A New Name... A little different Design... A word...

As I've said I'm always looking to improve. I had to learn some basic computer stuff for work so I decided to extend this by editing the html in my template and re-designing a few things. It was fun to figure out how to mess around with html a bit. I also changed the name and description... in case you didn't notice... this one I expect to keep. :)....

The strategy to be in mostly cash and have available resources has been a plus. More later...

This blog is for informational purposes only. It does not give investment advice.

LT Bull Market-Solar

Solar stocks have cooled off quite a bit overall, thus...

They may be primed to get HOT HOT HOT for Your portfolio!

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This post is organized in the following way:
I. Peering into the Solar Industry
II. Solar stock comparisons, thoughts, and more.
III. The little known solar plays of the future?

Note: This post has been edited since first posted to improve grammer and clarity. I had to view it clearly to make the necessary changes...

The post is not meant to be the "end all and be all "but a great primer from which to base further research on this very important industry... I plan to learn more and more and hopefully post more specific thoughts as this dynamic industry changes over time. I prepared it over the weekend but have waited until after the FOMC to post as the Fed meeting was the most important thing this week by far... You can't talk about how pretty the birds are if your fishing boat is about to hit the rocks... well we're not clear but now at least we know where we stand. So without further ado...


I. A glance at the Solar Industry
There is a long term bull market it alternative energy that is just getting started. When I say alternative energy I mean all non-fossil fuels, including solar, wind, geothermal, nuclear, and other. In the post The Future of Alternative Energy I did not include much more than lip service to solar energy because I felt it required its own post. It's been a long time coming. Then again the timing might be perfect... for the mid-term range... for reasons that will be discussed below.

First here is a list of the companies that are specifically examined in this post.
FSLR ENER SPWR STP JASO LDK TSL CSIQ HOKU ASTI AKNS SOL SOLF WFR YGE

Here are other symbols that are also mentioned:
TAN, QCE.F, SWV.F, REC.OL; CVX, GS, GOOG.

A. Background
Clean and dependable energy is of paramount importance in the resource scarce, pollution rich, world in which we live. The answer to this problem? Last year, judging by the valuations of some of the solar stocks, the market acted as if solar would be the "be all and end all" when it comes to satisfying the global need for electricity. This bothered me, and I wrote the post about alternative energy in general to remind myself and everyone else that solar is only one player.

It will take many sources of energy to fuel this planet. Solar power may not even play the biggest role, as coal in the near term and possibly geothermal or nuclear in the long term, may fill this spot. Regardless, solar will have its place in the overall picture, and more importantly right now solar energy has the investment and capability to develop enormously in the medium to long term. The valuations of many companies have come down quite a bit and are cheap. When the stocks of a robust long-term growth industry cool it's time to start paying attention. Solar stocks may not rebound tomorrow (though actually they may... this was a metaphor written on Saturday) but as long as the earnings keep accelerating and the overall market doesn't collapse there may be some enormous OPPORTUNITY developing in this space.

However not all the stocks in this industry are equal. Both in terms of quality and price their exist considerable differences between the companies. In this industry especially, much like any new technological sector, certain winners will emerge and become very successful while others will falter. Additionally, as the industry develops we will continue to find opportunity on both the long and short side as certain stocks become too richly valued or very undervalued. This post looks at the long side but trades for shorts are also an area of possibility. Such volatility often offers inroads to success. Those who have at least a basic understanding of the industry, how it works, and what separates one company from another will be in the best position to take advantage of opportunities. I want You, and I, to be in a position to take best advantage of the solar Phenomenon...

If you hadn't noticed oil prices are at all time highs. Global warming is a major political issue. It is very possible that as we move into the US election and beyond (especially if the Dems win the White House) that the buzz word "solar" will be big. Additionally the earnings of solar companies will be hard to ignore. Unless the overall market falls apart between now and Dec certain solar stocks may offer a very nice play to buy a little in pieces now and hold until the end of the year or beyond. The earnings have little or nothing to do with the US economy and the initial hype of solar stocks has cleared and left some real value behind. What we may find is the kind of value play for out of favor stocks (see Building Your Arsenal) that pays off down the road.

If this market is bad enough though I would recommend primarily playing these solar stocks like all stocks in this market: as trades. Very lucrative trades are possible in this market if you are informed and careful. That is to say that in this market I think you have to also look at the technicals, gauge how the overall market is doing, and set defined target/stop loss criteria (i.e. know where you expect the stock to go vs. where it might go if goes against you so you can define potential risk/reward ratios). As always of course you have to make your own judgment calls here.

One thing is clear: if you understand the industry at least on a basic level, know the differences between the solar stocks, and use proper fundamental and technical guidelines in you investing decisions you will be best positioned to succeed. And frankly, you will have an edge when juxtaposed with the average retail solar stock investors. Let's help get you there...

First let us look a bit at the nuts and bolts behind the solar technology.


B. A brief look at the science behind solar and the types of companies involved
Their are several main types of solar companies:
1. Companies that produce Solar (photovoltaic) Panels (sell to end users)... including
a. those that use thin film : CdTe and CIGS (more expiremental) (primarily FSLR and ENER)
b. those that use polysilicon material (majority of solar companies)

2. Wafer, ingot, etc, material manufacturers (building material for solar panels. (Seebelow.) Companies include WFR, SOL... a handful of others often private or overseas)

3. Integrated companies that produce end user products and manufacture the basic materials
(TSL, LDK, YGE)

Here is my understanding of how the solar panels (Photovoltaic cells) work.
I'll start with polysilicon based panels:
Silicon is an element in the chemistry periodic table. Just like carbon, nitrogen, etc. Silicon is used because of it's semiconductor properties... just as is the case in computers. The silicon absorbs energy (sunlight) and this causes electrons (electrical charge) to "jump" along the polysilicon, ultimately converting the energy from the sun into electricity. The components are assembled like this:

1. Polysilicon- This is silicon and usually oxygen mix to make silicon dioxide (sand). Silicon is the very abundant on earth. However, the silicon in the form of polysilicon (Si plus something else... usually oxygen to makes sand) needs to be converted into 99.999+% pure Silicon (monocrystals) for use in the semiconductor and solar industries. There are only a few companies in the world that currently do this process. WFR is one of them.

The silicon is extracted from sand and then crystallized in aqueous solution to form the monocrystals. These monocrystals are assembled into repeating units called ingots. The ingots in turn are assembled to form wafers. The wafers are put together into panels. Essentially the highly pure wafers do the work. The panels also consist of glass to protect the wafers from weathering.

Ok here is the schema from smallest to largest
Sand (polysilicon... a.k.a polycrystals)--->isolate pure silicon, assemble in to "pure"silicon crystals (monocrystals)---->form ingots (wafer building blocks)---->assemble ingots into wafers---->Put the wafers together, put glass in front... you now have solar panels (Photovoltaic Cells).

For thin film PV cells the idea is very similar. The crystals are not made of silicon but of CIGS (Copper Indium Gallium Selenide)... these are formed in an number of ways and can be packaged into solar panels. However, CIGS can also be mixed with basic material like types of glass... forming a thin film. Read the link above on CIGS. Again, the important point is that CIGS are less efficient than silicon but cheaper and can integrated with other materials.

However, the high cost of silicon, as I understand it, is not because we lack sand on this planet but because as of now only a limited number of companies form the wafers. These wafers must be bought by both the solar industry and the computer/tech industry. The demand is currently greater than the supply because the industry was used to making product for computers and such... now it has to make enough for the solar industy also. This demand/supply imbalance has driven up price. As more wafer producers come online I expect:
1. The cost of silicon PV panels will come down. This will be an advantage to the polysilicon vs. thin film companies.
2. The margins for the wafer producers should become lower. However, if the solar industry continues to expand the increased revenue may more than make up for this...
3. Note: the method to make silicon wafers is not patented... it was invented years ago... so I imagine the barrier to entry eventually should not be that high for wafer makers.

Polysilicon solar makers vs Thin Film solar makers to Summarize
1. Polysilicon is converts more energy from the sun into enlectricity than does thin film. Advantage Polysilicon
2. Thin film is currently cheaper. The demand for silicon has raised prices and started to cut margins for polysilicon-using solar companies. For now: Advantage thin film.

Here is a quick reference to CIGS vs. polysilicon.

3. Thin film has the potential to be integrated into regular building material, such as special types of glass. This is opposed to the polysilicon panels we are used to seeing on houses. These are the key differences.

Perhaps a bit of a hybrid between the two types of technologies is ESLR. They use polysilicon but have proprietary "ribbon" technology by which they use thinly stretched polysilicon.

Overall it is interesting to note that the few thin film companies are trading at much higher multiples than the polysilicon ones. This may be because they are overpriced and will come down if polysilicon becomes cheaper or because someone in the industry sees thin film as the future. I don't know... I'll be watching this... but I generally tend to stay away from forward prc to earnings of 40 or more... That being said FSLR has stayed high longer than many thought it would so maybe there is something to it... I am not here to bias anyone's opinion on this.

II. A look at specific solar stocks...
As I mentioned there will be winners and there will be losers in this space. This table compares key fundamentals for a number of solar PV companies and materials manufacturers. It may be insightful. The keys to finding the winners in my opinion include:

1. Quality of management. This is very important. I highly recommend that you listen to at least one previous conference call before investing in any of these companies. CCs are very telling.

2. Price, earnings growth, upward revisions in estimates, margins, realistic ability to hit growth targets...etc. fundies

3. Position in the industry. Who do they sell to? Are they well positioned for growth? What do they have that their competitors do not....

4. Technicals... in this market it is important to at least pay attention to this.

5. Others.... the "it" of the company... what makes it unique, and additional nuances of company.

From my table, and from watching solar stocks for a while, I am particularly interested in finding out ore about:
CSIQ This has been my favorite for a while. Excellent management. It has run up quite a bit recently but...
STP This company looks to be quite well positioned. I was once very expensive. Now it is looking quite cheap.... here is an article on STP
TSL Cheap; good earnings
YGE Super cheap; good earnings
SOLF I don't know much about at all, it is cheap...
ESLR also looks interesting.

Note... actually all of the solar companies are on my radar depending on price, the charts, etc and on further research on my part. These ones are just at the top of my list right now. However JASO and SPWR are worth investigating, LDK makes me a little nervous but some swear by it... You and I will really have to do our own DD here... I hope this is blog provides a great place to start. Also note, as mentioned before, because of the volatility some of these stocks may provide some excellent technical trades as well... look for stocks like TSL that have just been crushed recently, stocks like CSIQ and SOLF that at the time of this post was written (Sat 6/21) were above 200 SMA...
You get the idea.. the beauty of volatility (but also the double edged sword).

Manufacturers:
WFR
SOL

The manufacturers could do very well right now because of the near-term supply/demand issue talked about. Both WFR and SOL look very promising. However note that WFR especially also sells a lot of products to the tech sector so a slowing there may affect the stock price also...

The returns on some of the solar companies have been staggering (CSIQ from 19 to 40 in a few months) but so have the down turns. The way I want to play? Look for the solars to be sold off with everything else in market panic and then look to 'pick up the pieces'. The earnings will be there but the market is nervous (RIMM's profits were up over 100% remember) so caution is always warranted. It's for markets like this that technicals and sentiment become so important to move lock-in-step with some of the screaming value plays that are setting up in this space.

III. The little know solar play of the future???
One more point.... There is a whole other solar play going on that many people do not even know about. This may in fact be a large part of the future of solar energy. It involves using mirrors to direct sunlight into a pool of water (or oil which then heats water). This water turns into steam and drives turbines. The turbines then convert heat into electricity. It's being used currently in places like Spain and is being tested in places in the US. The big companies in the US behind this according to the article: CVX and GOOG.

Here is the article on Spain. Really sweet concept.
Here is the work being done by CVX, GOOG, GS, and others in the US.

Now for some excellent additional reading on the solar space by someone I happen to agree with very much overall. In fact I was very pleased to see that someone saw solar much the way I do (the CORRECT way that is... ;))
Which Solar stocks will continue to shine?
WHY CSIQ is the Best Solar Stock.
A look at TSL's recent results and the polysilicon PV makers going forward.

As always I will update this post as I find more with notes. I hope this post helps you.

Oh... and if you want to see the reason we need non-carbon based fuel to keep our planet going check out this link of the sun... not in the clouds... but in the smoke during the day... as a result of the massive fires throughout Northern California. I now live in the Bay Area and I can tell you the Sun was truly orange today... Yeah... I think the environment will be an important issue for the next President of the US of A...

Note: Here is a link to a follow up post on solar.......
References
http://en.wikipedia.org/wiki/Polysilicon
Check links throughout post to articles. As always take Wiki with some salt...

This blog is for informational purposes only. It does not give investment advice.

RIMM gets slammed after hours... Market on the precipice?

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A few additional notes...
Today the market got absolutely decimated. This is why I spent the week focusing on the meeting of the Fed... it was holding up the market, especially the financials. Now add in RIMM and ORCL and you have a storm. Some people were talking about buying on "capitualation" on the message boards. I think we will have a bounce after this selling but capitulation? Maybe when we fall through 11,000. Before this is all said and done (over the longer term)I think we'll find ourselves closer to 9,000... but I have no crystal ball and that will not happen all at once. Even then certain stocks and sectors will still be winners. Money has to flow somewhere, even though a lot will be taken out of the market altogether. An example of a good place to be today... gold stocks.

The technicals showing the evening star on UYG and the RSI+bounce from upper bollinger on POT at 140 are the kind of edge that will really help going forward. The charts are still below... just a reminder to make them bigger click on the charts...

BTW I sold POT because I sell in this market when 50% of profits on a given stock is given up, give or take. Usually I allow much less but with POT I gave it more flexibility. I like to limit losses and keep gains... while still keeping some flexibility so profits run... And it is always possible to re-enter after re-examining the situation.
Just wanted to be clear on this... also if I had watched the charts I would have sold some at 140.
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I listened to the CC because I think this is a great great company. And they can have a big effect on the Naz.

First though I want to talk about the overall market action. Now that I have seen more from the Fed's comments I realize that they really may be leaning towards fighting inflation... at least in rhetoric... This is very bad for banking stocks! Notice how the UYG ended up giving back almost all of its gains before close? Had I been able to seen more on the reports I may have shorted UYG just like I said I would on the last post if the Fed emphasized inflation over economy.

We are now close to where we were on the Dow and SP before the FOMC catalyst... which is just above bottom support at 11740 area on the Dow, a bit above the 1275 key area on the SP. The leading sector may now come under pressure because of the reaction to RIMM earnings (more later). So this is one dangerous market right now. Still, support is innocent until proven otherwise so it is time to watch carefully the markets right now.

Ok my thoughts on RIMM... Margin pressure was the theme of the call and the greater CAPEX than expected. What I heard was a company absolutely in the zone and needing to spend to capture large gains in international growth in the second part of the year. Margin compression is bad when it is due to competition, not necessarily when it is due to technological RD and development growth.

Cmon... a tech company without RD is in big trouble. RIMM sounded very very good to me. This is more about the overall market and the fact that the stock has run from 100 to 140 in such a short time. Any hint of weakness could be construed as negative. Also... if international growth slows and the company is not able to sell as much as it predicts this winter we may have a problem with so much CAPEX.

My overall take... I see a great company in a very solid position but in a market that is very nervous right now. Also the stock has run up a ton. In fact, where would the market be if not for the recent run-ups in AAPL, RIMM, etc? We'd be depending almost entirely on commodity stocks and even they may start to slow (have a bit... but was this just rotation into other names for the FED bounce and now we get a return to the safe bets?) Can't trust AH... wait til 10/ 10:30 to see what the big boys do. If the stock goes down we are looking at a potential move to the 50 or even the lower Bollinger band of 128.


I am now in 100% cash. I have a rule to never give up more than 50% profits on a stock in a market like this... today the 50% threshold was reached... and the charts may indicate a move back to the 50SMA... and if the key support fails watch out below. However, POT is at RSI 50... a turning point often for a strong stock. If it bounces off and we get rotation back into fertilizers I will jump right back in... with stops... This is a traders' market if ever I have seen one...

Tomorrow I may short QLD... I am looking at DUG again as well possibly, and shorting UYG...etc. I don't see much upside here in the near term in the markets. Either a trading range, with tests of the lows, or a fall through lows.. Science (probability) and history say... watch out here... especially if you are long financials...

Some Charts and final points:
As I mentioned I have a background in chemistry and I got into the markets really by looking at fundamentals such as PEG ratios and DCF calculations. I like to be able to calculate and make tangible what I am doing. However, it became clear that this would not work entirely in this market. It is my nature to want to learn when I do not know. So I have turned heavily to sites like investopedia and Fool CAPS etc, but this was still not enough so I started reading and learning.

This approach is not for everyone but it has always worked well for me. If it works for you great... if not then do what is right for you. My learning style is to to learn the text, then see it applied in the real situation, then improve upon it.

Let me show you exactly what I am talking about. I have read a bunch on technical analysis and now am also looking at candlestick and other chart patterns. In a trading world dominated by computers it is really important for me to have a basic grasp of things... And it may really pay off...

Take a look at this chart of UYG. In the beginning of May there was a clear Evening Star type formation (not exactly a star but very close)... a very very strong reversal indicator. Had I known then what I do now I would have shorted UYG or bought SKF and layered in as the move continued, with stops. It's as clear on this chart as a reflection off of profound azule waters of Crater Lake...




Now again... I was not looking at the charts as I fell into the trap of entirely trusting POT because of fundamentals. But this is a traders' market and I should have known better than not to check regularly on my charts... Take a look at the clear bounce off of the upper Bollinger band and the reversal from overbought RSI at the same time... a perfect sell indicator. I almost sold on the bounce to 136 and had I looked at the charts I would have. As for now we have a bounce off of the middle Bollinger and the RSI 50 potentially setting up...

but looking at past history POT usually goes down near the 50 when it corrects (see chart) so I expect this but will get back in with stops if it bounces.


This kind of knowledge I believe will be invaluable to going forward. I hope to combine the power of my scientific base, the use of fundamentals, and what I learn from reading and doing in the market to continue to improve. Hopefully I can share my thoughts, successes, and failures, on here and possibly also help with those who feel they can also benefit from the text typed on this blog...

Always learning, always trying to improve, always trying to sharpen the samurai sword... Best, Jon

This blog is for informational purposes only. It does not give investment advice.

Big moments coming

Everything was left unchanged... speak of inflation easing but vigilance... the third option was that they would say nothing and do nothing...

I'm not playing anything right now... this meeting was good enough to probably keep a floor in place but we have to see what the market does overall after this is digested. I do not exptect there to be a blow-out through support here... at least not until/unless another catalyst brings it on...

I was a little late on the move today... good trade starting yesterday before the meeting... but with risk... as always I will record what happened and learn. Little lost, I only hold some POT and otherwise all cash. There were gains to be had here for sure. The TA techniques I've learned have helped a lot... but I am still learning on this front... I feel I saw what was coming but the timing was off a bit. As always I will process this, record it, and learn from it. That is how I have become better and better so far...

Now let's let the market settle and see where we go from here. I plan to post the LT bull market post I made this weekend either tonight or tomorrow...

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My conservative nature when it comes to investing (a good thing overall) told me to wait until after the fed but there is a also an Be there First thing.

The markets have jumped early
UYG
COF
Retailers
Many stocks at 52 week lows.

On the short side money has flowed out of coal and fertilizers commodities in general
JRCC -6%...

So the Street was less patient than I am...
But now in this moment of truth I have taken some time off from work to play this...
What do we do if:
1. The Fed has any downside surprise to the market?
I will short right back down the gains logged in so far and take the greedy Street's money.
That means buying SKF or shorting UYG
That means buying SRS
" " MZZ

Probably mostly UYG/SKF. I am also looking for individual stocks that have shot up to short
2. The Fed's coments are bullish
SDTH has a ways to go I will buy
UYG could go further
QLD could shoot up ahead of RIMM earnings

I'm continuing to look right now... I will let the charts decide...
Best,
J


This blog is for informational purposes only. It does not give investment advice.

Market Direction... Pay Day...

Wednesday is a big big day. This is a big week.

On the post on the FOMC meeting I said that I thought we would see a volatile market with swings but we would end up not moving much before the FOMC meeting. . I was considering a day trade on Monday but it ended up not coming to pass. Well, the volatility I surmised that we might get did not show up on Monday... but on Tuesday there it was...

We got the bounce off of the 11,737 March intra-day low and pushed up for a nice day trade before falling right back to even. Chartists, traders, computers, were all ready to jump on this. Those who played UYG off of the low area to where the charts predictably started to fall made a nice 4-5 percentage point day trade. I did not have an opportunity on Tuesday to follow the markets so I was not one of the benefactors here.

Who cares about Tuesday.... markets closed... other than for one reason...
Tomorrow and the rest of the week (perhaps next week as well) is setting up to be a real opportunity for those that are ready for it. Tuesday's opportunities may still be out there and may prove to be much bigger over the next days/weeks.

I did my DD and will share it below with you. As always do your own as well if you want to play.
First, here are the big events this week
FOMC meeting announcement Wednesday at 2:30 This trumps all...

Earnings... see link to briefing dot com for complete list under "useful links"
W:MON : Before open (BO)
RIMM: After close (AC)

R: KBH, LEN; CAG, GIS
F: ORCL (AC)

Ok so here is my list of possibilities to play based on the charts and of course depending on the Fed...

Long:
UYG, FXI, COF (nice upturn from RSI 30 forming). See post: It Pays to Be Trendy (top posts) reg RSI.
QLD
SDTH (could easily bounce to 10 from 8.6 with good market news)
CTRP (very nice move off of oversold RSI and rising)... This is a really top company as well.
BIDU
Preferred depending on conditions: UYG, SDTH, CTRP... all of these are for trades!

Short:
SKF
FXP
QID (or short QLD)
SRS
MZZ

Many many other stocks. Technically the most intriguing overbought and turning RSI play is JRCC... if coal cools at all this could pop... but be careful coal is still hot right now... (a whole post on coal is almost done... I will post when ready)
Preferred: all: MZZ, SKF, FXP, SRS,... QID (not as overbought... but watch out for earnings), ... again depending on conditions and if they fall through support... but if the meeting is construed as negative for stocks we could fall off a cliff... almost any short will work...
For a lot of financials we are talking about hitting 2003 levels... but use stops as a snapback will probably occur.
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Remember... support is innocent until proven otherwise...
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Here is the chart for each except SDTH which is trading in range and will hit 10 or above if the markets are kind enough imo.

Long Market- If Fed indicates bullish tendencies we are oversold and market can jump









Short plays- If the Fed does not come through look out...



(short UYG)

As always do what you think is best. Perhaps these charts help...

This blog is for informational purposes only. It does not give investment advice.

Ways to be Smart!!!!!!

NOW is the time to have a plan for after the FOMC meeting concludes. In trading "pivot points" are key areas in stocks to look for long or short. We are in a "pivot point" in the market right now.
Here are some tips I am using and recommend:

1. Play it smart by playing it safe
Have an exit strategy/price for long or short positions

2. Make lists of companies/etfs to play if either the market swings up or swings down
a. short: QLD, long MZZ, TWM, SKF, others
b. long: (for trades on a bounce)- look for financial companies/etfs like GS, UYG, BLK and go to shortsqueeze.com to double check for short interest. Also look for companies set to break out on the charts. Now is the time to have a quick list ready to go... scan through the charts of companies of interest and be ready to go... that's what I am going to do...

3. Pay attention. Please.
We are at a very critical point right now in the market. Every decision right now should be in the light of the bigger picture of the FOMC...

Best,
Jon

This blog is for informational purposes only. It does not give investment advice.

FOMC week... time to pay special attention

Some quick additional notes:
1. The market is doing overall what I thought it would. and posted below... that is to say... very little ultimate movement up or down movement until the Fed decision becomes clear. I thought it might swing a bit more wildly with a possible short-term bounce off of support but so far it hasn't... no one wants to be on the wrong side of this as we are really at a crossroads in the market right now... the market is holding its breath to see what happens with the FOMC in my opinion. The FOMC concludes on Wed... Here is the meeting link...
2. Also the food producers Con Agra and General Mills report Thurs... everyone wants to know if the higher food prices are starting to hurt their margins at all as a sign of things to come. Food is going to get expensive (even more so) in 6 mos with the floods in the grain belt... not good for consumers. LEN, KBH also report this week...
3. CMED is just ready to break out if the market let's it. SDTH did not give back after the huge rise on Fri... a very bullish sign. 3x the sales this year in chemicals biz... no wonder (see below).

Just added: This clip says a lot of what I and others have been saying about the market right now and the underlying bear nature of it... I had a second so I added it... here
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Anything could happen this week. The charts are waiting for the FOMC meeting...

This weekend in particular it is a great idea if you have time to look over top stocks and look for a bounce this week. We are hitting key support areas in many of the major indexes and we will either fall through them (look out below) or get a nice little bounce here soon. I personally think that a bounce is more likely. Either way I hope that you have a nice sum of cash ready here. I hold only one position right now, POT, and have no short positions. The rest is all cold hard cash.

Some people think that holding lots of cash is a sign that someone is afraid of the market or isn't good enough to play a tough market. I hope that this blog, among other things, has helped to dispel this myth. In times of uncertainty doing nothing is often best so that the ammo is there when clear OPPORTUNITIES arise. Please see my post: How does one become a Champion in THIS market?. Cash is a big key. The market may bounce on Monday, however I think that it will be volatile and/or not move in one defined direction overall until the FOMC meeting concludes. I might look for a day trading opportunity on Monday or I might wait until after the meeting to see what happens. As always I will let the market dictate my moves.

If the market bounces look for stocks in the LT bull markets (food, solar, electronic payment (MA, V), and others), stocks that were just waiting to break out but have been held back by the market (many here, CMED... yes CMED is one... now once again a technical buy... as it busted through the 200 MA and has been held back only by this market... ready for a move up higher if conditions are right), stocks of top companies that have fallen (I like to look at my MA, GOOG, CME, ISRG, etc. on a regular basis to see if they have been taken down by the market because often they are the first ones to bounce back,) and perhaps some stocks of decent companies in bad sectors (GS) . UYG could bounce a quite a bit or fall hard... the fed really has a lot to do this For most longs in this market I consider them to be trades. I have had stops for most of my positions, long and short, the main exception has been POT... though even that will fall hard if support is broken with volume.

Another good place to look is at the stockcharts.com scans as this week progresses as we may get some nice RSI under 30 and rising , triple bottoms, and some other plays.

On the other hand if the market does not like what the FOMC says and/or the the market fails key support short instruments are in order (QLD short has a ways to go... SKF can go further). I would use tight stops as the market is already starting to hit oversold RSI regions and if it turns up it could be a substantial move.

So I guess let me reiterate my overall point... We could have some substantial moves this week because of where we are in the charts and because of the major potential FOMC catalyst. This offers short-term opportunity. However, since the market could swing either way, there are also large risks of being on the wrong side. Either way, as I mentioned in the post Bear in Mind... we are in a trading market for most stocks with an overall bearish bias as long as we stay under the 200...

This article is informative...

It is a good idea to pay close attention this week.


On other quick point... SDTH sprung up on Fri on news that the company is expanding in the fertilizer/chemicals space. If the NPCC growth weren't enough this company's "boring" core business happens to be in a very hot area right now. This company would be trading at 10-12 easy in a different market. This company is really one to watch...
Here is the article.

Best,
Jon

Here are some charts...






This blog is for informational purposes only. It does not give investment advice.

Quality over Quantity

As I'm pretty busy right now there are no in depth posts planned until the weekend but a few quick points...
1. Don't forget you can search all of my posts for what you want by typing keywords into the search box at the upper left hand corner of the screen

2. DSCO- this demonstrates the power of risk management and stops in a market like this. I bought at 1.51 after the stock required further FDA approval. Yesterday was a meeting with the FDA... As the stock ran up I moved up my stops to lock in gain while still capturing the upside if the upward trend continued. My stop was hit at 2.09 a few days ago... still a nice gain of better than 35%. Had I been less careful and precise I would have given back most of my gains... "Have a Systematic Method"...
Wish You Success in the Markets... J
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As I've mentioned on previous posts I may not post every day... sometimes if I'm busy I might not post much or at all in a given week... other times I will be more prolific. As is the case for all of us we have to decide how to balance our time with friends, life, jobs, interests, etc... and as much as I like the market and want to share my thoughts on here I will never sacrifice the proper order of priorities. That being said lots of posts don't necessarily = best for you. It's comes down to this...

Quality over Quantity.

I always prefer meaningful posts to shallow, inconsequential ones. These are the most likely to help you and me... symbiosis.

That being said, even when I am busy, I have no problem pointing out a few quick points as I come across them and sharing them on this blog. First I want to say for now that the last post (Building Your Arsenal) still has some grammatical and typing errors in it which I will clean up over time... also areas of clarification or additions to it (other than typing/grammar changes) will be in orange so you may want to check back on posts like this periodically to see if anything has improved and can help you.

Ok... so here are a few quick points for Tuesday...
1. Check out the chart for MA on stockcharts. It looks like it may have consolidated and be on the way up. This is a stock on my exclusive 'best of the best' list and with a PEG of 1.6, for a stock where estimates keep going up (so G is probably too low, PEG too high), a company which can do well even in a downturn (though do watch for credit card companies to be much tighter on credit as things get worse... just something to watch) , a company where people like you and me are starting to swipe credit cards and debit cards for items like milk at 7-11 (no slowdown will prevent us from eating milk with our cereal etc,) and enormous global growth... this company always requires watching for any pullbacks and consolidation moves. Do your own DD.

2. Water. Here is a good post from Small Cap Investors (Sign up... it's great and it's free). The company is LAYN.

Nighty Night...
J

This blog is for informational purposes only. It does not give investment advice.

Building Your Arsenal !!!

That's a large part of what this blog is trying to do...

I'm a big picture kind of person....

During my senior year UCLA (while I was still an undergraduate) I tutored the core biochemistry class to other undergrads. I was good at it. (not blowing my own horn… I just was). Primarily because I could take the complex scientific concepts and break them down into a logical flow that helped describe the why and not only the what. I loved tutoring and I also found that by teaching I was learned the material through and through myself. In biology the word is "symbiosis"... everybody wins...

"any interdependent or mutually beneficial relationship between two persons, groups, etc."

While I'm by no means a stock market tutor, if there is such a thing, I do love to learn about the markets and try to share what I learn. Hopefully we as fellow investors can learn and build together. To do this requires that we shore up our stock market "arsenal" so to speak. The more we understand, the more tools we have at our disposal, and the more precise our trading 'weaponry' the more likely we are to succeed. Part of success is simply knowing what stocks are out there. Since there are thousands of stocks part of investing is simply spending the time to research stock lists, sift through blogs, etc. Whenever I find a stock that is interesting I put it in a list so that I can watch it for the future and so I can pick the cream of the crop. However, this post is not about specifically finding stocks. There are others for that. This is a core 'big picture' post that I hope helps put the whole stock market game into perspective... Here goes...
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There are many different approaches to succeeding in the market. Some people like one or the other but I like to draw from many depending on the company or the situation. Throughout my posts my ideas and posts will tend to draw from a number of different strategies for success. Two ideas persist throughout all...

1. Understand what the heck is going on.
Top posts like it pays to be trendy and in a picture and a word why this market is so dangerous attempt to do this. Most stocks, no matter what, are affected by the macro picture of the overall market. At the very least they are affected by the nuances of their own industry. When the SP bounced off of the 200 SMA and the finance stocks (see UYG chart on stockcharts.com) formed what appears to be an "island reversal" it sure helped to understand the fundamentals of why this might occur so that the technicals could be put in the context of the fundamentals. Likewise the concepts of Dow theory (Post: It pays to be trendy)helped to explain a technical reason why the market could go up so much when the fundamentals were so atrocious. I always try to gain an understanding of the big picture... it is my nature... and it has helped me in the past...

2. Develop a systematic trading style and stick with it.
Emotion is a big reason that people make mistakes in the market. This especially becomes an issue when someone has a good chunk of money on the line. One of the ways to help neutralize this and to succeed is to have a "system". That system should be created by you, should have specific rules and guidelines to help guide you, and should be constantly assessed, re-evaluated, and updated. For example, one rule I like to stick by is: A transaction is a major action. Before making any trade/investment I want to double check myself to make sure that I have done the work, I know what my price target is and how much I am willing to lose, I know why I think the trade might be a good idea (fundamentally, technically, and ideally both), what could go wrong, if there is anything better out there, who I am likely buying from (do they likely know more or less than me on a given transaction... after in almost every trade someone wins and someone loses... though there are exceptions) and a number of other factors. Warren Buffet's first two rules of investing are:
1. Don't lose Money
2. Don't forget rule #1.

It's true. The fundamental pathway to success I believe is first and foremost being able to prevent huge losses from occurring. This means that when initiating a long or short position often no transaction is the best one (be selective... look for opportunities) and it is imperative to limit losses when a mistake has been made... even if its just luck that goes against you discipline is crucial... capital preservation allows you to move on and have the powder to make successful new investments. What I'm talking about here is risk management and a calculated, unemotional approach to success. I am developing my own skills in this as well and I have found that excellent readings, such as those by Wall Street Legend Victor Sperandeo have helped me enormously. At the same time.. allowing profits to run on great companies while preventing a winning investment/trade from turning into a losing one all help build in time-tested methods for long term success... I cannot emphasize this enough... especially in a tough market like this one.
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Ok... those are the big 2. The rest of the post looks at different strategies for stock picking success. Some people are very successful using one or two kinds... I like to have as many options in my arsenal as are possible and so I look to take advantage of opportunity in any of these methods. Also I am always trying to update and increase this list and this is by no means all inclusive- there are many other methods as well. The important thing here I believe is to know which kind of trade/investment you are looking at when you get in so that you can predefine risks and objectives before getting in... Ok here is my most updated list....

1. Long Term bull market stocks.
These are stocks that are in the early phases of a growing industry. Often there is growing demand and not enough supply to keep up. Or we are talking about a new industry that is no longer speculative but has not yet matured either... its potentially in the sweet spot. These stocks are often the very best because they often offer the best risk/reward profiles. In the very best cases you see charts like that of MA or POT... or CME a few years ago... just going crazy with an almost 45 degree long term upslope. Not all LT bull markets are so consistent. Alternative energy and solar stocks in particular are in a LT bull market but are also very volatile and require care and profit taking... however... that being said if you had bought one of my favorite solar stocks (CSIQ) only a few months ago you would have seen it double... this tends to happen in stocks that are growing earnings at enormous clips... A number of posts over time will fall into this category... in fact I'm working on an important one right now... but I won't publish it until I've gathered a bit more information...

Note: the ones below are in no particular order of importance... it depends on the situation...

2. Top Picks- Stocks of great companies, with stellar management.
William Danoff, the brilliant manager of Fidelity Contrafund, has claimed that his "style" in part is to pay up for top companies, as long as they aren't overpriced and the market isn't going to collapse, because great management and great companies produce time and time again. One may have to wait a long time for these companies to get "cheap" so it is worth it to ride the trend because these companies almost always find a way to justify the price... again assuming the prices haven't gotten out of control.

I think this is true to an extent. However, even better are when these great companies go on sale. In a down market or some unique situation sometimes the very best companies go on deep discount. Remember when, because of stock option news, AAPL was trading at $80? Recently because of the Comscore ad clicking issue GOOG went on sale as well. I always keep a list of the top stocks out there (the best of the best that I know of... and I constantly try to update this list) and I check to see if any of these companies go on sale. Sometimes the sale is justified and sometimes it isn't... but whenever a great company goes on sale it is worth investigating.

2. "Stocks of the future"
I am always looking for mostly small cap stocks that have a tremendous business concept that is not yet discovered by the big press and media. There are many such stocks and often only a few will pan out but that's why I make lists and follow these companies carefully and look for the cream of the crop. For example, CMED and SDTH were two stocks that not everybody knew about when I found them (or still knows about) but that I have come to understand and do well with. Also, I bought NUAN ( a very very promising company) in the summer of 06 for 8.50... and sold it late last year for about 18. Some stocks currently on that list are ARAY, CRNT, FEED, and lots of others. It is really important to do you DD on these kinds of companies especially because they tend to be volatile and some will simply not pan out.

3. Value stocks... fundamental plays...
Sometimes excellent companies go on deep sale. Sometimes this is due to sector rotation (I remember in the October of 06 that sector rotation moved money out of the oil stocks. I was able to snap up COP for under 60 when only a few months earlier it was over 80.) . Sometimes this occurs because the good stocks get thrown in with the bad, or because people give up on a company (blood in the streets). As long as these stocks have no chance of going bankrupt and do not have some fundamental problem the downside can be very limited and the upside enormous. Generally these stocks are out of favor and require patience. To use my COP example again I had to wait until the summer of 07... but was then able to unload my shares for almost 90... so you can see that these stocks can be worth the wait.

It really helps to understand fundamental analysis when it comes to this. I started with the markets first looking at fundies. This did very well in the last bull market but in this environment I knew I had to complement the fundamentals with technicals... and have studied that much more recently by buying books, reading blogs, looking at investopedia.com, etc...

Both are important. Fundamental understanding helps to identify companies that are undervalued. After all... what is the underlying value of a company? Intrinsically it is the total cash flow that a company is expected to generate in its entirety minus the competition for investing dollars with other companies that have a similar risk profile. At its core a Discounted Cash Flow, or DCF, calculation tells you what a company is worth. A great site to calculate DCF figures is here.

The difficulty with DCF calculations is that it uses estimates of future growth up to ten years out... and these are sometimes or often difficult to estimate ahead of time... so often PEG ratios are used. PEG ratios show how much the company is worth relative to earnings..... P/E ratio... then compares this to the estimated 5 year growth rate. Again this is a shorthand of the DCF essentially... and looks to gauge what the price of a company is relative to how much it is expected to grow earnings. It is very important to at least have a basic understanding of P/E ratios, PEG ratios, Operating Cash flow, current ratios, ROE, debt/equity etc... as these are ultimately used to provide a guide for where stocks are going long term and which ones are cheap and which ones are expensive. Generally stocks with a PEG under 1 are cheap... but it depends on the company and on the historical P/E ratios for a company and an industry. If you are not familiar with these terms I would suggest you go to investopedia.com and/or get your hands on some reading that explains this stuff. The point is this: just like with technicals the big fund managers and the guys who are really winning at the market know this stuff!... so you are at a disadvantage if you don't at least understand the basics and what it means... If you have any questions on this feel free... Im not an expert but this is certainly an area of strength.
One more good website is www.grahaminvestor.com.

Just to put the value of all this in perspective the value approach is a major way people like Buffett pick stocks. Using a DCF calculation and PEG ratio I found that COP was worth at least 80 a share at that time and had I PEG around .5 or so at the time... so this definitely helped me with this pick...

4. Trend plays and technical analysis
On the opposite spectrum are technical plays. As I mentioned on the post It pays to be Trendy finding strong trends and piggybacking with tight stops can be very profitable. Using reversing RSI on oversold or overbought stocks is a great way to screen for stocks for nice trades. So are looking at stocks that have broken above or below the 200 or 50 or other supp/res and fail... so are looking for certain triangle patterns, consolidation moves (like POT was clearly consolidating in the low 200s... making it a great buy when the fundamental confirmation was added in)... Generally for technical plays I like to have several points of confirmation before getting in. At least two technical indicators and/or fundamental confirmation of technical signals is necessary. That is my approach but others may have theirs...

5. Historical data plays
This is a broad field but here I am talking specifically about short term cash boosters. For example, stocks of strong companies like AAPL or RIMM often move upwards before earnings. If you don't have time or don't want to take a risk on actual earnings it may be worth it to get in on the long or short side of companies before the CC based on the history before the CC and then get out before the actual release. This is a trade but can create nice gains. I always recommend using stops in case the market or pre-announcements affect the stock in an unusual manner.

Another way to make some cash is to take advantage of window dressing, a practice in which big mutuals buy top performing stocks like MA towards the end of the quarter so that they can report having these companies on their books... even if they haven' had them most of the quarter. It is important to see if a stock has tended to go up towards the end of the 3, 6, 9, and 12 months of the year to see if this play makes sense. Again this is a trade and get out with profits or define narrow stops if it goes against. There are many more of these types of plays like playing GAPs and I won't get into them here but these can provide nice supplemental income... and some can make a lot on these... whenever I see something I add it to my list.

For example, CMED had most often gone up leading into earnings because they usually beat earnings. In Feb, though they beat earnings again in the winter quarter, the stock had gone from 40 to 57 leading into earnings, it was a bear market, there was some concern about HIFI, the company was misunderstood, and the stock just got crushed after earnings. For the first timin recent times the stock this quarter went down before earnings... which makes me think that the computers and trend traders were smelling blood... Those who knew nothing about CMED fundamentally but bought in a week or two before earnings last quarter and sold before earnings and/or shorted before earnings this quarter (but didn't hold on for the release!) would have done very nicely...
Something to keep in mind... and also a reason I felt the stock might be oversold and have a nice pop for those who understood the company and held through earnings...

There are many many other ways to play the markets. The more confirmation signals converge generally the better. I am always adding to these ideas as see them.

One more important idea: always try to learn from your past, especially from mistakes. To say it correctly (unlike Bush)...
Fool You Once... shame on me.
Fool You Twice... shame on you.

I hope that this post is helpful. Please ask questions or comment if you would like...

Best,
Jon

50 gets .... 'jus a little bit'... of respect and recognition...

From the first time I came across Earth To Wall Street Dot Com I thought it had something special about it. No Bull, the real deal, a community willing to think, question, and unite ideas as a unique investor community...

Congrats, Chris, Greg , Adam, and everyone else on the Forbes Business and Finance Blog consideration. Quality eventually gets recognized...

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Here's my post for the eve... On this site we always try to learn from history an "capital"ize...

The same play on the QLD happened again today... and you know what to do when opportunity knocks twice... carpe diem mis amigos. I believe that success in the stock market much like success in life largely revolves around seizing opportunity. That requires... a lot of hard work, skill, perserverance, and some (maybe a lot) of pure luck.

I have a number of trading/investing rules that I look at before I ever make a move. The most important one:
Opps Knock: Stocks.

This rule reminds me to constantly search for ideas and opportunities and try to find the best ones... and then jump on them when I've done my DD and risk/reward analysis and everything appears to check out...

So we saw the SP, SRS, pop; test the 200, fail, then go through the 50... and I pointed out that this was an opportunity to go short with a low risk/reward ratio. Then it happened on Tuesday with Naz. Today, once again the Naz tested the 50, took out the stops just above, and fell back down.

Here's how I played it... feel free to comment if you would like...
QLD 50 SMA was at 82.99. I have a stop 1% above at 83.81. With a stock as liquid as the QID ETF I felt a 1% stop above the resistance (for the short) would be sufficient to dodge market maker stop removals. When I took a look at the markets and the QLD went back over the 50 then reversed under this was OPPORTUNITY. In fact... one of the signs to short a stock is when it fails resistance a second time... especially when the stops are taken out and it then reverses, because it is a signal from the market makers that at the resistance line buying opportunity has dried up (market makers are selling at the highest price they can get while abiding by the supply/demand requirements placed on them). Nothing but down from there usually.

So my stop on the original QLD from yesterday was high enough and was not hit (had it been hit it is likely that something had changed in the market and I would want to stop out). I then essentially doubled down at 82.76 on the short... placing the stop now on the entire short at 83.81.

Side Note: I had said on yesterday's post that I was considering lowering the stops to lock in profits but I felt that the strength of a break through the 200 and the 50 in this market was so strong that I was willing to let the QLD run unless it went all the way to 1% above the resistance line. I didn't want to get whipsawed... though this was a judgment call and normally I don't like to let the rule" never let a winner turn into a loser" get violated... Had the gain been larger and the 50 resistance not been so strong I would never have done this...

Ok... enough explaining with words. Below is the chart that shows the move above the 50 without very strong volume, the reversal below the 50, and the subsequent move in the QLD.




The nice thing here is that the QLD, though it may hit a few support areas along the way, generally appears to have a long way to go before encountering serious support. Combine this fact with the market fundamentals and I believe this has a possibility to be a nice trend trade. Still, I will lower stops as appropriate above key resistance areas to lock in gains in case something changes. Now the gain for me is high enough where I absolutely will not let this trade turn into a losing one...
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CMED 'heals'...
This company was way oversold and way undervalued in my opinion which is why I was fairly aggressive in purchasing the stock in the past week before the CC today. I know this company pretty well, I understand the business, and I know that the management consistently underpromises and overdelivers. In fact, as far as I have been following them they have never missed an estimate.

A lot of people were worried that its HIFU sales were slowing and that it would eventually stop accelerating its earnings. While the HIFU, which has always been a wild card, has not as of yet proven to be the future of such treatment (ARAY might be the company for this... another company I watch very closely) its IVD business has shown to be very strong. There are still a lot of questions that I have that were not answered on the CC. I will try to find out more. However, the company re-iterated what I mentioned... it is growing cash flow at 30-35% per year and at this points looks to continue doing so....

I just want to make one comment about China. While I realize its risks and I am always wary of it and Chinese stocks sometimes sell off heavily I always come back to these stocks. You know why?

Picture this: a small store, like WMT in the 50s, or a beer company like Budweiser, opens up shop somewhere in America. The amount of growth it experiences as it becomes national, as it spreads to from state to state across the US, that growth is hard to even imagine before it happens because it is so HUGE. If you have flown or driven across a large country like the US you will understand this.

Now step back for a moment and realize that China now is like the US in the 50s or even earlier, except for a major difference...

We're talking about taking that little start-up store or beer company or medical device company from one or a few select cities... and spreading it to a country that is, from a population standpoint, Four Times bigger than the entire United States...

That doesn't even include the enormous populations in surrounding countries (imagine have Indonesia (world's 4th largest population) and India (world's second largest population) nearby to trade to instead of Canada and Mexico...

I think you get my point...

Have a good night... and Chris and Greg and Adam... congrats again...

This blog is for informational purposes only. It does not give investment advice.