Small Cap Stock Market Investing Tips

Here we go - a reversal of tone in the fiscal cliff negotiations.  The spirit of compromise can last only so long in Washington before shifting into another political stalemate that holds the short term economic balance of the country at stake.  After encouraging face to face meetings and talk of cooperation between US President Barack Obama and House Speaker John Boehner earlier this week, the tide has quickly turned and comments made by the President on Wednesday indicated that Republicans were not playing nice and making the negotiations personal, without taking into account what's best for the country.  It was only a matter of time before the talks headed south and now - with only a handful of working days left before the end of the year - it gets interesting. 

Fitch Ratings warned on Wednesday that if a deal is not reached by year-end, the agency was prepared to downgrade the US credit rating from its current "AAA" standing.  Should such an eventuality take place, it would likely add to any downward pressure created by the combination of swift tax increases and spending cuts that would result from the lack of a cliff deal anyway and potentially bring some pain to the portfolios of investors large and small.  With those thoughts in mind the markets, which had been trading green for the better part of the day, slipped into red territory as investors digested the latest headlines.

The pressure is on to get a deal done and the politicians know this, so the end game is likely to be a deal, or at the very least an agreement to extend the deadline for a short time while the final touches are put on an agreement.  This time there's too much at stake to let it go on for too long.

In addition to developments surrounding the cliff negotiations, Wednesday was a pretty big news day for some popular stocks and stories.  There are also a few more heating up for the remainder of the week -  Here are just a few of them...

Tuesday registered another solid up day for the markets as investors embraced positive discussions taking place between Democrats and Republicans during the opening days of the week, but an about face of media coverage Tuesday evening could spark a little bit more uncertainty into the markets regarding the outcome of negotiations.  Concessions were made by both sides this week as they played a game of 'offer, counter-offer,' but indications on Wednesday morning were that Republicans were preparing a 'Plan B,' which was to adopt their own tax bill, should President Obama not budge on his latest proposal.  Since everyone in the knows that anything the Republicans put forth will not make it through the Senate, there is reason to believe - again - that we may end up going over the cliff at the end of the year.  Even the leaders of the two parties cannot muster enough support from within to rally behind what is on the table now, so we may not be as close to the end of this thing as previously thought.  Should make for a nail-biting couple of weeks for those keeping track.

All that aside, the markets have prevailed and December has looked pretty green so far.  With each of the DOW's hundred point swings higher, however, one can't help to believe that what we may be seeing is a case of 'buy the rumor, sell the news.' With that in mind, it's quite possible that a case of 'sell the news' can materialize whether a fiscal cliff deal is announced or not, just like the markets rallied into the elections in November, but tanked afterwards.  The lack of a deal would likely lead to a more pronounced drop than should one be agreed upon, but we could be setting up for a fall either way.  After all, even with a deal, some taxes will be going up anyway, which will make some investors a tad more apprehensive about holding into the new year.

Trading strategies should not be altered, in my opinion.  Having some cash on the sidelines prepares one for any eventuality, while individual entry and exit strategies can still be adhered to - especially for catalyst-based trades - regardless of what is going on in the surrounding market.  

As those stories all play out, here are a few stocks and stories to keep an eye on...

CHITIKA SMALL BANNER

The markets loved the fact that US President Barack Obama and House Speaker John Boehner met face to face on Monday to discuss their respective proposals over how to avert the fiscal cliff, as the DOW jumped by one hundred points and the Nasdaq and S&P were also up by over a percentage point each.  More than just the fact that two met, however, was that the meeting came with a counter-offer by the President to what was proposed by Mr. Boehner last week.  Funny how that bipartisan and cooperation stuff works when the two sides are willing - it's refreshing to see such strategies return to Washington. 

There's still much to be done, though, but the tone looks to be set that it will all get done.  Cooperation does not mean instant agreement, so the two sides still need to come closer on the limit for who will receive tax hikes next year; the President's new proposal calls for increases on those earning more than $400,000 per year while Mr. Boehner's latest offer stood at a cool million/per.  It's likely that the two will agree to a number in between ($500-$600k would be my guess), while they also need to agree on when to raise the next debt ceiling.

No longer does it look like that the two cannot negotiate a deal before the end of the year, but where things still might get tense is when each has to convince their respective parties to buy off on whatever it is the President and Mr. Boehner bring forward.  With less than two weeks left to the year - and with the Christmas holidays taking some working days out of the mix next week - there will be little time for collective negotiations from the Democrat and Republican bodies of the Government, once a preliminary deal is proposed. 

So while Monday's tone is encouraging, this story is far from over.

As negotiations continue to play out, here are a few stocks and stories to keep an eye on...

At the conclusion of each week, VFC's Stock House examines some news items, stocks and stories that made headlines during the previous trading week, but may also make headlines or influence trends during the upcoming week as well.

Ordinarily the only significant trading investors see during the closing couple of weeks of December is some tax-loss selling, but given that we're now in serious 'crunch time' in terms of possibly averting a fiscal cliff calamity, the coming week or two could be full of volatile moves based on the headlines and updates of the day.  The markets edged lower on Thursday and Friday of last week, indicating that investors may be losing faith that a deal can get done - even one that would postpone a final decision and temporarily halt the tax cuts and spending hikes that would be implemented come 1 January.

Another factor that could come into play for the remainder of the year is capital gains selling.  Because capital gains taxes could be slated for a significant bump, investors may take advantage of bailing out under the 2012 rate, rather than take an additional tax hit next year.  Many analysts, especially those that favor higher taxes, argue that investors would not sell for that reason alone, but others speculate that capital gains considerations are a large part of why Apple (AAPL) shares have been on the rapid decline over the past couple of weeks.  Looking at it objectively, however, Apple is also facing much stiffer competition in the smartphone market that is about to also introduce Research In Motion's (RIMM) BlackBerry 10.

So, it's all eyes on Washington, with few distractions...

Wednesday was a prime example of the finicky trading environment that we're dealing with these days.  The markets spiked at the mid-day point when comments from the Fed indicated that interest rates would remain low until unemployment numbers hit 6.5%, but stocks quickly gave back their gains and traded relatively flat by the market close when projected GDP growth numbers were modestly revised to the lower.  Adding to the reversal of the mid-day spike were headlines that started circulating painting another picture of a stark divide between the White House and Congress regarding budget negotiations - as if the daily flip-flop of tone wasn't getting old yet.

The Fed meeting provided a couple of days of distraction, but for the remainder of the year - or until a fiscal cliff deal is reached (whichever comes first) - the markets are likely to trade in tune with whatever the headlines are telling us that day.  As the cliff deadline approaches without a deal being reached, however, investors could start bailing out into cash, which could coincide with tax-loss selling and lead to a pronounced drop.  If the talks result in a budget deal over the short term, then predictions of a December rally may actually come to fruition.

It's best, in my opinion, to prepare for both eventualities by still playing the trades and keeping a nice chunk of free cash on hand to take advantage of a potential all-out drop.  As we await resolution on the cliff, days like Wednesday will make the traders happy.

As those stories continue to play out, here are a few stocks to keep an eye on for the day, if not for remainder of the week...

Fiscal cliff talks continued on Tuesday as the US President and House Speaker appeared to be inching closer to an agreement that would avert a fiscal calamity at the new year, but all eyes on were on the Fed meeting Tuesday and will likely remain there on Wednesday, too.  Investors keyed in on the possibilities of new stimulus following the meeting and liked what they saw, as the DOW rose by nearly eighty points.  Whatever merry mood may prevail following the meeting, however, could disappear quickly if cliff negotiations start to become tense again.  Current trading patterns indicate that investors who were flying in a holding pattern awaiting a cliff outcome may now be judging the situation a little more positively than before.  Again, that could all change in a heartbeat as there are few working days left inside the beltway before the new year will be upon us - with or without a deal.

As those stories continue to play out, here are a few stocks to keep an eye on for the day, if not for remainder of the week...

Stocks traded relatively sideways during the opening day of the new trading week as investors continued a holding pattern while fiscal cliff negotiations progress behind closed doors in Washington.  Some took it as an encouraging sign that US President Barack Obama and House Speaker John Boehner were sitting at the same table, but most are taking an "I'll believe it when I see approach" to the situation and holding fast since both sides still looking to be standing fast on some key issues.  What complicates matters, too, is not just the uncertainty of the negotiations, but that a political game of chess is also being played, with each side consistently trying to gain the upper hand in the court of public opinion.  With that in mind, it's still a good idea to expect volatility and hold some cash on the sidelines in case things go south as we approach the cliff deadline.

Other than that there were no significant economic data released on Monday on which to dwell, so all eyes will be on the Fed meeting, starting today and heading into Wednesday. 

As those stories continue to play out, here's a few stocks to keep an eye on for the day, if not for remainder of the week...

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A comment from 'Celsius Fan' in response to this week's 'Weekly Stock Watch' where we mentioned that revenue for the company's most recently reported quarter was down to $1.4 million, a 43% decrease from the same quarter of the previous year:

VFC, I would take note that the $1.4 million revenue figure was adjusted downward by a 2010 return reserve adjustment realized in 2011 of $508,000. Putting that number back in would register sales of $1.9 million; a truer indicator of steady consumer demand in their niche market. The past two quarters showed tough comparisons, but I'm hoping for steady improvement in 2013...

At the conclusion of each week, VFC's Stock House examines some news items, stocks and stories that made headlines during the previous trading week, but may also make headlines or influence trends during the upcoming week as well.

Progress was minimal last week regarding fiscal cliff negotiations but the market shrugged it off and used an encouraging jobs report to close strong, with the DOW sitting at over 13,150 heading into the new trading week. Given the 'crunch time' time status of cliff negotiations, and also given the increasing likelihood that politicians are preparing to actually go over the cliff in an effort to blame each other for any economic catastrophe that might strike, volatility could increase this week as investors look to move away from any investments that could be most hard-hit by the stark tax increases and spending cuts that would result if a deal is not reached in time. It's also about that time of year where many investor start to effectuate tax-loss selling, which could also apply downward pressure to the markets between now and the end of the year, especially in the absence of a cliff deal...

On the heels of an announcement last week that Implant Sciences (IMSC) had shipped the largest order in company history to India's Ministry of Defense for a total value of six million dollars worth of product, Implant again made noise this week by announcing that it had secured contracts to provide its Quantum Sniffer (QS) explosives trace detector units to various agencies of the US Government.  The full order entails a total of twelve units, a combination consisting of both the handheld H-150 and the desktop B-220 units.  The significance of this order should not be ignored as many skeptical investors had questioned the company's ability to infiltrate the US homeland defense market, even as sales continued to grow overseas. 

Maybe of even more significant is the inclusion of the B-220 in this order.  That unit in particular has been under review for quite some time by the US Transportation Security Administration (TSA) for testing and validation and Implant officials have noted in recent conference calls that the process is nearly complete.  The fact that US government agencies are already jumping on board could boost the already confident opinion of many long-sided investors that the validation will soon turn into an all-out approval. 

Regardless, Monday's announcement is a sign that Implant's strategy of building an experienced sales and management force with numerous government connections - some of whom bailed from competing companies - could be starting to pay off in a big way...

At the conclusion of each week, VFC's Stock House examines some news items, stocks and stories that made headlines during the previous trading week, but may also make headlines or influence trends during the upcoming week as well.

It's all about the fiscal cliff.  While some of the ongoing market uncertainty came off the table last week as European leaders were finally able to come up with a deal that would free up the next round of bailout money for cash-strapped Greece, but negotiations in the United States between Republicans and Democrats took center stage with the fiscal cliff looming.  Talks initially looked quite promising in the immediate days following last month's election, but the two sides look to have dug in their heels in an effort to protect their respective bargaining chips.  That means the markets are most likely going to be edgy as negotiations intensify. 

The rapidly-issued news headlines have thus far detailed every trivial (or not so trivial) update regarding these political negotiations and stocks traded in kind, moving up and down on a whim, as demonstrated by Friday's volatile intra-day moves as multiple updates were offered from both sides in Washington.  In the end, though, the markets managed to hold their gains from the previous week and the DOW closed again at the north side of the 13,000 mark...