A few weeks ago I wrote about the perils of shorting Diedrich Coffee (Nasdaq:DDRX) going into the strong holiday season. One thing I hadn’t considered: a potential buyout.

After the bell Monday, DDRX shares were halted while the company announced that Peet’s Coffee (Nasdaq:PEET) would buy Diedrich in a cash and stock deal valued at $213 million. Peet’s will pay a combination of $17.33 in cash and stock worth approximately $8.67 for each DDRX share.

From a purely technical perspective, there are a lot of reasons why Diedrich Coffee (DDRX) might be tempting to short. Shares are up over a hundred-fold from their 52-week lows of $0.21. Resistance in the 25-26 area looks like it may hold, and momentum is fading.

Is gold setting up for a breather? It sure seems that way to me, and I have adjusted my portfolio accordingly. I took profits on nearly all of my gold mining stock positions on Wednesday, and (gasp!) actually have daytraded gold futures from the short side. Here are the signs that concern me:

1. Silver non-confirmation. For the last month, but especially the last few days, silver has noticeably underperformed gold. Coupled with the fact that silver was unable to get anywhere near all-time highs even as gold set records (not inflation adjusted), this is a signal that gold may correct. Of course, like any other divergence it could be reconciled by the lagging instrument catching up, but the divergence does increase the probability that gold pulls back.

With gold consolidating so close to all-time highs, the deck was stacked for a breakout. While the pundits pointed out plenty of good reasons why the metal should sink, perhaps even sharply, the gold chart showed that the path of least resistance was higher.

And that’s exactly where it went. Overnight, nearby gold futures broke through previous all-time (not inflation-adjusted) highs of $1033.90, and as I write the Dec contract is approximately $1032. Some will attribute the cause to concerns that Middle Eastern countries will switch away from the dollar. That may have been the straw that broke the camel’s back, but traders know there is more to the story. Gold had been consolidating for months. That it finally made a strong directional move should surprise no one.

I’m hearing a lot of stories from Interactive Brokers (IBKR) customers that lost their connection Friday afternoon.

Interactive Brokers stock chart

Champion Industries (CHMP) showed up on my latest run of the Century Club scan, a TA scan developed with MarketClub’s smart scanner. After a long descent, Champion Industries’ stock price may have bottomed.

The chorus calling for a top in gold continues to grow, but the metal isn’t listening. Over the weekend, a leading European analyst warned gold investors to liquidate positions, arguing that the market had reached a "frenzy."

He must be looking at a different chart than me. The December 09 Gold Futures contract traded on the Nymex doesn’t show a "frenzy." Even the most jaded eye could not find a parabolic blowoff move. Instead, the gold futures chart shows a series of 3-6 day consolidation patterns that were all resolved to the upside. Although a top can occur anywhere, that kind of stair-step movement does not generally signal a reversal.

It's that time of year again. The leaves are turning, football fills our Sunday afternoons, and microcaps face their strongest seasonal headwinds.

Nobel prize winner Eugene Fama and Kenneth French measured the annualized microcap returns by month from July 1926 to December 2004:

For three days, I have watched this flag pattern develop in gold (the chart below is Dec futures but it should be equally apparent in GLD and other instruments):

My views on gold are simple: its within 5% or so of all-time highs, recently broke positively out of congestion, and I’m not going to out-think the move.

At the same time, many traders for whom I have great respect have different views:

Despite the best efforts of Chuck Prince and Vikram Pandit, Citigroup (NYSE:C) (trend Δ update) is not a microcap, or even a smallcap. So forgive the style drift, but this story is too good not to share.

It turns out that Citi is using our taxpayer-funded insurance policy to peddle day-trading accounts to currency speculators over the internet. Here’s a screenshot showing the ad served by Google AdWords on Google reader today:

Tucows (Amex:TCX) may be best known for its eponymous website that distributes freeware and shareware, but most of Tucows’ revenues come from its Open SRS domain platform. At heart, Tucows is a domain registration business whose fortunes will rise and fall with the vitality of the internet, the margins of domain registrars, and its ability to protect and take market share.

Wednesday, Tucows reported Q2 2009 revenues of $20.0 million, down slightly from $20.5 million for Q2 2008, and net income of $4.5 million, or $0.07 per share, up from $2.2 million, or $0.03 per share, last year. The earnings were not all from operations — there were unusual gains of $2.0 million from the sale of an equity investment, $0.6 million related to assignment of patents, and $1.6 million from foreign currency exchange effects (note: last year’s results also benefited from some one-time gains).

Earnings season is not traditionally kind to Rentech (RTK) investors. For years, the stock drifted lower as the company posted loss after loss.

There was a time about two years ago when I received a barrage of emails and phone calls from contacts who were heavily invested in On2 Technologies (ONT). At the time, ONT shares traded at about 2.75.

Fortune Small Business is out with its annual FSB 100 list, which measures the fastest growing (by revenues) publicly-traded small business listed on U.S. exchanges. As always, it is both fascinating and frustrating.

Though the FSB 100 has many intriguing prospects, it is horribly laid out and almost impossible to assess in the format provided. For example, there’s no way on the FSB site to get a handle on the market cap of the list except one company at a time. It's another instance of a layout designed to generate unnecessary page views (and advertisement cpm’s) at the cost of reader convenience.

A few notes from the trading turret:

• Some of you want to know if I trade any of the stocks coming up on the Century Club scan based on MarketClub’s smart scanner. Sure I do. Last week, for example, I bought Ada-Es (ADES) and Vical (VICL). Both bucked the dismal market and barely stayed green.
  
• Highway Holdings (HIHO) is off about thirty cents since the last post, down very close to my entry point. I still like it, especially after HIHO declared a three cent dividend. If that becomes a quarterly event, the yield would be about 9%.
• One of my all-time best shorts was Zix Corp. (ZIXI) formerly known as Zixit. Lucky or right, I took this one down in the 80s in 2000, and rode it all the way to mid single-digits. I hadn’t given Zix a second thought since I covered in 2002, but was surprised to learn that Zix is almost profitable. Turns out that HIPAA and other regulations that all the Ziximaniacs thought would send Zix to the stratosphere are actually beginning to pay off. Put this one on the watch list.
• As right as I was on ZIXI, I was just as wrong on Star Scientific (STSI). After a court entered summary judgment against it, I thought Star Scientific was kaput. Oops. The court of appeals reversed and breathed new life into Star Scientific, allowing Star to take its patent infringement claims against Reynolds American (RAI) to trial. But Star couldn’t convince a jury that Reynolds actually infringed its tobacco curing patents. If Star doesn’t get a new trial, I don’t see how it can survive.
• Remember Escala, the stamp-trading and collectible company that fell to the pink sheets after the Spanish corporation that owned most of its shares was exposed in an international fraud? Escala is now Spectrum Group Int’l (SPGZ.PK), with operations in coin dealing, bullion trading and auctions. Spectrum Group seems to have put the past troubles behind it, but can’t seem to turn a profit. Guess those inflated stamp revenues are sorely missed.

DISCLOSURE: Long ADES, VICL, HIHO. No position in STSI, ZIXI, or SPGZ.

Despite the tepid market action, the Century Club scan continues to generate lots of interesting charts. The Century Club scan is a technical scan using MarketClub’s smart scanner to search for charts that have a perfect +100 score in its objective scoring system, tweaked with a filter to focus in on microcaps. Here’s a few it pulled up this week:

ADA-ES (Nasdaq:ADES)

Comment: In Q1 report, CEO Durham said "With our interim AC [activated carbon] facility near start up and the construction of our AC manufacturing facility moving forward on schedule, we remain extremely enthusiastic about our market position and our prospects for recurring revenues along with substantial growth beginning mid-year 2010."

After more than a year, I am back in Highway Holdings (HIHO), a Chinese manufacturer of parts, components and sub-assemblies. First, a word of caution: this is a very thinly traded stock. When I placed my order last week, the bid was at $1.26 and the ask at $1.39 — roughly a 10% spread. It took all day just to fill my initial buy of 10,000 shares.

Stocks trading that thinly require a whole new level of patience, but can be quite rewarding. Yesterday is a good case in point. With volume edging over 60,000 shares — a heavy day for HIHO but a pittance for most stocks — shares rose over 23%. The leap even put the stock on Monday afternoon’s Century Club scan,

When I last wrote about Diedrich Coffee (Nasdaq:DDRX) two years ago, it was a sleepy stock stuck in the $3-$4 range. Boy, have times changed.

After dropping well under $1, Diedrich Coffee has turned into the hottest stock in the nation, shooting up over 2000% to top $18.