Small Cap Network Blog

I thought this stock pick may have been dead in the water, judging from the last couple of months.  Tenet Healthcare (THC) had been stuck around the $5.70 area since May. However, today’s move to $6.57 not only breaks the stock out of that rut, but may well have kick-started the final move of this trade.

Our target is still $7.67…  the high point from 2007 we saw touched two or three different times in the first half of that year. In the meantime, we’ve seen a new resistance line come into play.  Using the December of 2007 peak, and then the May of 2008 peak, we can extend that line right up to the upper $7.00 area by the time it’s revisited again.

We’re not there yet, but it sure beats the alternative.

For those of you who got in waaayyyy back in November (at $4.06), you’re up about 61% now. Not bad, though we think more is on the way.

If you were thinking about jumping on board, at this point, I wouldn’t. We’ve got a new pick for you right around the corner, and I’m sure you’re going to want to keep some money ear-marked for that one.

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We made a stock pick of Tenet Healthcare (THC) several months ago, expecting the very thing we saw….smaller losses, and eventually, a return to profitability. Well, Tenet did their job - they lost only $15 million last quarter, or 3 cents per share. In the same quarter a year ago they lost 6 cents per share. Yet, the stock took a pretty hard hit, sinking from $6.23 to the current price of $5.49.

Actually, I know what it was….analysts were looking for a loss of only 1 cent per share. God forbid you don’t meet analyst’s expectations; clearly they know everything. (Yes, I’m being a smart-%$#*)

Whatever. This was never a trade. This was an investment, and we’re looking out the next several months…not the next few days. These cases where investors ‘buy the rumor and sell the news’ are best just ridden out, since they’re usually temporary.

Those same analysts are still expecting earnings of 1 cent per share for 2008, and 10 cents per share in 2009. They still don’t have a lot of credibility in my book, but if they’re anywhere close it’ll be a huge turn-around for Tenet. That was the whole point of tapping into the chart, which by the way, is still up by 34% from where we got in late last year.

So, we’re not flinching here. The uptrend is still technically intact, and this volatility is nothing new. Let’s stand pat.

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If you were in the trade, then you’re lovin’ today’s ride…and you’ll already know that Tenet Healthcare (THC) jumped 7% today on an upgrade from Lehman Brothers. They finally got on board…after the stock gained 70.9% from October’s low close. With today’s pop, we’re up about 40% on the stock pick.

Though it’s nice to get a little help, this changes nothing about what we’re seeing on the chart. This stock is volatile, but there’s been more bullish volatility than bearish volatility. THC shares have been bouncing around in a wide range, and we think they’re going to keep doing so until our objective of $7.67 is met.

In fact, today’s turn-around may have been jump-started by a sharp pullback in early June….a pullback that took the stock right back to the support line we discussed in our last mention of Tenet. Take a look at the chart - the blue support and resistance lines in particular. Now project where the upper line will be by the time it’s intercepted again. It looks like it will be pretty darn close to $7.67.

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There are two things that immediately come to mind about our Tenet Healthcare (THC) stock pick (so far). The first is, it’s been profitable. The second thing is, it’s been one wild ride. The ups and downs have been wide enough to make a sailor seasick. Good news though….I think one more good runup like the last couple could get us to our target price of $7.67, and lock down an 89% gain.

Here’s my thinking….see the bullish ‘zone’ framed by a support and resistance line? We’re revisiting the support line right now, after an encounter with the resistance line in late April/early May. If you extend those out and ‘eyeball’ where THC is likely to be the next time that upper ceiling is met, that’s right around that level.

You can also see that’s a key resistance area from early 2007. No since in tempting fate beyond that point.

If the chart does indeed play out like that, it should happen sometime in late July.

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I already blogged it this morning, but I didn’t have room for a chart in my morning notes. So, here I am again telling you about Tenet Healthcare (THC). Why do I need a chart? Because the chart is the story. The stock has made a strong break today, moving past some prior resistance levels. Those of you who follow all of our picks would now be up about 48% on this trade.

The chart tells the story far better than I ever could. Take a look…

The surge was prompted by an upgrade from Credit Suisse. The CS analyst felt Tenet was making good progress on their recovery, and general hospital pricing trends were improving.

The same analyst also raised his target price to $8.00 (it had been $6.00). Our target was originally $7.67. As tempting as it may be to raise our bar and let Credit Suisse fans bid the stock right up to $8.00, we’re not going to do that. Better to sell on the way up than try and pinpoint the top.

There’s something else though. THC hit strong resistance around the $7.67 level in early 2007. It may well find it again. So, we’re not going to get greedy and try and squeeze out an extra 23 cents when the chart has already warned us not to. Besides, if THC reaches $7.67, that still means an 88.9% gain from our November 10th ‘picked’ price. Take a look at the weekly chart and see of you agree.

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No surprises here really…small cap company Spicy Pickle (SPKL) has delivered as expected, opening the first  restaurant in downtown San Diego, California. It’s the second in the area. That means 37 are now open, and leaves more than 90 on the way. All the details are below.

In the meantime, how about that market? Stocks mustered a little strength yesterday, and in some cases poked to highs above my personal ceiling (which was February’s highs). The Russell 3000 exactly retested the resistance at 808 though…the third time in three months. Of course, we also watched every index fade from the intra-day highs, and close in the middle of the day’s range.

You could make a bullish as well as a bearish a case out of what we’ve got right now. I’m still leaning on the bearish side of the fence though. The fact that the market is up as I write this makes such an opinion tough to hold onto though.

I’ll say this much - a strong close/finish today could clinch the end of lethargy and the beginning of a move higher. As I’ve said all along, I suspect we’ll see more ‘down’ before it’s all said and done, but the bulls are testing the waters in the meantime. They could push the Russell 3000 all the way back to the 200 day line (at 831) with this effort. After that, I’d be cautious again.

By the way, is it just me, or are some of these index charts starting to make upside-down head-&-shoulderish patterns? If they are, that’s bullish. More importantly, the likely ’slingshot’ effect should carry them right up to the 200 day lines or so. Amazing how the market ‘knows’.

In other news…

One of our small cap company picks continues to fire on all cylinders. Downtown San Diego’s first Spicy Pickle restaurant is now up and running. The lease for the second of what will be twelve units for this franchisee has already been signed. The details really aren’t all that important. The important message is continued growth - Spicy Pickle can clearly do that.

Don’t forget about our Tenet Healthcare (THC) stock pick either. It jumped this morning from $5.46 to the current price of $6.08. That’s a new multi-month high. The catalyst? An upgrade from Credit Suisse. As of now, the trade is up 49.7%.

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.

Looks like I’m on something of a roll here….I called for a pullback yesterday morning, and got it yesterday afternoon. The NASDAQ was off 2.2%, the S&P fell 0.3%, and the Dow sank 0.6%. I still think there’s a little more selling needed to shake-off the recent exuberance, and getting to the end of the week today is likely to be all the excuse the market needs to drive ‘em down one last time. The fact that we’re starting the day out above yesterday’s close just makes it that much more likely.

After that - a.k.a. next week - I’m looking for more bullishness. We still have a bigger oversold situation to burn off, which was jump-started by the mini-capitulation signaled by too many new lows on the 17th. So, don’t sweat the weakness too much.

By the way, I had an ‘aha’ moment after I submitted yesterday’s morning call. An easier way of saying what I meant would have (basically) been ‘bet against the open’.

Ingles Market (IMKTA) is strong, AmeriCredit (ACF) was weak, and railroads….well, 2 out of 3 ain’t bad. It’s only been two days though - you think I should work on patience?

Anyway, for those of you who’ve been around a few months, Smart Energy Solutions (SMGY) has taken another big step towards their end goal. Click here for the detailed comments; here’s the teaser….they have another dealer, but this one has access to largely a new audience.

Chew on this…imagine 21,200 potential ‘retail stores’ all suddenly selling your product. Now imagine more than 40 million potential new ‘customers’ created every year. If you’ve only sold a few hundred thousand pieces of your product to date, it’s exciting news, right?

I’m telling you people, I think Smart Energy is one of those companies that’s gonna’ quietly work they’re way into success, and then be ‘found’ overnight by the market. Maybe it will be tomorrow, next month, or next year. Sometime though. The hare may be sexy, but don’t forget the tortoise won the race.

Regardless, click here for the full scoop.

Pick of the Day: Bio-Matrix (BMSN). Come on - you didn’t expect is to say anything else after yesterday’s profile, did you?

By the way, check out another of our recent picks…Tenet Healthcare (THC). Not bad…for those who got in and stayed in. The chart looks a little cup-and-handle-esque, which may turn good news into great news here. The trade is up about 30% from our pick price, but the slingshot effect of a good cup and handle pattern could swell that number up pretty nicely.

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.

We didn’t even get a chance to celebrate yesterday’s victory with our Tenet Healthcare (NYSE: THC) pick before we got another one today. THC shares are up another 7% following yesterday’s 14.5% rally. That’s a 22.5% romp in less than 48 hours.

What causes this kind of bullish volatility just a day after a giant surge? Let’s just call it the fallout from Tenet’s good news. A lot of pessimistic analysts were caught with their pants down…they were bearish on the stock, and the company embarrassed their stock forecasting skills. Like cockroaches scurrying when the lights are flipped on (sorry…disgusting analogy, but true), all these firms are scrambling to update their opinions.

Just today, Jeffries raised their opinion to a “hold’, and Credit Suisse raised their rating to a ‘neutral’ (from underperform). I suspect we’ll see a few more stragglers submit new ratings later on this week.

First of all, a rhetorical question…what good does it do you to follow Jeffries or Credit Suisse advice if all they’re doing is responding to the same news (after the fact, no less) you and I are getting? Their tardiness left their fans holding the bag - or missing the boat - yesterday.

Second, my key point…evidenced by the previous question.

Some big-name research is good; most of it is crap. Tenet Healthcare’s a great example of how worthless many of these high-profile research outfits are.

On the chart below we’ve logged most of the key ratings changes for Tenet. Upgrades are marked with green arrows; downgrades are marked with red arrows. See if you spot the problem with the practice.

Some of the pick points were quite good. Most were not.

It’s also worth noting that the chart may be a little too deceptive in favor or the analysts. What appears to be upgrades in front of rallies or downgrades in front of plunges are actually rallies and plunges CAUSED BY the ratings change. Those weren’t actionable by the average investor - the move had already happened by the time the new rating was publicized.

Of the 16 opinion changes we see here, only eight of them were of any use to you and I. The other eight were late, or plain-old wrong.

I don’t know how you feel, but if my odds are just as good with a coin toss, I’ll do my own research and form my own opinion thank you very much.

By the way, the timing of the analyst ratings for Tenet were actually better than average. Scary.

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.

One way or another, our Tenet Healthcare (THC) stock pick is going to get moving soon. The triangle shape on the chart is just about closed, and THC shares are getting squeezed into a pretty cramped space.

That’s not bullish or bearish yet, but could be (either one) real soon. Stay tuned to the support and resistance lines. When one breaks, we have better-than-average odds of a strong continuation move in that direction.

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.

We hadn’t forgotten about our healthcare stock trading idea Tenet Healthcare (THC). We’ve just been busy trying to navigate the market’s recent squall line. Now that the volatility is mostly (hopefully) in the past, we can start to study our stock’s charts again. In fact, we already saw some things we liked about Tenet’s chart.

Basically, Tenet fared about as well as any other stock did in December and January…which was not very well. After peaking at $6.00, we saw THC pull all the way back to $4.04. It was at that low, however, that the last line of defense finally stepped up to the plate. The 100 day moving average line has stopped more than one selloff from spinning out of control, and has actually prodded the recent rebound. Or, maybe the 68.2% retracement lines had something to do with it as well.

Also during December and January we saw a steep resistance line take shape. Today’s strength is a good effort to breach that line. We’re already above it, and volume continues to improve.

If you missed an entry for this stock trading idea the first time around, here may be your second chance.

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.