades,” and you can download a copy instantly simply by clicking here. (You don’t have to give your e-mail address or anything, just click the link to get the report straight away.)

Cheers,
Jonas Elmerraji

October 16, 2009

Is This the Only Way to “Get Rich Quick”? was originally featured in the Penny Sleuth.

Here’s everything you need to know to profit from the best metal ETF on the market.

Forget gold and platinum -– and even exotics like palladium -– the only precious metal that you need to own right now is silver. That may come as some surprise given the rally that gold has had this year, and given the analyst sentiment that has pushed the SPDR Gold Trust ETF (NYSE: GLD) to the world’s sixth-largest holder of gold bullion -– ahead of Switzerland and China.

But from a valuation standpoint, there’s no question that silver is the best metal to buy right now.

Making a value case for a commodity –- like gold, silver, or oil –- isn’t quite as simple as it is with a stock. That’s because while stocks have easily defined assets, the value of a commodity is simply whatever people are willing to pay for it. It all comes down to scarcity, or how much of a given commodity is out there.

In the case of precious metals like gold or silver, the metal is worth something because there isn’t a lot of it out there. Likewise, nonrenewable energy sources like oil are valuable because it’s in limited supply.

Traditionally, investors have looked at the relationship between gold and silver’s prices to determine whether one of the metals presented a good value play. At present, the gold-to-silver price ratio sits at approximately 59:1, which while high recently is nothing compared to its peak of 98:1 back in 1991.

But the fact of the matter is that the gold-to-silver price ratio is a worthless measure of the two metals’ value. To get a more meaningful indicator, let’s take a look at each metal’s “market capitalization” -– the value of all of “above ground” gold or silver multiplied by its price.

The results are startling…

You see, unlike gold, which has limited industrial uses, silver is used in a number of manufacturing processes. Some of these processes, known as non-recoverable industrial consumption (NRIC), result in the destruction of the metal and lower the amount of above ground silver. According to silver analyst Theodore Butler, in the last six decades NRIC has resulted in more silver being consumed than mined – from 10 billion ounces above ground in 1950 to just 1 billion today.

Compare that to gold, which has seen its above ground supply increase 150% to 5 billion ounces during that period.

As recently as 1975, the value of the world’s gold was 23 times higher than silver’s. Today, with depletion taken into account, gold is currently priced 250 times higher than silver. That’s a shocking difference.

And it’s one that suggests silver is grossly undervalued as an investment right now.

The Best of the Silver ETFs

The best way to play silver right now is clearly exchange-traded funds (ETFs).

While buying bullion direct is a good option for silver investors, the premium you’ll pay suppliers — often in excess of 5% — and the costs and risks associated with storage make it a poor choice for the vast majority of investors.

Investing in silver companies also adds a lot of risk over ETF plays. That’s because while precious metals are a point of refuge for investors when stocks are flailing, companies that mine the metals aren’t immune to the market’s overall trend –- they might do “better” than the rest of the market, but in a bear run that has most equities down double digits, “less worse performance” is little consolation for losses.

Not only do ETFs offer pure commodity exposure that’s nearly free of market irrationality, the best funds physically hold the silver bullion that your shares represent.

A vault filled with silver bars is a big draw for investors who are nervous about a fund failing to meet its investment objectives.

Though silver’s ETF offerings aren’t as varied as gold’s right now, there are several funds worth looking at right now. The biggest of the silver funds is the iShares Silver Trust ETF (NYSE: SLV), which has a market cap of $4.97 billion, and is one of the largest owners of silver bullion in the world. Other smaller funds include the PowerShares DB Silver Fund ETF (NYSE: DBS) and newly formed ETFS Silver Trust (NYSE: SIVR).

But in truth, the only silver ETF worth trading right now is the stalwart SLV. That’s because the other two funds lack the liquidity, cost-effectiveness, and options that SLV offers. And right now, SLV is on the verge of a technical breakout that could equal double-digit gains in days…

Taking a look at the chart above, the first thing that becomes clear is the uptrend that this fund has been on for the last year. And year-to-date, SLV has been constrained within a tight trading channel, which it’s currently right at the top of.

While nearing the top of a channel would normally signal a bounce back down, in this case, with SLV currently at a 52-week high and little risk of profit taking, the potential for a breakout above the trading channel is very real. If shares break through the top of the channel at the $17.70 mark, the breakout is underway and it’s time to consider grabbing onto shares.

Supercharging Your Silver Play

As usual, options are the best way to supercharge this silver play. With a move imminent, a shorter-term out of the money call option on SLV packs the highest profit potential. That could mean as much as triple-digit gains by the end of the month…

That said, if your risk tolerance is lower, the fundamental potential of silver easily justifies going with a more conservative option trade for this fund. You can take a look at all of SLV’s available option at Yahoo Finance.

Cheers,
Jonas Elmerraji

October 9, 2009

This Precious Metals ETF Could be Gold’s “Silver Bullet” was originally featured in the Penny Sleuth.