Small Cap Network Blog

When’s the last time you saw a bulletin board stock get featured on CNN? I’m sure it’s happened before, though I can’t remember when. More important to us though was the stock in question…. it was our very own China Energy Recovery (OTCBB: CGYV). The company was the focal point for a two-minute clip regarding potential clean energy initiatives here in the United States. Roger Ballentine, a former Clinton advisor and a current member of China Energy’s board, was representing the company.

If you missed the original airing, don’t worry - there’s a clip available here on the CNN website. A short advertisement plays first, then the fearture starts up.

There was nothing particularly new in the clip for us; the point here is how this two minutes was a very important two minutes for the stock. CNN has an audience most companies can only dream about. Tell a good story to a large, profit-hungry audience, and the result is lots of focused eyes and ears. That’s what’s behind today’s 10% pop, though I think more will trickle in over the next few days.

The best part about publicity, however, is how it garners more publicity. I wouldn’t be shocked to see China Energy featured somewhere similar in the near future, once again in a forum usually reserved for the biggest of the big companies.

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Well, as I alluded to in this morning’s newsletter, the actual announcement of the news is creating less buying inspiration for China Energy Recovery (CGYV) than we saw prior to the news. It’s not been a bad day - the stock is basically flat. However, volume is on track to be considerably lighter, and the upward momentum has obviously taken a break. So, as promised, I’ve got some direction for anybody who’s currently in a trade.

If your only goal was a short-term swing trade, and you got in on Tuesday or Wednesday, I suggest you go ahead and get out. There’s a bit of a market for you, but it just doesn’t look there’s much gas left in the tank for this trip. Take the bird in the hand and move on.

Why that stance? Like I said, volume is the key…there’s not much of it today, and there’s no bullishness either. If the news was going to spark further gains, it would have done it right out of the gate (on stronger volume). Just consider yourself lucky we’re basically where we left off on Thursday.

If you’re in a long-term position, I don’t think you need to bother doing anything besides preparing for some sort of minor pullback. There are profit-takers waiting in the wings. Though they aren’t taking action today, I still sense they’re out there. No big deal…they shouldn’t create too many problems.

If you’re still thinking about getting into a long-term trade, I don’t know that I’d bother just yet. See the previous paragraph for why. I’m not bearish per se, but I suspect we’ll see CGYV shares trade a little lower before too long, to burn off some of the froth left behind by a 76% gain in two days. A decent dip is a good entry opportunity (though it would be much easier to buy on the way up than on the way down).

As far as timing all of this is concerned, we’ll have to watch the chart one day at a time. ‘The dip’ may be Friday, or Monday, or maybe even later today. I’m also not sure how big it will need to be. The right dip is kind of like talent….you’ll know it when you see it.

However, I’ll also remind you that China Energy Recovery will be presenting itself at the Rodman & Renshaw Investment Conference on November 10th (Monday), and will be at the Westergaard Conference on November 12th (Wednesday). Both venues will introduce CGYV to some new potential high-level buyers, so don’t be shocked to see some more high-volume rallies next week…if those funds and money managers like China Energy as much as we do. That doesn’t exactly leave the ‘dip’ window open for very long, but that’s actually a good thing.

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Part of me is excited to be looking at the latest news from this small cap company …they’ve more than delivered on the promise we hoped they would. On the other hand, China Energy Recovery (CGYV) has been hijacked like every other stock by the angry bear - the good news may be falling on deaf ears. Be that as it may, if Monday’s action really is a market reversal, then the news could mean a whole lot more tomorrow than it did today. In short, China Energy is already ahead of last year’s total revenues by $3 million, yet they’ve only reported for the first three quarters of 2008.

That’s called growth - the kind of growth we expected, and the kind of growth that was the basis for our suggestion. That growth hasn’t mattered much yet, but give it time.

For the first nine months of 2008, China Energy as taken in revenues totaling $19 million. For all of last year, they took in $16 million, putting the company three months and $3 million ahead of last year’s pace. We also estimated a full-year (2008) revenue total of $26 million, so we’re expecting another $7 million or so to flow in during Q4.

Take it for what it’s worth, but know that the company is doing their part. I can’t talk a small cap stock higher (though I wish I could). This is one of those tests of faith …a great bulletin board company, but so far a fairly unenthusiastic bulletin board stock. Like I said, I fully attribute that to the environment - not the company. If Monday was a true bottom for the market though - short or long term - then the story may well start to get traction with the market.

I suggested on Thursday to put CGYV on a watchlist. This is why - I feel we’re getting close to something big here in the way of the move, so stand ready to take some action if you’re not already in a trade.

It looks like whoever was selling has finally unloaded everything he/she needed to. The selling volume has dissipated, and we’re actually starting to see some buyers trickle in. A little follow-through on Monday’s action could get the ball rolling. Stand by.

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I trust you caught this morning’s newsletter edition, which specifically talked about Bio-Matrix, China Energy Recovery, and Spicy Pickle. All three had posted some good news, and all three stocks had a chance at a breakout. My strategy was a ‘wait and see’ approach though. (If you missed those comments, you can read this morning’s update by clicking here.)

Well, I’d be kidding myself if I said I wasn’t a little surprised that Bio-Matrix (BMSN) ended up being the biggest beneficiary today. The news didn’t illustrate any kind of immediate and tangible impact, yet shares are up 71% today. Volume is a little light, but still…

I don’t know where this will go, but my curiosity has really been spurred as a result. Follow through is the key from here, so the next few days will mean quite a bit in deciding if BMSN’s trade-worthy or not.

On the other hand, the move from a high above $1.20 to a low of $0.20 clearly was an overblown devaluation. At the current price of 60 cents, the market cap is still only about $14 million. That’s roughly the kinds of dollars we were expecting for revenue in their first twelve months of operation. Maybe the news was convincing that they’d actually become operational soon. Makes a little speculative sense.

As for Spicy Pickle (SPKL), this is the one I was surprised didn’t take off. The acquisition was accretive immediately, and it will have a very real benefit to the top and bottom line. You could cry ‘dilution’, but the upside far outweighs the downside.

I think 46 cents is the line in the sand. Shares have bumped into that ceiling - or close to it - several times during the consolidation phase over the last three weeks. If it can break out of that range (40 cents to 46 cents), we may finally get some much-deserved movement. That’s why I wanted you to put it on your watchlist.

And China Energy Recovery (CGYV)? What can I say that’s not obvious? This is by far one of the best fundamental stories we’ve covered in a long time. However, somebody has been trying hard to get out of a major position.

I’m personally surprised they don’t want to hold onto it - the stock is undervalued by most anybody’s standard. But, not everybody who owns a stock (no matter how brilliant they’re supposed to be) can see the big picture. I think these sellers will be kicking themselves in about six months, even if all of us want to kick ourselves in the meantime.

With that being said, it looks like all that selling volume is starting to dry up; hopefully the big seller is out of the way. I can still see this stock taking off in a flash. Like I said earlier today though, timing is everything. I’m keeping tabs on the chart for the right time….which clearly isn’t today.

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The rumors of coal’s death have been greatly exaggerated. That applies in every sense - the commodity’s price, the underlying stocks, and even coal’s place within the global energy machine. Coal’s not going anywhere, and like oil once was, coal could actually be a brilliant long-term idea.

Admittedly, part of the reason I’m now interested enough to bring it up is our recent profile of China Energy Recovery (CGYV). By prepping our coverage of the company, I learned quite a bit about how coal is used for energy creation by prepping our coverage of the company. Along the way though, it also became clear we don’t have a lot of choice in the matter - we need coal if we’re going to meet our growing energy demands. The fact that China Energy Recovery makes using coal cleaner and cheaper is just icing on the cake.

Anyway, given that so many coal stocks were so rewarding in the early part of 2008 - and so destructive in the latter part of 2008 - I think there’s enough of a reason to start looking at the commodity and the trading opportunities it presents. (Or, maybe I’m just tired of talking about oil.)

Here’s a chart of the spot prices for Appalachian coal, which is generally the standard for the coal commodity market. There are other types of coal, but they’re of lesser quality/heat yield. Any of the charts would work, as they all tend to move in unison. The Appalachian coal price seems to be the focal point though.

What’s interesting is how the underlying stocks in the coal industry trade in tandem with coal prices, much like oil stocks do with oil prices. The cool part about coal, however, is that it’s not exactly synchronized with oil. Sometimes, it’s totally disconnected from oil.

I just wanted to officially launch our newest addition to the laboratory/research arena. I’ll be adding forecasts and additional thoughts soon, because I really think coal’s going to become the next oil in the foreseeable future. That’s not to say alternative energies won’t eventually take over, but that’s decades down the road. Coal’s going to have to fill the gap.

Any thoughts? Leave ‘em below. Let me know what’s on your mind when it comes to our newest topic.

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The current bid/ask for our small cap stock pick China Energy Recovery (CGYV) is 3.30 by 3.40…plenty low enough (and narrow enough) for anyone to get into a trade. In fact, it looks like the market for CGYV is trying to move even a little lower. That’s great news - looks like we won’t have to fight to get in at a price close to where we left off on Friday. A market order should be fine.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

Actually, it doesn’t look like China Energy Recovery (CGYV) is going to open too high to buy into. The current bid/ask is 3.39/3.49. I think 3.49 is a decent limit; let’s see how things take shape after the open.