Click chart to enlargeVECO is trading at new highs today, long before the indexes to say the least. It looks like VECO can make it to approx $42 before hitting the top of the trend channel and needing a breather. It's unlikely it will continue at this trajectory and get there within a week. It's more likely that the speed at which these stocks are climbing will taper off and give way to charts that cling to the yellow line in the center of the channel, moving slowly upwards until a new catalyst comes along.
That catalyst may be another leg down for the broader market, but that remains unknown. The broader market, for the record, is not out of the woods just yet. It remains below its downtrending 50dma, and neither the S&P nor the Dow have taken out their early Feb highs.
What the market does over the next several sessions is critical to helping us determine whether we just completed a healthy 10% correction, or whether we're in the early stages of a larger selloff.
36 comments:
DD, just looked at a chart of BGC. Hadn't been keeping tabs on it. We think you're playing a dangerous game with that one. It is in a Stage 4 downtrend, trading below a downtrending moving average. To make matters worse, it's doing this in a strong broader market, meaning it lacks relative strength. Please do not take this personally, but BGC is going to zero until acted upon by an equal and opposite force. (We don't literally mean "zero"), but for the protection of your equity, you have to think of it that way. It does appear that things will be picking up for the company later this year and in 2011, but for the time being, that stock is broken. There is nothing stopping it from going back to $7. Again, we call them as we see them... nothing personal.
No need to explain yourself to me, Snotwheel. I appreciate your insight and hope it will continue.
I, too, have determined that BGC's short to intermediate term outlook is poor, but I'm still confident of their long term prospects and will keep a small long term position. One concern I have regarding their long term performance is the sophistication of their technology. I'm not stating this based on any particular doubts I have. If I owned any other cable company I would have the same concern right now. Cable contracts in the near future will be weighing efficiency as much as price, or at least second to pricing. So whoever has the best technology for the best prices wins.
BGC recently signed an exclusive deal with Mercury Cable for purchasing their composite reinforced conductors. That's a good thing. However, Mercury is being sued by Composite Technology Corporation over rights to the technology Mercury uses in their conductors. I don't know what possible impact this could be on General Cable. Maybe none at all. I guess I have to update my knowledge on the latest industrial cable products. I know BGC has a good, well-funded R&D dept, so I'm really not too worried. So, it's a concern, but a very small one at this point. I've just made note of it.
As you point out, BGC's chart is weak and I don't believe demand for high voltage power lines, etc. is going to increase any time soon. The soonest will be the end of the year. Electrical grids went from being a major concern to back burner status. Other companies in the same industry have suffered the same fate (Belden, WESCO, etc.)
BGC is so oversold right now that I don't think it will drop much lower. I intend on keeping a position in the company just so I have a reason to continue following it, but beyond that I'm watching a few other companies looking for a good entry point if I see one. I don't want to buy right now because we seem to be back on that unsustainable upward trend, so I'm in wait and watch mode.
Oh, yes, and I shouldn't forget to mention that copper prices have been killing cable companies and who knows where that's headed. Fortunately for General Cable they also produce aluminum, and fiber optic as well. Copper prices have since eased somewhat, but are still high.
DD, Looks like you've got a well-defined game plan. Good to hear you understand the business and the fundamentals behind your investment. We hope it pans out for you over time. Patience is certainly a virtue in this game.
As for the "unsustainable" upward trend that the market is in, it shouldn't really keep you out of the market. We were only worried that the market was getting ahead of itself in late 2009 because we had a 30% position in Ultralong index ETF's. If you find stocks that have high relative strength, they will go up even if the market is going sideways, or slightly lower.
Relative strength doesn't mean that a stock is going up. The concept has more finesse than that. If the market goes up 1%, the stock will go up 4%. If the market is neutral, the stock will go up 2%. If the market drops 1%, the stock will be unchanged. While the market is dropping is actually the best time to find the high relative strength stocks because they resist the decline and stay above their MA's and trend channels. As far as we're concerned, if the market goes sideways for the next 10 years, it would be the best scenario for us. Then we wouldn't have to worry about it overheating, and we could invest with less downside risk. So now is actually an excellent time to invest, as long as you keep rotating your capital into the current "horsemen" of the market.
Although we have no intention of selling the LED stocks anytime soon, that train has already left the station. We're not buying any more unless they retrace.
Instead, we're on the lookout for the next, next big thing. Whatever it is, it may not come along for another year or two, but it's never too early to start the search.
Just sold AIXG. It's the weakest stock we own, so why not lighten up after 7 consecutive up days?
AIXG is actually in a Stage 4 decline, trading below a downtrending moving average. It's unusual that any stock in the hottest sector would be bucking the trend like this. It's possible that it just got ahead of itself and will perform better once the earnings have had time to catch up with its price. But it's also possible that the tide has turned and investors are getting out. If this is the case, the real reason for this will not surface until it's too late for the retail investor to jump ship. We have nothing against AIXG as a company, and still feel its prospects for the future are great. It's just part of our investing philosophy that capital should be in Stage 2 uptrending stocks at all times. Otherwise, it should be in cash. There is no reason to hold onto a Stage 4 stock. Such love affairs will only hurt your performance.
Snotwheel,
i am new to your website. How do i find out what your current positions are and what is your favorite momentum sector. Seems like led stocks is what your focusing on... NETL EZCH i think are in a hot sector. REally think NETL can gallop into mid 60s. blowout earnings upside guidance. low float 34 percent short and just annoucned a 2 for 1 stock split..
Anon, welcome to the blog. We're always looking for new contributors to help us find "the next big thing". Our positions, allocation, and prformance can always be found on the left hand side of the page. Right now, we're all about LED, but looking for a new Wall Street love story. Thanks for the leads, re: NETL and EZCH. They both look great fundamentally, and NETL looks good technically as well. EZCH is neutral technically, but that could change soon. What is their story, other than that they make semiconductors? Everyone does that nowadays. We believe that in order for a stock to truly make it big, its company needs to have a story that people understand, and that excites them about the future. This is more important than the numbers.
As for NETL and EZCH, being "fabless" is nothing new. What is it about these companies that make them possibly part of the next investing phenomenon?
not sure if the story is exciting as the led wave thats going on . here is an excerpt from george gilder
GEORGE GILDER, Gilder Telecosm Forum (02/15/10): With all the excitement
about EZchip's (EZCH) numbers, we should not overlook the ascent of
NetLogic (NETL). Under the relentlessly temerarious leadership of Ron
Jankov, who was agile and bold enough to capture the ascendant multi-core
processor team of Atiq Raza at RMI Corp, NETL is emerging as a major force
in communications microchips.
Combining some $400 million worth of new assets in content addressable
memories (IDT), search engines (IDT/Cypress Semi), multicore embedded
processors (RMI), and physical layer interfaces to the network (Aeluros),
NETL is becoming a fabless giant, with no apparent flab. Exploiting the
resources of Taiwan Semiconductor (TSM), Jankov is pioneering now into the
28 nanometer node on the industry's roadmap, roughly apace with Intel.
Atiq Raza's bizarre insider trading charges in an orthodontics company
owned by a Pakistani pal (Raza paid a $3 million fine and was banished
from company positions) cannot diminish his achievements both at AMD and
at RMI. AMD still feasts on Raza's designs. With RMI on board and now
purring under former Qualcomm (QCOM) exec Behrooz Abdi, NETL now rivals
Cavium (CAVM) in high-end multicore processors. NETL may even have a
superior architecture, with less features and more threads. NETL's
machines will fit ascendant markets such as IP backhaul, base stations,
radio network controllers, advanced storage networks, wireline switches
and routers, and layer-7 security appliances. For IP voice and video
phones, also getting under way are ramps in low end NetLite processors and
in smart memories from new buy IDT, NETL's previous rival in TCAM (content
addressable) memories.
NetLogic's Aeluros physical layer acquisition not only improves its search
engine and knowledge processor interfaces to the network but also is
helping Jankov gain design wins in dense 96 port 10 gig Ethernet
applications at higher layers in security, storage, telecommunications,
data center, and enterprise networking for increasing video, peer-to-peer,
and virtualization. Jankov says that the merging of NetLogic and RMI teams
"feels as though we have been one company for many years.”
In the midst of all the company's honeymoon mashups and pregnancies, cash
from operations continued to pour in at a rate of $16 million in the
quarter. With Jankov's worst-case earnings outlook for this year remaining
37 percent up from last year, Wall Street trades the stock at little over
20 times next year's estimate.
Although NETL is a more complicated pastiche of special purpose products
and strategies, harder to understand, it has been winning designs galore
in the same communications equipment segment that EZchip targets. Recent
wins range from Cisco, Juniper, Alcatel-Lucent, Ericsson, Motorola, ZTE,
Huawei, and Tellabs to Arista Networks, Voltaire, Blade Networks, Dell,
HVC, Symantec, Brocade, and Nokia Siemens. With a wide span of still
indispensable leading edge devices that enable packet networks to handle
their new burdens in wireless and video, NetLogic represents an important
complement to the more elegantly focused pure-play fiberspeed paladin
EZchip.
I believe in snothwheel vs cramer methodology.. i prefer to search and search for the hot momentum sector of the year and have most of my eggs in that basket. only true way to make big money.. diversification in every sector no good.. just find the hot sector and roll with it.. so far in 2010 cant figure it out what sector is the go to sector.. market choppy and trade in and out.. wish one new theme comes up soon
DD, your VU1 penny stock looks like it is headed to 1 cent. What is going on?
Anon, nothing's going on. Though it's always disappointing when your share price drops, it's important to bear in mind that Vu1 had been holding up exceedingly well. This is just the nature of the market on an upstart company with no revenue. It's speculative, no doubt. But why would I be less confident today than, say, a month ago? What Vu1's share price does right now does not reflect on the company's future prospects one iota. They're working away at their job. They know that if they're successful at their job the market will take care of the shareholders.
Make no mistake, I'm anxious. But so far the company is sticking to their game plan and it's still too early to worry about unexpectedly negative outcomes. The next big news to wait for is the announcement that the prototype is complete and the next phase is beginning (a limited production run, submitting to UL & EnergyStar, possibly additional financing, etc.). If we don't get this news by the end of March worrying will start to set in for me.
snotwheel, finally started a position in Veeco. The sector took a hammering today and I thought I'd take advantage of it.
In regarding your earlier post, not sure where you got the idea from that I'm keeping out of the market, or recommending that others do. On the contrary, I still think there are some worthwhile opportunities out there. It's important to buy on the dips now since we may be in for an extended lateral tend. And as you have mentioned, the right stocks will work themselves upward, even if the rest of the market is going nowhere.
Speaking of being on the lookout for the "next big thing," you might want to take a look at the energy storage sector. One fact we won't be able to get around regarding the future of energy production and usage is that in order to be energy efficient we'll have to make extensive use of energy storage. This includes everything from computers to transportation vehicles to power stations. Some names worth looking at: EnerSys (ENS); Neah Power Systems (NPWZ); ZBB Energy (ZBB); Axion Power (AXPW); Exide Technologies (XIDE); C&D Technologies (CHP); Maxwell Technologies (MXWL); Active Power (ACPW); Beacon Power (BCON); Altair Nanotechnologies (ALTI); Ultralife Corp (ULBI); JCI Johnson Controls) (JCI).
John Petersen has been writing on this sector for a while now. Articles are very informative, though he's heavily biased in favor of lead acid batteries, but he gives a good defense.
Sorry, I meant to post this link in my last message. It's to a Seeking Alpha page that has links to all of John Petersen's articles on energy storage: http://seekingalpha.com/author/john-petersen/articles
Who is the biggest manufacturer of batteries for cars?
I think that would be Johnson Controls. They have an exclusive deal with Walmart. That alone would have them pretty well saturated. But, yeah, I believe they are the biggest. And that would be lead acid batteries, too.
DD, thanks for the info on energy storage. We'll look into it for sure. Glad to hear you're still looking to buy on dips. CREE should be your first buy in the LED space, though, as it has the greatest relative strength and will therefore be the most resistant to decline if this should be the start of a new leg down for the market.
We knew that CREE and VECO were getting too high too fast, but we're only 1/3rd invested. If we were over 2/3rds invsted, we'd have lightened up a bit. In other words, we're still in "buying mode". We think the LED stocks have further to correct considering how far they've run. If this is another leg down for the market itself, it'll be interesting to see if the LED stocks can hold their Feb lows.
The charts of the indexes are ominous right now because they've bounced back to their moving averages and are now hitting resistance. If they break their Feb lows, it could have a psychologically devastating effect on the market because many people will be thinking we're still in the bear market that started in 2007. We don't think that's the case, although it doesn't rule out a break of the Feb lows. If we are starting that prolonged period of sideways action that we both believe may happen, then we likely just saw the highs of the range (11,000) and are about to determine the lows (9,000).
Regardless of what the broader market has in store, we're just focused on buying more CREE and VECO (mostly CREE), if they get anywhere near what we paid the first time around.
potash
Potash prices headed south. Would you short it here Snot? ADZ and AGA
potash link again - hopefully correct this time
Thanks for the tech info, snotwheel. What I did was reduce my position on General Cable when it reached $24.25, kept a small position, as I said I would, because I like it long term and psychologically I need to have a stake in a stock to pay proper attention. So I've been holding that cash and looking for opportunities. I started a position in Veeco at $35. It's down a bit more today, but as you've pointed out, the relative strength of the sector tells me there's more upside than down. CREE will have to fall a bit further before I bite. But I'm watching it.
Among the energy storage stocks my particular favorite is EnerSys because of their product diversification, their strong global footprint (very important in that sector), they're very efficiently run, they're the largest of the pure plays in the sector, they did buy out a company that produces lithium batteries (but aren't dependent on that leg of the industry that is still somewhat speculative), and there are other aspects of the company I like that you'll discover if you look into it.
I would just add that you need to be very careful about your investments in this sector, if you decide you're interested, because there is a lot of hype involved in some of these companies that serves to inflate the share price. This is usually the case in sectors that have rapidly growing technologies and are getting a lot of investment interest. Some of these companies will excel and some will run out of money before they really take off. There are lithium batteries (Ener1 (HEV), A123 (AONE)), flywheels (Beacon), fuel cells (Neah Power), zinc-bromide batteries (ZBB), ultra-capacitors (Maxwell), and of course, lead acid (EnerSys, Johnson Controls, Exide, C&D). This list and the one I gave you in my last post are not exhaustive, but do contain most of the major players in this sector.
I know you tend to avoid speculative plays, but for such a play I like Neah Power, which I own a small position in. For one thing, they're already bringing in revenue and the interest in the company's products seems to be growing fast. I also like Maxwell. But there are several good plays in this group, if you decide you're interested.
Joe, it's good to have a fundamental reason behind your investments, but you should look for a technical signal upon which to actually pull the trigger.
Right now, the fertilizer stocks are doing well technically.
If you draw a trend channel that starts in Nov/Dec 08 until now, you'll see that they're all steadily uptrending charts.
If you're looking to short them, you need one of two signals. The first would be if they reach the top of their trend channels. This would produce a profit most of the time, but is risky in that you're betting against the trend. The second, and safer, entry point would be a simultaneous and decisive break of the trend channel and moving average to the downside. This almost always is the start of a multi-quarter downtrend. After a decisive break of support, a chart will often bounce back for a day or two, as die-hard longs continue to believe they're getting a bargain on an uptrending stock. This bounce back after a decisive break down is the best short entry point.
In the absence of one of these technical events, we would steer clear of shorting the fertilizer stocks regardless of how bad the fundamental news gets. They are uptrending stocks, after all, and an object in motion remains in motion unless...
Thanks. POT and MOS are more volatile than AGU and CF, so more difficult to draw a channel. CF is showing relative strength. All of them are still above the 50 and 200 day averages, so best to wait, as you suggest. Solar, on the other hand, looks like it has broken down. Time to go visit the LDK board as see if IBCNU is still pumping.
solar
Painfully obvious that doggydaddy = Iconoclast421. You're not fooling anyone.
Anony, I don't understand where you're coming from and it can't be "painfully obvious" since it is not the case. Why should I use another username or hide behind an anonymous? It doesn't make sense to me. What kind of nefarious conspiracy can possibly be employed on a blog like this using different usernames? We're just trading ideas here. And thanks to snotwheel and other contributors I've learned a few things. I'm always trying to. What are you here for?
DD, don't worry, there is one anonymous user here who goes the extra mile to insult Icon. It must be a serious inferiority complex that drives the poor guy to do that. Apparently he learned nothing from his TEACHERS. :) Anon, doggy is ginchinchili of the VU1 Yahoo board. Just go there and read his voluminous posts and you will see, comparing Snot's blog with the VU1 board, that there is no comparison. No options pontifications. No claims of 5-baggers. Doggy even admits mistakes or losses. No weird RSI charts. No monthly calling of the top. No combo bull/bear predictions, so that he can always claim he was right. No conspiracy theories about the gov't. Doggy, I sent an email to VU1 asking about a prototype and the date for the beginning of marketing the product. No response after three days. From what I've seen on the VU1 board, you have been following this company for over a year. Is that right?
Snot,
The relative strength of CREE you wrote about is very true.
Thanks, keep up the posts.
SHRUG. After calling a 500% gain on my last trade, and executing it nearly perfectly (370%), I'm not surprised that an anon has crawled out of the woodwork once again to take a snipe.
Nothing is confirmed yet, but I am getting a truly awful read on nearly every DOW component.
Here are some interesting statistics about the 1987 crash: From the top, the market trended downward for 18 days, losing about 8%. Then there was a 9 day rally and the DOW gained 6%. Over the next 11 days, the DOW lost an amazing 34%.
Now, looking at today, and assuming 1-19-2010 was the top, lets go over the chart. From the top on January 19th, the DOW trended downward for 14 days, losing about 8%. Then there was an 8 day rally and the DOW gained 5%. Now what is going to happen over the next 11 days? Like I said, nothing is confirmed but... hot damn if you're long you gotta be out of your freakin mind to be taking this kind of risk for what... a few percentage points of gain? Its not worth it.
XLF MAR 14 puts are only 15 cents. If we get a bloodbath, those options will 10-bag at least. If we get a 1987, those options will 30x-50x lol. $100000 worth of protection could be bought for $3000. Anybody who doesnt hedge at this point is flippin mad. The amazing thing is, the put volume is pretty low. April 14 puts are only 30 cents, thats not a bad deal either, and if we dont get a bloodbath over the next 2 weeks, those april puts will likely retain 60-80% of their value, which lowers hedging cost down to $2000 per $100000 to cover the next 2 weeks.
I am looking at this as the opportunity of a lifetime. I will be buying some XLF 16 April calls (7 cents each) just in case Bernanke sees what I'm seeing and presses the Print button.
NETL setting up for next leg higher soon.. basing period just about over and next stop 58-60 imho
Anonymous, yes, I've been following Vu1 for about a year and a half. My understanding is that they are putting the final touches on the prototype, focusing on reducing the size of the bulb. I was told that it had been harder and more time consuming then they had anticipated, but that it's about done. It's the power module that's been giving them a hard time.
After that, "Once design is complete – it gets spec-ed and documented and then goes to at least two design and fabrication partners for us to assess their sizing, performance and cost. Progress on the electronics is being made virtually every day."
Granted, it's a spec, but my research and analysis has convinced me that it's a worthy risk. Not a good investment for the prudent...er, I mean, the faint at heart.
So the next important bit of news investors are waiting to hear is that the prototype is complete. They'll also be doing a pre-production test run. They've also applied for a patent on their production design and Ron Davis thinks it will prove to be at least a valuable as the design of the bulbs. They are hoping to introduce their first bulb by summer.
Icon, on Feb. 15th you were "extremely bullish" on the market. Now, two weeks later, you are calling a 1987 style crash? On what basis? Other than the fact that there was a correction and a pop half way back after the correction, so what? And pulllleeeaaaassssseeee don't respond with a strange RSI chart.
Please don't encourage Cliff Clavin to post anymore than he does. After all, we all know if the market rises he'll claim he never bought the XLF puts, and if it falls he'll claim another 57 bagger. He's become tedious.
DD, Thanks for the leads re: energy storage stocks. JCI is doing very well. Some of the others look really ominous. We're going to look into JCI a bit.
Good, I'm glad you found it useful. Yes, Johnson Controls is a strong, aggressive company with a good R&D dept. They are well diversified, but their battery business is strong. Not sure what percentage of their business comes from batteries.
Their chart looks like they could continue breaking out. The question is, for how much longer? Just be careful to pick a good entry point (I know you will). They're oversold right now and I personally believe JCI will be trending downward within the next few days. Good luck whatever you decide.
BTW, I increased my position in VECO and opened one in Marvell. Jumped in the other day when the share prices had dropped. I doubled up on VECO at $33, though my entry point was $35. I can live with a cost average of $34. I hit MRVL at $18.70. So let me return the appreciation and thank you for some good investment ideas. Much appreciated.
Here's an interesting article on grid based energy storage: http://seekingalpha.com/article/191122-grid-based-energy-storage-represents-a-200-billion-opportunity
Snot/Guys,
What do you think about Penn West Energy Trust (PWE) or PWT-UN.TO for Canadians. It is having a very consistent run, Do you think there's still growth for this sector/stock? The dividend is very attractive as well.
Thanks.
January 20th Icon wrote, "We go down from here. I am 100% sure of that. 6 weeks from now the market will be at least 5% lower than here." Well, we did go down, but everybody and their cousins were all calling for a correction. Tomorrow, March 3rd, is six weeks. 5% off the DOW 10603 adjusted close gives 10,073. We are gonna need a serious red day by tomorrow's close to reach that 5% lower mark which Icon predicted.
Snotwheel, here's an article that is in step with your current investing sector of interest (as it is with many of us). Sustainability and finite resources are the defining terms that we commonly refer to as the green tech revolution. This article names CREE as a prime example: http://seekingalpha.com/article/191393-lohas-the-next-secular-shift?source=email
Looks like your current investments are performing quite nicely. Congratulations.
Here's a short article re: California's smart grid energy storage mandate: http://seekingalpha.com/article/191318-california-storage-portfolio-standards-may-be-a-great-kickoff?source=email
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