Anyone with a question about RIO, please see the previous post about Brazil. For those interested in solar, your ship may be coming in. We're sticking with Ag, but couldn't help but notice that the solar leader has dropped to the bottom of its long term logarithmic trend channel. Log charts must be used for longer term charts because the percentages involved are so great that they would otherwise skew the chart to the point that lines connecting tops and bottoms could not be drawn.
The two moving averages on the chart of FSLR above are the 150dma and the 200dma. It has recently responded best to the 150dma, which it is currently at. Solar as a group has never fully recovered from January's losses, but FSLR has clearly been the outperformer. If one were to buy a 33% position in FSLR here (or preferably a little closer to the 200dma at $200) the odds favor that the worst case scenario would be to break even. If FSLR breaks down from here, it will likely rebound back to these levels at some point, considering it's already approx 25% off its highs. If instead it rallies back to the top of its channel, investors entering at these levels will do very well in a short amount of time. When viewed from this perspective, the risk/reward ratio makes FSLR a buy, particularly for those with the mindset that their second buy will be at the 200dma at $200 and their third buy will be upon a capitulative intraday bottom somewhere between January's low of $150 and March's low of $180. We're not calling for FSLR to return to $150. But entering the trade with this mindset is important to help maintain psychological control over your position.
Other solars will benefit if FSLR rebounds, but we like to stick with best of breed because the odds of recouping your capital after a cataclysmic selloff is greater when you're invested in stocks that have widespread institutional support. In this way, the market is like high school all over again... one big popularity contest.
4 comments:
Snot, I find it interesting that you find the 150 DMA more useful for the FSLR chart than the 200 DMA. When I asked about the significance of the 200 DMA on this blog, I was ridiculed by some users, but they gave no logical basis for their ridicule. I had merely dared to question the sacred status quo of a commonly used parameter as if equities inexorably had to move in coordination with that line. Your use of the 150 DMA for FSLR verifies and validates what I was trying to express, namely, the path of a stock is not predestined to operate by some divine 200 DMA Wall Street law of fate. Equities tend to operate in certain general patterns much of the time, barring news and changes in fundamentals -- e.g. Enron, Bear S., and now LEH? -- but patterns are going to vary. Some charts will work better with a different DMA for the boundaries. Here's my question. What do you do when you are working with a stock that is not very old? StockCharts won't draw a 200 DMA line for MOO. It will only draw a very short one for the 150 or 175 DMA for MOO and MOO is operating well outside the boundaries of the 100 DMA, it appears to me. Find a better charting service? Extrapolate the lines you have? MOO appears to me to be bouncing off the 150 DMA also, rather than the projected "sacred" -- chant Aum -- 200 DMA, but the history you have to work with is short. If charts are not as reliable with an ETF as with an individual equity, my question is still the same in regards to TA.
StockCharts chart of MOO
We don't buy stocks with such short histories. ETF's are different because with them, you can simply track their components. The 200dma does have a lot of significance, particularly for the indexes. For individual stocks, you can use any moving average the stock has responded to in the past because once it breaks a certain moving average for the first time, other technical indicators will pick up the weakness and start the snowball rolling down the hill.
Snot, I thought you said once that you owned LDK in 2007 and sold it at $55.00 when it collapsed after earnings following the audit. BTW, have you seen LDK the last day or two as everyone prepares for the annual meeting in China.
Snot, let me get this straight. On an ETF you shouldn't try to read the chart, since it is made up of dozens of components. Instead, you should read the charts of the underlying components. How can one determine which ones are the most significant, which ones will break down first or rally first and thus are leaders of the pack? It seems that I've read of you speaking that way about MON in the past that if it broke down, since it was weak, that was a sign that ag was breaking down, or something like that.
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