Hello Friends! Thanks for stopping by. Please remember that I am an amateur investor, so please consult with your professional investment advisors prior to making any investment decisions based on information on this website. As always, if you have any quesations, comments, or words of encouragement, please feel free to email me at firstname.lastname@example.org and I will try to get back to you, most likely right here on the blog.
Vishwa, a previous letter-writer, was kind enough to drop me another line. Vish' writes:
Thanks for answering my question (about DHB Industries) patiently on
blog. Although I'd like to agree with you about the fact that the
weak market might have resulted in pulling down DHB inspite of
quarter earnings, the 18% drop (and more in the days since) is what
me as jaw-dropping. If the drop was around the 5-7% range, I'd have
dismissed it off as the weak market's influence.
In any case, I have another question for you, if you may be kind
What does it mean when a company's listing is elevated from the
cap market index to the NASDAQ National market index? Does it speak
the company's future growth prospects or is there any other advantage
the company (like wider exposure, hence greater chance for stock
movement...). How about any disadvantages?
First of all, DHB closed today, in an otherwise strong market at $12.16, down another $(.30) or (2.41)%. I don't see any news to explain this move. In fact DHB was mentioned favorably YESTERDAY on BusinessWeek online.
If we look at an updated point and figure chart:
you can see that this stock was very extended from its support levels and is having a pullback without breaking down. If the stock were to traded under $10, then I would really be concerned. Unfortunately, the system I use does not allow for these large swings and with an 8% stop, I would stop right out of this stock long before it reached $10. However, don't you agree that the point and figure chart does NOT show that the stock has broken down? One lesson on stocks, is that they often trade HIGHER in ANTICIPATION of news, and then trade LOWER on the release of the news. Doesn't always make sense in the short run, but that is how it works.
On your other question, I really had to hit my Google to get an answer. The NASDAQ Small Cap Market consists of "...securities of smaller, less-capitalized companies (small caps) that do not qualify for inclusion in the NASDAQ National Market" according to the ADFN financial glossary.
Here is the scoop from the internet: Website for NASDAQ listing requirements. You can see that basically, there is a large number of requirements for market capitalization, number of shares, minimum bid price, and continued listing. You can review the details.
Basically, when stocks are not meeting requirements from the NASDAQ National Market, they can drop to the NASDAQ Small Cap Market, and if they fail THAT test, they start listing as a Bulletin Board or Pink Sheet stock...suggesting even lower quality of the underlying business. It really doesn't have much to do with the growth prospects but rather of the quality of the underlying financials. Since many people, or at least some investors may not wish to invest in the most speculative of issues, when a stock is listed on the National from the SmallCap Market, this will open up its market for its shares to more attention both from Institutions and from Individual Investors.
I hope that is helpful. The link above gives a lot of the exact details!
Good-luck investing and thanks for writing!