Click chart to enlarge Charts don't get much more ominous looking than this. AIXG has spent the past several weeks forming a descending triangle. The odds strongly favor that this chart will break down into a new, lower trading range. We believe the market is not all that far away from doing the very same thing. This does not deter us from our plan, but rather has us excited that better prices may be just around the corner. The lack of buying interest in the broader market is becoming more evident with each trading session. Hopefully all stocks will capitulate in a fast and extraordinary selloff that marks the bottom of this correction.
24 comments:
A slight downsloping channel has formed. 28.81 is critical support. CREE looks like it is going to close at a point of strong support, so I am taking profits today. The major indices continue to break down, generating additional sell signals today.
I hope you know what you are doing.
I looked back the charts of POT, MOS, CF and AGU, how do they acted when you bought them on the bottom of the channel and they were in a clear super mega-uptrend, but that's not the case here. These agriculture stocks always bounced off the _uptrending_ 50SMA or the 100SMA. The key is the uptrending SMAs.
Now RBCN and AIXG are below the 100SMA, the 50SMA is starting to turn down and the 200SMA (which is the next really strong support IMO) is very far from the current price of theirs.
However CREE and VECO are in a relative good shape.
Anything can happen at any time in the market, I know. :)
seeer, we're not feeling too good about these charts right now either. The charts of the indexes don't look any better, and our feeling all along is that we're due for a decent correction.
That's why we're going in pretty lightly now. However, a company's growth cycle is relatively close to its stock's growth cycle chronologically. That is to say that if a stock tops out one quarter, then the company's earnings are likely to top out about 6 to 9 months later. I.E., the market is 6 to 9 months ahead of the company. We continue to believe that these LED companies have not had their day yet. The current LED correction (and broader market correction) may be significant... even painful.
We will continue to keep tabs on P/E's and look for more reasonable entry points based on value for the lion's share of our capital.
When this correction ends, be it in 2 weeks or 6 months, we believe that these LED stocks will be the leaders again. Their earnings should not top out for another few years, giving their stocks at least 18 more months in the spotlight. We continue to remind ourselves of the overwhelming numbers involved in changing every lightbulb in the world. We don't think that investors are really able to even do the math on this one. So while the near term, and intermediate term, may be rough going, we're gearing up for profits in 2012.
I think your strategy is sound, snotwheel.
1. The most commonly used light bulb in the world is still the incandescent--by far.
2. Most of the industrialized world (truly an obsolescent term) is banning incandescents.
3. People tend not to like CFLs for several reasons (mercury; light color; size and shape; flickering; affected by temperature; many don't dim; they can catch fire; they've been known to eat small children).
[4' florescent tubes are pretty much insulated from competition for the time being. I understand there are some 4' LED tubes being developed (maybe already being produced), but they're prohibitively expensive. Vu1 is working on a 4' ESL tube, but it's still on the work bench. LED 4' tubes are/will be in the $60 - $80 range. Vu1's are slated to be about $20 with no mercury, instant on, and FULLY dimmable.]
4. The primary reason for the popularity of CFLs is that they have been the only alternative to incandescents, which are being phased out. Until just recently there hasn't been any other viable choice, until now with the advent of cheaper LEDs.
5. LEDs are fast becoming the go to bulb in many popular applications. (It should be kept in mind that there is a myriad of applications for lighting. Cornering the market on any of these primary segments of the lighting industry is/will be immensely profitable.) There's increasingly little competition for LEDs, which is the best advantage any product can have in the consumer market.
So what's not to like about a good, well-run, competitive company that makes LEDs? Of course, there is a lot more to success than just producing a popular item within an industry. That's why I say a well-run, competitive company. Therefore, my take, and I'm assuming it's yours as well snotwheel, is that the industry will definitely flourish, so it's just a matter of picking the winners. CREE seems to me to fit the bill. I also like Veeco because of their eye on technology advancements, i.e., making cheaper LEDs. I know less about AIXG and Rubicon (except that I like the company's name :O)
There's one caveat, which is one of the reason investors hesitate to invest in companies like CREE. Investors often assume that the "big boys" will always win out over the smaller cap companies because of their deep pockets. Though this is not uncommon, it's dangerous to make that assumption. It's been my experience in the business world (and the investment world) that the best new idea often come from an individual or a small team. Sometimes these individuals are found within the large companies, but often they're not. Many times it's how a new business gets started. Point being, GE, OSRAM, and Philips will not necessarily lead the industry in the best new ideas. Obviously they have certain advantages, but as we all know, large bureaucracies have disadvantages as well. And, of course, there are always acquisitions of these smaller companies which is usually a boon to the investor.
These are just my thoughts. Sorry for the long, rambling post.
Thought you might be interested in this article:
http://cleantech.com/news/5579/aixtrons-new-rd-campus-expects-bene
A nice tool I just discovered -- Google's stock screener.
screener
Here's something interesting. Apparently the DOE has a program in place that allows companies to sign up to use a label that gives specific information about the bulb you will potentially be buying. The idea is to cut down on the misinformation being used on the public to sell inferior LEDs. Here's what the label looks like:
http://www.lightingfacts.com/default.aspx?cp=label
The following is a link to a list of those companies that have signed up with the DOE and presumably use the label:
http://www.lightingfacts.com/default.aspx?cp=content/products
I found out about this program on the following website, which is a website dedicated to information on LEDs called led guide.com:
http://www.ledguide.com/blog/2010/01/ledguide-com-sheds-light-on-led-bulbs/
DD, thanks for the insightful and informative posts. We never worry about the big companies killing our investments in the start-ups. First of all, you can't invest in the large companies in the first place. If GE does well in the LED space, their profits may increase 6% in 2012 instead of 5.89%. That's because LED's will account for .012% of their business. For this reason, pure plays are the only way to invest in a new technology. Whether or not the first pureplays in a new space will survive makes little difference because we're only attempting to ride the wave of hope and promise rather than the wave of actual performance. It's not that we don't believe in real performance, it's just that it only matters to investors who plan on holding a stock for many years. There are very few companies that perform well over the long run. The Googles of the world are few and far between.
Most growth companies just have their day in the market and then fade away. This is true even of well-run, fundamentally stable companies. We attribute this to the fact that at the top of their 15 minutes in the spotlight, their P/E's are such that their stocks are priced to perfection 3 to 5 years ahead! So even if a company does everything right, their stock goes nowhere for 3 to 5 years because all of the growth was already priced in. Our approach to the market has always been to buy the promise of higher earnings at a price that may be twice what it should be, and sell at a price that is 5 times what it should be.
We try to do this with stocks of companies that we think still have room to excite people with their new innovations. Companies that can keep people wondering what their real potential is. It's this uncertainty and excitement about the future that moves the stock higher. Once the company gets close enough to realizing its goals, and the numbers become quantifiable, then the stock suffers unduly. You really can't blame Wall Street for this phenomenon. It's just human nature. It's the dutch tulip craze playing out over and over and over again. We've learned to strike while these irons are hot, and to bail before the rest of the world realizes that a top is forming. Companies like GE don't factor into this sort of equation at all.
How does your fertilizer trade fit into this scenario? There was no new innovation there. They were/are simply scooping the potash out of the ground, sending it by rail and boat to the market. Do you see any similar trade shaping up anywhere?
Downgrade:
downgrade
lol the idiot who made that downgrade is probably follwing this blog. Short term concerns? Fairly valued? Ha, ha, haaaa! These LED stocks are nothing more than a leveraged SPY trade.
I have drawn the channels on the DOW chart to the best of my ability. XLF and IYR both MUST close higher today to avoid generating another big sell signal. There will be a bloodbath next week if XLF and IYR cannot hold the line here.
Icon, nice chart. Glad you have developed a bit of arachnophobia in your charting methods. Seriously, nice chart.
Ixnay on the arachnophobiay. XLF convergence today. Buying febby 14 calls, going in big for monday rampjob. 2nd buy signal is generated by a break in the downloping red line.
Thanks for the downgrade info, Joe. Don't read into these things too much. If you look back at the history of downgrades and upgrades relative to stock performance, you'll see that they are right exactly 50% of the time. The report has some entertainment value, however. "Residential" homes? As opposed to what, nursing homes? lol
I used to freak out a little when a stock I owned was downgraded by one of these investment firms, and although it usually had a short term effect, it was almost always a short lived effect. In fact, it's not unusual to see a dip in the share price after one such downgrade and then buyers taking advantage of the dip, sending the share price above where it was when the downgrade was first issued.
I do like to read the reasons given for the down grades, or upgrades, but that's about the extent of their value.
We put zero faith in analyst upgrades and downgrades. We know too much about how the Street works. All too often, these changes in an analyst's sentiment is a way for them to move the stock price for their own benefit. Piper Jaffray was involved in a scam wherein downgrades were issued on stocks that were bought by the firm's clients on the subsequent selloff. They made hundreds of millions on the scam until the SEC caught up with them. They were fined $25M. While crime does not pay, the message was quite clear... white collar crime pays big.
Well, why don't you just admit that your entry point for those LED stocks was bad. It seems like you caught the falling nife, Snot. Great job.
I'm afraid you're right. First, they prefer not to be caught. However, if they are, they know that whatever they'll have to dole out as recompense will be nothing compared to the money they make on the scam. Ahh...US justice.
Anon, our portfolio is down about 1.35% since we started buying the LED stocks. The only numbers that will matter are our average buy-in prices relative to the prices of these stocks 12 to 18 months from now. Neither of those numbers are available yet, so it's way too early to comment on the performance of this investment. The market is doing exactly what we'd like it to be doing right now. The nightmare scenario would have been if these stocks had continued moving higher each day. If that had happened, we would have no chance of having an investment in them at all. If you're a day trader using this blog for your timing, you are sure to get killed.
I am not a day trader, first of all. When you mentioned "we buy high and sell it higher", I was skeptical about your entry point after looking at their charts.
What happens to your "sell, sell, sell, it's that simple" thread when market kept rising after your dumb call? And even though you claimed it is a no brainer, you maintained some long ETFs. How convenient is that?
Shame on you, snot!
Anon, perhaps you haven't noticed that snotwheel is still 77% in cash. How can you possibly pass judgment on their investment plan when all they've done was to stick their big toe in to test the water? I've been watching too, and it looks to me like after, what? a few weeks they are about even. It's only 5 minutes into the game and the score is zero to zero. You can't claim that a team is losing at that point due to a bad game plan. At least give it about 6 months before you get a sense of how things are going. They're investing, not trading, and a successful investor HAS to know how to be patient. Otherwise, you're not a successful investor. Dude, cut 'em some slack :O)
More articles for your reading pleasure. Not hours old. Some are several days old:
on LEDs
on Veco compared to other ponies in the race
older Fool blog with many responses
Anon, if we are 25% to 30% invested, we consider ourselves to be on the sidelines. Only at about 50% do we start to feel we have skin in the game.
Thanks, DD, well said.
Thanks Joe for the articles.
We think that the market has lower to go. Mostly because of the financials. AXP, BAC, and C all have ominous charts. There's nothing more discouraging to the bulls than a shaky financial sector. We remain confident in our original thinking that the market will correct 10% to 15% before its all over. That would put the Dow somewhere between 9100 to 9600, and the S&P somewhere between 975 and 1035.
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