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Two Weak Companies – Week Two

Once again, my eyes are on BroadVision Inc (NASDAQ:BVSN) and USEC Inc (NYSE:USU).

USEC Inc continues to behave according to the textbook pattern of a worthless company up on hype. Some might call a $100 million subsidy news. I call it hype because, remember, they lost $92 million last quarter. This puts them on pace to blow through this subsidy in 3 months, making this very temporary news. What could keep the stock price from going right back down to 50 cents in 3 months is the expectation of the possibility of another $100 million subsidy down the road.

Recall I wrote the following on Friday,

Yesterday’s accelerated gains was actually an early warning sign, but often small market cap companies can have 2 or even 3 consecutive days of huge gains before falling apart. However, a red day is a sign of a shift in momentum.

Wednesday the stock closed at 74 cents, Thursday it closed at 84 cents, and Friday it closed at 95 cents. That’s back-to-back days of 13% gains. Today erased Friday’s gains completely. For a while it looked like it was holding support at 85 cents which, you’ll recall from my post Friday, was formerly resistance. But it dropped below that support level towards the market close. Tomorrow I’ll be looking out for a potential morning panic. I want to see if this stock re-tests the 75 cents level, which you might recall was last Wednesday’s high and Thursday’s opening price.

If tomorrow turns out to be a green day, however, this could indicate a consolidation, which is often characterized by choppy or sideways price action. If it does consolidate, this is a potential buy, but a tricky one. 95-96 cents is the current resistance level based on Friday’s high/closing prices. However, $1 is also a key level just because it’s a nice, round figure. There is the possibility that a breakout above 96 cents would fail to break $1, and that doesn’t leave much room to take profits. For this reason, I would only buy if I have reason to believe it will be a strong enough breakout to break both levels. Price action and volume at the moment might convince me, but I’d like to see a long consolidation first.

I currently own Put options on $USU. I’m ready to cut losses or take profits quickly unless I see something in the price action that changes my mind.

USEC Inc closes red after two consecutive 13%+ green days.

BVSN looked like it was going to break down last Thursday, so I shorted it late in the day only for it to up-tick and close green, so I was quick to cover the next morning for a 5% loss. By Friday afternoon, the stock was clearly fading, but shares weren’t available to short. This is what makes a sure-fire pattern tricky. Today, the fading continued, but I was able to find shares and took a position. Going into the close, I had some nice unrealized gains to give me a buffer against a sudden rise in price, but the pattern is ripe for a big drop tomorrow. This is the game I love to play: heads I win, tails I break even.

After a multi-day runup, BVSN has now seen two days of slowly falling stock price and fading volume.

Markets overall were down today, Gold, Silver, Dow, S&P, and oil services. Of my market indicators, only 30-year treasures were up, but nothing was changed by much today. Three out of four stocks follow the overall market, so that everything was down had some influence on these two stocks today. What I would like to see is the Dow and S&P re-test their breakout levels. This would mean going down some more in the near term, and that would help my positions, but that could also set the markets up for a rally, and I don’t imagine gold and silver will be left behind if that happens.

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