Click chart to enlargeAnyone that reads this blog knows that we target stocks in clearly defined uptrends or downtrends, and avoid those stuck in an unpredictable no man's land. We would not normally comment on a chart like that of LDK above, but too many emails have come in requesting that we do so. For all of LDK's volatility, it's basically spent the last 18 months moving sideways in a broad range. Long term investors would typically be adding here, as LDK is near the bottom of its range. We are not long term investors, so we cannot comment on the viability of that approach. As for the short term timing of LDK, it has just fallen substantially (from the low 50's to 30), and deserves to snap back. We've applied a 30dma to LDK because historically it has responded to it. Stocks are attracted to their moving averages like moths to a flame. LDK's next move is most likely a return to its 30dma in the mid to upper 30's. We would put that notion in the back of our mind and focus on the short term timing. Right now, LDK is in a downtrend, defined as trading below its downtrending moving average. We NEVER buy stocks in a downtrend. Doing so is known as "catching a falling knife", and can be financial suicide. It is far safer to buy on a breakout (a break through the moving average), into a new uptrend.
You can clearly see these on the chart in early December, early April, and early August. You will not be catching the bottom by doing this, but you will help yourself avoid many catastrophies.
The stocks we typically focus on have much longer "wavelengths", meaning that a decisive break of a moving average is a major event, happening only once every few years. This makes the predictability of our stocks far greater than LDK.
We intend to repurchase DDM today after selling it yesterday at 54. We're going to ease back into it, fully aware that the market is far from out of the woods.
6 comments:
Got back into DDM at 53
More important for solar than a chart is what makes the chart and what will give one a buy or sell signal long before the chart will. Investor's Business Daily had a front page article a day or two ago warning of a potential glut in solar. Solar lives or dies right now based on government subsidies or the lack thereof.
In other words, you're saying the fundamental of solar companies depends on government subsidies. The risk has been high under Bush b/c this administration care less about the environment. However, the government of other countries and the next administration all point toward alternative energy. The growth in solar sector is one of the strongest. Since it accommodate 0.017% of of energy, the potential to increase is huge. Yes, it is true that in the 70s when oil is high solar had a bubble back then but this time is different. It is not just for the economy, but for the increasing threat of pollution and global warming, not to mention national security. Compare to 70s, the world population have increased quite a bit, which is intrinsically linked to energy demand. The US economy would have been better if solar technology took off in the 70s. However, greed put it off. I'd like to think the policy makers will learn from the mistake and do better the second time around.
You are looking at very long term perspectives. I'm looking at a more short-term view for trading. LDK, e.g., hasn't even been around but for a year and a half approximately, barely long enough to draw a decent chart. For short term trend or channel trading, though, something like the government subsidies of Spain or Germany have been huge and have caused major swings in solar from 10% to 20%. Solar is becoming more economical as the technology is improved and as other forms of energy rise in cost. Those factors, though, change slowly compared to a vote by a parliament or by Congress which can put a subsidy in place or remove it instantly, a subsidy which can mean the difference between whether or not installing solar will be cost effective or not. Solar is doing great today because of the inclusion, so it is assumed, of alternative energy in the Senate bill that may be voted on tonight. LDK at the moment is up 10% while the DOW is down. That's pretty dramatic for one morning based on the potential vote regarding subsidies in this rescue package.
Sold DDM at 54. Of our trades this week, we feel least confident about this sell, just ahead of the approval of the bailout plan.
We do not expect the same open tomorrow as we had today, in which case we will not be able to buy back in. If we can get back in at around 53 again tomorrow, we'll do so. Either way, we feel that the approval of the bailout plan is largely factored in, and the resulting rally will be far less spectacular than many think. We're only looking for about 200-300 Dow points on the approval, and we would be sellers there.
Howya Snot.. Gald to see the blog is still going well.. I check in every now and then but its been a while recently. At the moment i'm of the opinion that all of the Solars (LDk included of course) are suffering not from the lack of govt subsidies, drop in oil or what ever other reason people like to pull out, but from the credit crunch.
End of the day all of these companies are trying to expand at a ferocious rate and they are operating on a financial knife Edge. LDk for example has a revolving line of credit of $300m and should lending freeze up and that gets cut off then they will implode under a cash flow crises. The same applies to pretty much any rapidly expanding company that was planning on doing a nice second offering for additional financing. Now the stock prices are in the toilet, they have to give up a lotmore of the company for an offering and there is an imminent danger of additional credit getting refused.
As a result they are all getting hammered and will continue to do so until the credit market show signs of normality. Not just an announcement of more liquidity, but actual stability. That could be a while off yet to my mind..
Cheers,
Sniper..
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