Tuesday, November 30, 2010

AEM Ready for New Highs

AEM has traced out a multi year saucer then started a handle in the shape of a bull flag.  That flag has broken higher today.  I am now expecting a multi month move to 120 area.  I added to my positions with 10 AEM FEB 2011 85 calls.  When it breaks to new highs I will double this call position.

Monday, November 29, 2010

Silver is riding higher on the 20 EMA

Silver still looks good to me and am still long all of my silver juniors and my final 5 AGQ calls, plus 30 SLV calls.  SLV is giving me some clarity on when to add to, and when I will sell my call positions. 

Referencing my SLV ST chart, you can see my buy more line and my sell out line. 

Whee on CREE

I have been trading CREE long ever since the first bottom of this double bottom, for the most part very profitably.  CREE has shown some textbook TA patterns (Double bottom, Bull Flags, channel trends) all with a rising RSI.  Last week I sold CREE after its run to 64 on Wednesday.  I bought back in this morning at 62.50 and now expect a run to the gap fill.  I own Jan 65 calls, so I have time if it decides to run to the bottom of the channel again.

For you day traders, CREE sells off alot at the open then reverses. 


No Carnivale for RIO

The steel stocks look weak, and this miner is a big supplier to this industry.  It broke the 50 EMA today, and if it closes below that level, I am placing a short on it.

Sunday, November 28, 2010

Mawson - a potential blockbuster

Mawson is a small mining holding company that has stumbled into a couple of huge finds.  The concentrations of the metals and minerals, are unheard of.  Please read from a release from the company.

"The Company is exploring at Rompas in Finland, a new discovery with BONANZA GOLD where samples up to 12,800 g/t (373 oz/ton) gold and 43.6% uranium have been identified. In addition, the Company is exploring for gold and copper in the highly prospective Cordillera of Peru, with a focus on a new high grade gold discovery at Alto Quemado.

Mawson is a leading Scandinavian uranium exploration company, with advanced projects in Sweden and Finland. As the European Union moves to reduce its reliance on carbon-based energy sources and continues to debate energy security, Mawson is well positioned to provide Europe with the option to fuel its future. Areva NC of France holds 11% of the Company and provides Mawson with an active technical partner.

With a strong cash position and a multi-jurisdiction European and South American portfolio, Mawson is ideally positioned to enhance its status as a leader in the uranium and gold industries."

What else is interesting to me is the capital structure is in strong hands, with low share count.  This means to me, that retracements will be shallow, as only weak speculators will sell.  Having said that, the move on this news has aleady happened, and I will wait for either a retrace to the 50 EMA, or allow the 50 to catch up.

Uranium prices are impervious to external events as the Chinese must secure fuels for their ever growing power plants.

A Gold Crown I Do Not Want

Gold is tracing out a classic head and shoulders pattern.  It is something I am watching with great interest.  According to Bulkowski, if the rise into this pattern is steep, the move down is more violent/deeper and if the neckline is upwardly sloping, the pattern has more validity.  But what bothers me, is it looks too pat, tracing right at fib lines, into a seasonal strong period and with uncertainty brewing internationally, suspect it is a shakeout not a decline.  I will look for a failure at the 50 EMA, and a retrace back to failing before I aggressively hedge/short my positions.

Sunday, November 21, 2010

Happy Thanksgiving

I will be travelling with family until Friday, Happy Thankgiving all.

Friday, November 19, 2010

An American Junior in MY Crosshair

Crosshairs exploration intrigues me due to their mix of mineral assets; Uranium, Vanadium, and Gold.  Their focus is on clean energy minerals/metals.  Uranium was obvious to me, but Vanadium as a battery alternative to lithium surprised me.

This caught my interest as lithium reserves are primarily located in Chile an Bolivia, and battery heat and lifespan are of great concern.

I also like the fact that their assets are located in the U.S. (Wyoming) and Canada (New Foundland), and their claims are located in proven zones for their respective metals. They just received some financing to bring these uranium mines to production, and their drill results in Canada show increasing reserves.  They also hold gold reserves, which they are willing to spin out/sell, which would provide additonal sources of cash, without dilution.

Bottomline, this company sits in the sweet spot for speculators, as they move from exploration to miner, that is when the valuation of these companies really start to move significantly higher.  I have buy orders on CXZ at $.30 or at new highs.

Wednesday, November 17, 2010

Cheniere is Looking Interesting

Cheniere, is a Liquified Natural Gas terminal operator.  On November 11th, they announced a bi-directional processing facility for LNG.  This is a big deal, just three years ago, we were going into a Natural Gas deficit and we will need to import LNG.  We now know we are awash in Natural gas and coal based methane.  There is increasing interest in exporting this commodity, and this facility enables Cheniere to do just that.  Note where this gas is going

"We are excited to participate in supplying natural gas to China and we believe that ENN is a successful model for developing diverse solutions toserve its fast growing energy markets," said Charif Souki, Chairman and CEO of Cheniere Partners. "ENN Energy Trading is an ideal customer that is expanding its natural gas distribution network and seeking new sources of natural gas supply in order to increase its customer connections and increase its sales volumes. We look forward to working with ENN Energy Trading and proceeding with definitive agreements."

The chart is very intriguing, this is its third run at the top, and it quickly recovered from its retracement from the last top forming a nice cup.  If I understand my Technicals, triple tops break out.  I will by a small position on the breakout, and if it retraces below, will complete my buying on the break of the handle.

Tuesday, November 16, 2010

Silver Gap Fill

Overnight the CME announced a margin increase one week after their inital 30% margin boost.  I expected the silver market to be down hard at the open, but it initially shrugged it off.  Then silver (I watch SLV and AGQ) fell to fill their gaps and to touch upward sloping trendlines.  Also looking at the 60 minute RSI, I concluded it was a good place to buy back into AGQ.  If SLV breaks 24.11, then we are going down to test the strong support indicated by the gray bar and I will go short.

But I feel a ST bottom is in, silver is looking to be in strong hands.

Monday, November 15, 2010

Miracle No

I am looking for Scott's to fail at or below its 50 EMA.  It has put in a lower low, and maybe a Head and shoulder forming.  I will short on the next swing high, or a failure of its recent low.

Also, MON is still looking weak.  I closed my short on Friday, but may enter again.

Sunday, November 14, 2010

A couple of short ideas

Below are two hard asset stocks that are trading below their 50 SMA and with RSI7 breaking below 70 on Friday.  The first stock, Gerdau, a Steel stock looks like a good short candidate, and the second stock, EGO a gold miner, looks like a good candidate for a bear call spread, especially going into OPEX.

Saturday, November 13, 2010

Oh No its POMO

There are a lot of questions out there regarding POMO, what it is, what is does, its effects, and most importantly to me, can I profit from it.  So I did some research from the FED's site, Safehaven and Cantor Fitzgerald and aggregated these thoughts and articles into a post.  It was an eye opener for me.

What is POMO (Permanent Open Market Operations)
(From the FED). "The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC). "

Open Market Operations
Open market operation refers to Fed’s purchases and sales of bonds issued by the US
treasury. These transactions are with banks, public, and firms. When the Fed buys bonds
in the bond markets it pays for the bond by creating new Bank deposits at the Fed. These
new Bank deposits at the Fed add to banks excess reserves, and can therefore form the
basis of a multiple expansion of the money supply through new loan creation by banks.

What is QE?
(From Chris Mack http://www.safehaven.com/) "QE, or more simply known as money printing, is a dilution transaction similar to issuing more shares for a stock. The dilution has two primary affects: a decrease in the value of the initial shares and a redistribution of wealth from the original owners to the new owners.
The most significant difference between stock dilution and currency dilution i.e. QE is of course that publicly traded companies tend to use the funds raised through dilution to add value by investing those funds - whereas governments don't add value by QE."

What is the Purpose of QE?

In the case of QE2, $900 billion will be diluted to purchase US treasuries so the primary benefactor of the QE will be the U.S. federal government and the financial institutions selling that debt. However, capital flows can rarely be controlled and the newly created money will find its way into other markets and asset classes.
Interestingly, the $100 billion per month figure that has been mentioned as the target rate for QE is almost exactly what is needed to roll over maturing treasuries coming due - so it could be argued that the plan is to effectively finance the U.S. federal debt which would eventually lead to a complete monetization of the treasury market. Supporting this argument is the recent projection made by ZeroHedge that the Federal Reserve will own more treasuries than China by the end of November.

How Does QE2 Size Compare to Other Markets ( From Bob, This is important)

In an attempt to measure the above affects, we can compare the size of the QE plan to the size of several markets.

Outstanding$900B as
Percent of Market
Diluted value of
$900B entering market
US GDP$14,500.006%$0.94
US Federal Debt$14,500.006%$0.94
Money Market$3,900.0023%$0.81
Corp Bonds$6,720.0013%$0.88

If the QE funds went into the currency market, its value would fall in half. However, $900 billion is roughly 6 percent of U.S. federal debt. Inflation is defined by the growth in the money supply. If using M2, the QE plan would dilute the money supply by 10 percent. $900 billion represents 36% of the world's gold supply, so an equivalent move upward in price could be seen if the money finds its way into the gold market. QE is 37 times the size of the world's estimated silver supply so a flow of capital into the silver market could be explosive (see more here).

QE2 Projected to See Inflation Rise by 10-20%!

A dollar on November 1st is now worth 92 cents if measured in treasuries or 91 cents if measured with the money supply. It can be seen that inflation as measured by the growth in money supply is projected to increase by 10 to 20 percent on an annualized basis (see more here).


The result will be a double digit real negative interest rate and a carry trade opportunity to sell treasuries and other U.S. dollar secured paper at a cost of near 0 percent while accumulating real assets such as precious metals and other resources that cannot be diluted."
My thoughts.

The gold, silver, and dollar markets are the most sensitive to the capital flows and where we can find the best bang for our speculation.

There is a story floating out there that Goldman Sachs has been accumulating Precious metals for a long time and at the same time you have JP Morgan and HSBC selling naked short.  I cannot help to wonder when Goldman sees the tipping point and force these guys to cover and bankrupt them.  They have been known to do this to their competitors.

The conclusion was the stunner for me.  The banks get to use my money to accumulate hard assets and stick me with the tax bill because it is being laundered through government instead of direct infusion to the private market. 

This simply reinforces in my mind, of my course of action, in regards of owning hard assets and hard asset producers.  We may be digesting some sell the news in the markets after the QE announcement, but I intend to continue to scale in. If you are long the market start paying very close attention to margin compression, as it will exceed end user sales growth, thus collapsing profits and cash flows.

Also an interesting read on the effect of QE from a different angle but the same conclusion.
http://danielamerman.com/articles/Monetize1.htm I know he is pitching something, but the article is extremely well written.

Friday, November 12, 2010

Pink Silvers

The four Silver companies I like, share the folowing characteristics;

  • Mines are located in politically stable and mining friendly countries (Peru and Mexico)
  • Large and growing proven reserves and long lived mines
  • Reasonable to excellent extractation cost profiles
  • Low relative Market caps to Major producer peers
The four I like and own are:

  • Bear Creek(BCEKF)
    • Advanced exploration company with low market cap to oz of silver
    • Huge reserves
    • Long lived mines
    • High annual Production potential
    • Low Market Cap compared to major producer market cap
  • Genco Resources (GGCRF)
    • Junior Producer
    • Huge reserve potental
    • Low Market Cap to to oz of silver
    • Extremely undervalued to producing peers
  • Great Panther(GPRLF)
    • Junior Producer
    • Recent record Revenue and Earnings
    • Expected to double annual production
    • Potential to exponentially grow reserves
  • First Majestic (FRMSF)
    • Intermediate Producer
    • Low market cap per oz. of silver
    • Low market cap to major producer peers
All of these companies are fairly valued as they sit today, but with production growing, reserves growing, market cap underweighted against their peers, and average prices for silver growing, these companies are nicely postioned.  The sweetener for me is their value discount to major producers makes them attractive acquisition targets, and if the dollar buckles further, relative value for me increases.

I hold a relatively low dollar value in all of these ($20K), as they are speculative,so apply your risk management.  Either scale in or wait for a RSI pullback and then enter.

Thursday, November 11, 2010

Silver Squeeze is still before us

After this recent spike, it is now fashionable for mainstream thinkers to view silver as in a bubble and now will collapse under the weight of speculators running for the exits.  This view is myopic, and will prove costly going into 2011.

First some interesting stats (sources include USGS, Silver Standard, Silver Institute, DFMS Research, London):

  • The total value of above ground silver comes to only about $40 billion (can you say tiny).
  • The silver/gold ratio is currently about 63:1, yet the total value of all the investable gold on the planet is about 235 times that of silver.
  • The ratio of silver to gold in the earth’s crust is 17:1. That’s in the ballpark of the 15:1 average silver/gold  ratio that has held sway over the centuries.
  • The demand for silver well exceeds new mine supply, in 2009 total silver demand topped 889 million ounces, outstripping new mine supplies of 710 million ounces. The difference was made up by scrap recycling.
  • Silver production is expected to grow by 4%, assuming strong mine activites in gold, zinc and lead production (57% of silver is produced as a by product).
  • The inventory of above ground silver available for industrial uses is down 80% to 20 million ounces.
  • Scrap available is down to 162 million ounces.
  • Demand from new technologies are exceeding reductions from photography.  These include water purification, solar concentrators, anti microbial medical technologies, and electronics
My 2011 imputed supply is 927 million ounces if all scrap is used and inventory entirely depleted, and demand is estimated to be 939 million ounces, which implies a deficit. Price will need to rise to curb demand in 2011. 

Supply is always more fixed in the short term, due to the difficulty in opening new mines, demand is in high growth industries, and in my opinion relatively economically insensitive industries.  But if worldwide economic demand falls, silver production will fall faster than demand because 57% of silver is a by product of other more economically sensitive metals.

So my view is industrial demand remains strong.  Now looking at investment demand. It has increased 20% plus in the last two years, and trends favor that continuing;
  • European instability, and dollar weakness supports the fear trade in favor of silver.
  • Sprott recently priced a major purchase of silver for its vaults, and had to scour the world to take delivery.
  • The Chinese are net buyers, and have been a bid to the market.
  • The gold / silver price ratio is out of balance and this favors silver prices
  • Silver is a more convenient investment vehicle than gold for those seeking currency safety.
  • Current prices assume a stable dollar at todays value, do you think 900 billion dollars of new dollars support dollar strength.
  • If you believe the silver markets are net naked short, and with industrial consumers looking for supply, a blow up in a demand squeeze is just a OPEX away.
  • Small markets can lead to big moves, and the direction of that move is in my favor.
This is why I am staying long silver into 2011.  My next post will cover the Pink sheet silver miners I just purchased and why.

Discussions, comments, and smart remarks are welcome.  Bob

Wednesday, November 10, 2010

Solar Storm is Arriving

As I posted before, the Solar energy industry is producing a glut of solar panels.  Here is a quote by  John Hardy.  "Global annual manufacturing capacity for solar panels may reach 23,500 megawatts next year, exceeding demand by almost 40 percent, according to John Hardy, a solar analyst at Gleacher & Co. in Connecticut. Wind turbine makers will increase capacity to 64,200 megawatts, 30 percent more than expected orders, Bloomberg New Energy Finance forecasts." 

Note also, the glut in Windpower production.  Remember what goes into Wind Turbines, yes, that is right, Rare Earth materials.  I'd be selling on any momo push higher.

Check out these charts on Yingli Solar

If you want to buy solar, make it for your home or business instead. Deals will abound.

Happy Birthday U.S.M.C.

I am a proud member of this elite organization.  I served from 1981-1987, 1982-1986 active duty. I was an Artillery/Fire Direction Officer with the 10th Marines.  If this was a public company, I'd be leveraged long.

Below is a glory day picture of the officers in my Company.  I am standing back left, enjoy.

Tuesday, November 9, 2010

AEM - Completed a Multi year Cup and Saucer

AEM Broke out to new multi year highs this week, and now has slipped back below.  This is very exciting for me as the depth of the cup is $38 points, a 40% increase over the current price.  My strategy is to buy AEM on a break back to new highs.  I will further limit my risk by buying calls (March expirations) my strike will be determined at the time.

Update - I will start selling call credit spreads on AEM while I wait on the move higher.

Monday, November 8, 2010

Terra-Nitrogen No Laughing Matter

I think the Hard Asset markets are getting frothy, and am looking for some hedges on my long positions. Terra Nitrogen is simultaneously long fertilizers (Urea) and short natural gas (its feedstock), with 64% of their expense in natural gas.

Like the uranium and coal markets, I believe agriculture chemicals are relatively inelastic to the price of the dollar, and nitrogen has another boost in that it is a feed component to corn, which has its own economics of ethanol production.  If my view on colder winters and shorter growing seasons hold true, farmers will need to apply extra Urea to ensure rapid crop growth.  These benefit TNH.

Terra - Nitrogen also pays out a 8.7% dividend through an MLP, and is 75% owned by insiders.  This makes them shareholder friendly a nice source of cash while you await capital appreciation.

I have two buy areas, and will scale in at these points.

If you find value in my posts, a click on the ads would make my daughter very happy in her pursuit of a new bike for Christmas  :-)

Thanks  Bob

Sunday, November 7, 2010

Two Long Ideas

Here are two long ideas, that think will move higher.  Copano Energy is a Natural Gas pipeline and services company, it has been rising nicely, and pays a 8.5% dividend.

Exeter gold miners, is an Alaska gold miner, that has lagged during this move higher in the miners.  Thatlooks to be ending.  I own this stock, and is my only miner I have a loss.  I like U.S. miners because our mint can only buy U.S. gold for coins.

Saturday, November 6, 2010

Behind The Scenes

As we watch the Federal Reserve launch QEII, and other programs to "support" growth in our economy, many of us are saying this will ruin us, we will have a run on the dollar, etc. and these guys can't be that stupid, can they.  Then there are those of us that try to pierce the veil to determine what is really the strategic end game here.  Here is my take, and before I share it, I don't necessarily endorse it or morally judge it.  That is when I lose money.  I am simply trying to see if I can get an edge.

The Federal Reserve has taken the role of executing our trade policy, this is nice and convenient for the Administration, as they can appear reasonable in public, and Say things like, we support a strong dollar, and a rising Yuan would be helpful, while behind the scenes we have declared war on the Mercanilist nations.

From a currency perspective, the players of world are divided into three camps;

  • The resource currency countries such as Australia, The Gulf States, Canada, South  Africa, Russia, etc.
  • The Mercanilist nations, which are of two flavors;
    • The overt, which simply tie the nations currency to ours, such as China.
    • The indirects, which use a variety of regulatory, tax, currency and trade policy to artificially support exports and suppress imports.  Those would be Germany, Brazil, pick any other Southeast Asian nation, and Japan.
  • The rest of the nations are not engaged or relevant in this fight, but will still suffer collateral damage.
The U.S. has put themselves in a box by allowing their budgets and current account deficits to become unsustainable (the why or who's fault it is, is irrelevant). We have been trying to rebalance global trade to save ourselves, and at the same time been printing dollars (along with every other consuming nation) to reinflate the world economy.  Well the Mercanilists and the Resource countries like things just the way they are now. But, they are vulnerable, particularly the Merc countries.  By tying to our dollar, and having a high need for raw material imports, we are now in a position to cause them great pain, unless they revalue their currencies.

So my thesis is, we are playing a great game of chicken to see how long these countries can stand the internal inflation and the havoc of higher food and fuel prices on their populations, and the reduced profits for their business owners.  The squealing has already begun.  Brazil is having great difficulty handling the money flows, Korea, Japan and Germany are concerned enough to take this fight public, and China is struggling with higher food and fuel prices, and disappearing margins.  Here in America, the Federal Reserve has maybe a six month window before higher fuel and food costs embed themselves into the supply chain and come out with intolerable retail price increases. 

Between now and then, expect this new money to flow into hard assets that are internationally trade able.  These prices, I suspect will rise far faster than most expect, with high volatility throughout this complex and within it.  That is where I am positioned. When our energy and food prices get too high, we will force the Fed's hand to stop (Average gasoline in the $3.75-$4.00 range). That is when I step off. I suspect after this, a new managed world trade policy will be hammered out if we did not tip the world over the falls into real deflation and depression.

One man's view.

Friday, November 5, 2010

IAG - on sale

IAMGold just reported record production and earnings, but the stock sold off.  Why?  They reduced guidance at their mine in Burkina Faso due to a mechanical shutdown for three weeks.  I own IAG and see this as a sale to buy more shares for the future.

Look at the below chart, I see $24-25 in a measured move in its future.  Two choices for me, buy again above today's high, and/or wait for a swing low to form at a lower price.  I'll probably opt for the latter.

NOA looks interesting

NOA appears to me to be forming a bottom.  It just broke through the 200 EMA and a bull flag yesterday and is approaching a resistance area at the downward trendline.  A break of that trendline puts the old highs in play.

I will be a buyer on that breakthrough.

Thursday, November 4, 2010

As good as GOLD

If you believe in the gold and gold miner story as I do, a stock you should consider owning is GOLD.  This is one of my trading miners and I posted my play last week.  Today, I closed out my credit put spread to  make room for some more margin to buy silver, but still own my December calls.  Looking at the chart, GOLD looks very constructive.  The stock is making a series of higher highs and lows, there is a uptrending support line that has held twice, and today it gapped up and over its 50 EMA and held.  At a minimum, I expect a move to fill the gap above it.  Personally, I see new highs in its future.

I am buying a Freezer

By now the chart circulating the web showing raw material prices skyrocketing, but CPI at almost zero.  Here is  a similar look.  But those days are ending.  Grocery store margins have been squeezed to the end.  Please read from the Wall Street Journel today

WASHINGTON - Get ready to pay more for groceries and restaurant meals as food prices outpace inflation. Grocery chains, including Safeway, say they plan to pass the costs along to you, The Wall Street Journal reports. Food makers, Kraft Foods, Sara Lee Corp. and General Mills, in August said prices would be going up. Now, Kellogg's is hinting the same thing. Some food makers are targeting the $1 price point and then changing their package sizes to get you to buy.
Why are food prices going up? Demand for meat in China, India and other markets is driving up prices for grain. That in turn leads to higher prices for chicken, steak, bread and pasta. A drought in Russia, problems with planting and speculative trading have further driven up grain prices, the Wall Street Journal says. Walmart says customers should expect "very moderate" inflation next year. Weis Markets says it will hold firm on keeping prices down for as long as it can. Fast food joints and restaurants say you should plan to pay more. McDonald's expects a 2 percent price increase in the U.S. Domino's Pizza is letting customers decide what to pay. You can spend $2 more to upgrade one pie to a premium pizza, if you buy two medium, two-topping pizzas for $5.99 each. Morton's - The Steakhouse increased its prices in July, saying it believes people going out to eat are flexible with what they are willing to pay. "
I already installed solar panels, and put in a garden.  Now it is time for the freezer.
We are going to get a great economics lesson take place before our very eyes.  It is the elasticity of demand and the process of substitution.  The American people have no savings and no access to credit, I would start researching stocks in companies that sell want to's, but to the middle class.  They will suffer the most, IMO.  This will get ugly fast, and this is what kills the Fed. 
Brings back an oldie, but goodie.

Wednesday, November 3, 2010

Cocoa anyone?

Cocoa came to my attention in July, when I saw this article.

"Chocolate lovers here are crying into their Cadbury wrappers — and rival traders are crying foul, saying Mr. Ward is stockpiling cocoa in a bid to drive up already high prices so he can sell later at a big profit. His activities have helped drive cocoa prices on the London market to a 30-year high."

He bought between $1 to $1.5 billion dollars of Cocoa, and stored it.  for a frame of reference the Cocoa market is estimated at $5.1 billion annually.  Prices have come down somewhat from that level, but intrigued me that one person can have such control.

Then I read this article in Scientific American Magazine, for October.

"Cacao trees were first domesticated more then 1,500 years ago by Mayans living in what is now Central America, but fungal diseases such as witch’s broom and frosty pod have largely chased the bean out of its native habitat. The great worry is that one of these diseases will cross the Atlantic Ocean to West Africa, where 70 percent of the crop is now produced. Cacao trees in West Africa have no resistance to the pathogens, which form spores and spread via the wind, careless farmers and, in at least one case, bioterrorists. Scientists say that just a few infected pods would lead to the loss of one third of total global production."

Then just read that Cameroon (6th largest producer) is having harvesting issues due to disease.  So I have been watching it.  It is climbing back into its channel, and there I will take a position.  But I am more interested in it breaking the downward trend lines.  Note also that January represents the seasonal low for cocoa prices.  Time and price can match up nicely then.

Trina - Weekly Cup and Handle

Trina is the third Solar stock I like for the long term. Trina is a well capitalized, highly efficient Chinese based, worldwide solar panel manufacturer.  They also are engaged in primary research, and are less likely to be commoditized, over time.

Looking at a weekly chart, a very defined cup and handle is forming.  Patience is in order for me though, as I watch the near term headwinds gripping this space over the next 6 months.  But will buy it on the breakout of the handle.

Tuesday, November 2, 2010

Sunpower, Getting Brighter

I like Sunpower, long term because they are primary researchers in this space, and are not simply licensing other technology, Cypress Semiconductor is a large owner of Sunpower and licenses their technology and manufacturing processes to them.  Sunpower is the most efficient solar panel per square foot, installed.  This is meaningful, because as prices for panels fall, installation costs and space available become more important.  The less panels required, the lower the installation cost. 

FSLR Shorting soon, Long Term buy Q2 2011

One of the Solar stocks that will survive and thrive long term is First Solar (FSLR), the other two are Trina Solar and Sun Power (I will discuss these later). First Solar is the cost leader and they have the most experience with large scale solar projects, I do not see that changing. 

However, there are some significant headwinds for the next six months that I believe will negatively affect its stock price.  I intend to short FSLR at the completion of each of its rips.  My cues are overbought RSI and / or failure at the 50EMA and the top of the upper trendline.

Once this triangle resolves either way, I will be a buyer longer term. 

Monday, November 1, 2010

Solar, partial Eclipse

For full disclosure, I own a solar Energy company.  We sell and install systems and also act as a utility and finance long term projects.  From a personal point of view, I love solar, from an investment point of view they are going the way of memory chips, with few exceptions. The industry is growing quickly, but profitibility will fall even faster. 

 I first wish to discuss the most optimistic growth scenario from an industry advocate, Greenpeace.

"Solar photovoltaic is a key technology to combat climate change and to secure access to clean electricity. By 2015, the global market could be twice as big as today, leading to a Rs.430 billion investment. Our goal is to make solar photovoltaic a mainstream power source through more supportive policies around the world,' said Sven Teske, senior energy expert at Greenpeace International."

That is a market growing 12-14% per year not bad, but that is the top line and we need to get through some headwinds in 2011 first.  This is a quote from an industry research report I get.

"Looking ahead into 2011, the most challenging quarter will undoubtedly be Q1'11. Leading European markets, including Germany will face large reductions in tariffs at the beginning of the year. Even with careful phasing of projects and price reductions, market demand is projected to be less than 50% of module production. As a result, the analysis forecasts end Q1'11 upstream and downstream module inventory days to increase significantly by the end of that quarter.
"Historically, the PV industry has often exuded over-optimism in the face of uncertain end-markets. However, the recent industry conference in Valencia confirmed two prevailing industry positions, one that emphasizes oversubscribed order books, the other that focuses on the German tariff declines and a demand reduction next year," Stevens concluded."

And that is before our elections.  If the Republicans take the House, they will not be renewable friendly.  They are the extraction party.  This will create domestic headwinds.

Another source I have speculates that solar prices will fall 25% over the next five years, and with these near term headwinds I expect to see aggressive pricing to move inventory, frontloading the margin compression.

Another concern for the industry is new entrants with enabling technology.  These companies have already paid for their fixed costs selling other products, and will compress margins even more.

For me, too much risk, recent price action in the space is already sensing this. I will opportunistically short the rips.  Tomorrow, I will show some trade ideas.

Shorting Monsanto

I think MON is running out of juice.  Strong resistance line above it, and I like when the chart rolls over likethis.  I will cover if I am wrong at the resistance line.