Periods of market weakness are the best times to judge a stock's strength, especially relative to others in its sector. Yesterday, VECO was the relative strength winner in the group. Today, CREE and RBCN are coming on strong. One day does not make a trend, so we'll have to keep an eye on this race. We feel that relative strength is the single most important characteristic a stock can have, and that it is therefore the greatest predictor of future performance.
If CREE & RBCN continue to outpace VECO (not in gains but in strength relative to the market), we may just shift our position from VECO to a combination of the two. It's too early yet, but there's no doubt at this point that CREE, RBCN and VECO are far outpacing their weaker counterparts, AIXG and MRVL. Now with only three stocks in the running for "highest relative strength LED issue", it shouldn't be too hard to choose which will be the top dog during the market's next leg up.
26 comments:
CREEs getting expensive for me to re-enter but would like it to get much higher then buy lots of cheap OTM puts if it runs past $110. It will go down much faster than it went up. Competition/pricing/margin pressure will eventually bring it down a lot but not yet.
Totally agree. When CREE falls, it's going to zero. But we still feel it has another 3 or 4 quarters before it starts falling.
It'll probably spend the great majority of that time going sideways, with a few sudden bursts of strength that ramp it up one level at a time. Definitely a candidate for triple digits, though.
I dont see how you can buy OOTM puts if it gets up past 100 it will be like AMZN... the puts will be just too expensive. Even the $30 jan 2012 puts are over 2 bucks. That's a lot to risk to bet on a catastrophe. There are better cheaper ways to accomplish the same thing. For example, jan 2012 $7 puts on XLF. Not only are they much cheaper at 33 cents, but they are also very likely to capitalize on a reverse split. Imagine if XLF falls to 10 and they do a 5 for 1 reverse split. Now you've got $35 puts that are instantly worth much more than the 5 x .33 you'd expect them to be. Just check the $35 puts on any $50 stock. They are all worth way more than a buck fifty.
Icon, it depends on the delta of the option ... it's value will increase as CREE goes from $120 to $110 to $90 and so on ... it does not necessarily have to go below the strike price to make a large % return.
I'm reminded of the line from Platoon: "Take the pain. Just take the pain." ....and then the guy dies anyway. I just hope these LED stocks just don't roll over too soon and die too. Something tells me that they must be nearing the bottom of some channel or another.
Anyone buying MA or V? Very tempting at this level and maybe a better bet than LED stocks...
lol those charts are almost as scary as Monsanto's. Guess what happens when the majority of stock charts start to look like these?
Sb, hang in there. This correction is the best thing that's ever happened to us. We feel as if we have an insider's ticket to sit in on the board room meetings of all of the big money managers, and they're all talking about buying RBCN. It's evident in the chart. During a correction, you can see exactly what their thinking is. With each passing day, it's becoming more and more clear that they think RBCN is going to do exceptionally well over the next 6 to 9 months. Who cares if you lose 20% in another stock if you can make 100% in the next one? If this strength keeps up, we're going to leave VECO for RBCN. Preferably on a dip, but we'll have to play it by ear. When you can FEEL the strength, there's a reason for it. We won't find out that reason for a while, but we are being given this opportunity to see what big money is thinking... what a gift!
How do you feel about RBCN's extremely low volume? Doesn't this add to risk of being locked into a stock with difficulty in selling?
RBCN's volume is commensurate with its size. An average daily volume of 400k or so isn't such that you'd be locked in. If the volume were 40k per day, then it would be a problem. That said, RBCN is the riskiest of these stocks because it's a smaller company. Far from a penny stock, though, which are sometimes impossible to sell.
Given the continued display of strength in shares of CREE and RBCN versus shares of VECO, we made some changes to our allocation today. Considering we bought and sold within the same 5 minute period, it's not trading, it's just reallocation. If VECO had displayed better relative strength during last week's rebound, we would have just stayed put. It's not diversification we're after. We're just trying to keep our capital where the strength is. Seeing VECO trading lower today while both CREE and RBCN were trading higher was the straw that broke the camel's back.
We're still only approx 30% invested.
So you sold low (VECO) and bought high (RBCN)? Why not leave your position alone in VECO and use some of the 70% of your cash to get into RBCN instead? Do you ever have plans to use the 70% cash?
VECO touched the bottom line of your channel today snot before it and the rest of the market retraced.... I think
I am pulling for VECO to come back to where I sold it today (1 dollar below its 50 DMA roughly 43.75) so that I can buy back in. I have sellers remorse for the third time now during this correction. I made a lot on paper from 37 up to 54 only to lose much more playing around with trades during this volatile correction. With VECO, I think more of a buy and hold is appropriate unless you have good trading skills.
Anon, when you say we sold VECO low and bought RBCN high, how do you know that? Only in hindsight will today's price on either stock look low or high. We are betting that we just sold VECO high and bought RBCN low, relatively speaking.
Anon, we'll use the other 70% of the cash if there's ever a day that offers prices we simply can't resist. That is, as long as those prices last for more than 5 minutes and people actually have access to trading when they happen. Right now, being 30% invested, we don't care if the market goes up or down. If it goes up, we profit. If it goes down, we buy. It's a great position to be in. Once you're 100% invested, you're at the market's mercy, and may sell at the worst time. Half the battle is to feel comfortable with your positions so you can stay invested. We've been in LED stocks in one form or another continuously for many months, and plan on staying in them for many more months. If we traded in and out with a larger percentage of our capital, we probably would miss the majority of the gains. We may get lucky once or twice, but we aren't lucky consistently.
Anon, for the next "buy and hold", consider CREE or RBCN if you can get the shares on a dip. VECO is on probation at the moment. It has to have renewed strength before we jump back in. A loss of relative strength in a stock that previously was a relative strength leader is often a precursor to further weakness. We're not saying that's the case with VECO, but the possibility is there, so it's time to move money into the stocks showing continued strength.
Snotwheel, I've got a stock to run past you. It's a company called Metabolix (MBLX) and trades on the NASDAQ. Their rsi is strong and they just recently received FDA approval on a product they call Mirel used for food contact applications such a storage, can be use in boiling procedures, and all sorts of disposable packaging like caps and lids, and also plastic eating utensils, etc., all biodegradable. I suppose the possible applications are endless. The company has no debt and have a strategic alliance with Archer Daniels Midland. The following is their stated company mission: Metabolix patented technologies combine bioscience and nature to deliver sustainable solutions for the world's need in plastics, chemicals, and energy with unequaled environmental benefits. I'm watching it and considering a position, but haven't taken the plunge yet. Just thought you might be interested.
Snot,
It must take incredible discipline to not go all in when you think you have a sure winner. But it's times like these where you're investing style looks like a hero, rather than a zero. I've passed up way too many opportunities to cash out on VECO with a healthy profit because I'm trying to avoid a trading style due to my terrible timing. Now I'm stuck with shares at a loss on paper and can't help but count the winnings I never took. At what point do you know a stock will not come back, or its just correcting like the rest of the market? Looking at the 9 month chart of VECO, there has been some scary times in the past, but in the end it just broke out of its bad mood and proceeded higher. Its hard to just focus on one stock or sector and determine its broken, when the market as a whole is broken. So what do you recommend? Could technology be dead at the moment? Perhaps there should be something else to focus on?
More or less ditto on Anon's post. Now I'm underwater by almost 12% on my last purchase of VECO. Grrrrrr. This stinks. Overall, however, I'm still up a fair amount due to earlier trades where I took the gains (in VECO, CREE, and QID). But now I'm facing the prospect of riding out the storm, hoping the proverbial bottom hasn't opened up. Believe it or not, I'm actually thinking of buying a bit more at these prices, you know, averaging down.
DD, MBLX is quite a gamble. With negative earnings and an incalculable P/E, there's no real way of putting a price on it. If the market continues to fall, it could go a lot lower. Granted its chart just broke out, but we like to stick with companies that have proven earnings growth.
Anon,
There is no surefire way of telling whether a stock is just correcting or is done with its climb for good. Fortunately, you have a few tools at your disposal to help put the odds in your favor. The first, and most important, is relative strength. In theory, if there is a stronger stock than the one you own, you should move into it. By that rule, we should all be moving out of VECO and into CREE and RBCN... No questions asked & no love lost.
Second, you can keep track of the trendchannel and moving average. A simultaneous and decisive break of them is often (but not always) the beginning of a very long downtrend. The fundamental reasons for the breakdown are not typically known for many months after the stock fails technically. At this point, VECO does look like it's going to break down. We're up on the position and can hold out, but moving into other stocks still makes sense. Why stay aboard a potentially sinking ship when there are perfectly good lifeboats surrounding it? For the record, we think buying VECO here at 40 would make a great short term trade, but it's extremely risky at this point because the market itself looks like it's entering another leg down.
I sold my little bit of CREE a week or so ago. This drop today is not only huge, it is on double average daily volume. Does that bother you Snot?
Snot, could you let us know before you sell next time (instead of after). We suspect you hold quite a number of shares and can actually move stock price.
Yeah, right, anon.
That was the funniest comment so far by far
Post a Comment