Technical Trading Analysis - this can be revealing....
Looking back at the trading pattern of any stock can tell a lot about
its future potential... for example, don't buy a stock that is going
down because of an acquisition failure but rather buy a stock when
its new trading direction is confirmed (usually first by the positive
price action and then by an acquisition)... when playing penny
stocks, initially I don't much care about who is involved with the
company, I simply react to the action (this is the first speculative
cycle of a play)... once an acquisition is made then a careful second
look at its potential is required... yes, management is critical but
the second cycle is usually driven by the type of market the stock is
in, for example, mining plays speculate on drilling results while
Information Technology plays speculate on acquisitions... once these
two cycles are over, revenues become very important in sustaining the
long term price of a stock... HOWEVER, E-commerce stocks appear to
be in a class of their own, valuation seems to be determined by the
number of people in their database (this is then translated into the
potential of the stock), obviously the ability for corporations to
mine databases appear to be more valuable than for companies to mine
for gold... one other factor which makes E-commerce stocks so HOT at
this time is the rapid growth of the internet (all signs indicate the
growth is even faster than predictions made only 1 year ago...!!!)
So... let's look at the trading pattern of CMOZ (formerly MISM)...
I don't think anyone will argue that acquisition failure and business
failure resulted in the downward price slide of MISM over the last
year. A year ago MISM traded in the $0.35 - $0.45 range
(January-March'98) but continued to slide further reaching a plateau
in May ($0.25) and then further reaching the $0.04 level
(September-November'98). There was very little trading during the
last
period as the company started to refocus and look for acquisitons (as
what all companies do). In my opinion, they made the correct
strategic decision to move into the Internet and E-commerce sector,
which clearly is one of the highest growth sectors in the economy. In
December there were a couple of spikes to $0.15 (the first
indictation that discussions were beginning leak out and investors
were beginning to speculate), then in early January the price moved
up significantly.
Now the fun begins... in my mind, the critical question is whether
the trading over the last week (ending in a press release on Friday
outlining an acquisition) will lead to a sustained run or is the play
over?
Not an easy question to answer, several factors can influence the
action... 1) do they have other acquisitions in the works as
suggested by their initial press release, 2) will they attract the
attention of Venture Capitalists, investment funds, etc. that are
willing to participate in financing future acquisitions, 3) what type
of promotion do they have planned (radio, TV, Banner advertisements,
etc.), 4) the size of the float and how many shares are held in
escrow will affect the trading volume required to move the price up
further, 5) will investors see this play as a potential cheap entry
into the E-commerce game (especially when you compare what has
happened with other similar plays E-commerce plays, 6) will people
exiting over-valued E-commerce plays position in plays like CMOZ
because of the excellent leverage it represents, 7) InvestorsGURU
appears to be a successful stock market site with several sources of
income (and stated always profitable) but more importantly a good
size database of 16,000 users which represents significant potential
marketing and E-commerce traffic... WELL... obviously this is very
difficult to determine, so let's look at the technical action over
the last week and see if that will give us a few clues....
Jan 14 0.13 500,000
Jan 15 0.20 1,483,300
Jan 18 closed
Jan 19 0.31 1,838,000
Jan 20 0.41 2,302,100
Jan 21 0.38 1,829,000 (new high $0.56)
Jan 22 0.41 2,696,100 (shakeout to $0.26 on news but recovery)
Total 7,952,400
The first speculative cycle quickly drove the price to $0.56 on Jan
21 (there was some profit taking and consolidation during Jan 20 and
21).... early Jan 22, the MM's drove the price down to $0.26 then
suddenly the price rocketed as rumour of the acquisition was going to
be released (the inability of the President(Wilfred Chan) to close a
deal no longer appeared to be true)... once the press release hit the
market the stock pulled back to the low $0.30 range but consistent
and strong buying pushed the price to close at $0.41 on over 2.6
million shares... the technical chart says more action is coming...
if the price would have dropped then this would have suggested to me
that investors close to the play were selling (essentially taking
profit off the table) but that didn't appear to be happening...
something is holding the price at these levels, my guess is one of
the following three things: 1) another acquisition in the works, 2)
potential investment to pay for the acquisition (ie. Venture Capital,
mutual and hedge funds, etc.), or 3) strong promotion planned which
will lead to increased exposure and more buying...
Of course, do your own Due Dilligence... technical charting tells
about the history of a play and is fun to do but it does not
predict the future... the next week of trading is going to set the
pattern for this play... |
