I bought some ADM July $35.00 put options for $1.05.
Thursday, May 31, 2007
Wednesday, May 30, 2007
I have been in the process of identifying potential shorting opportunities. I don't know where the general market will be in the next several months, but we are reaching overbought levels and a pull back wouldn't be all that astounding.
My general thesis is to target weaker equities. The methodology behind this is simple. When and if the market does turn south, these under performers are more likely to continue under performing when compared to their outperforming counterparts.
One of these such companies is Archer Daniels Midland Co. (ADM), an integrated transporter, producer, and marketer of agricultural commodities. Over the last two years, ADM has received significant attention due to their position as the worlds largest ethanol producer. While I enjoy the longer term prospects of this company, the immediate future doesn't appear so promising. After the market's lack luster response to FQ3 earnings, shares continue to drudge lower.
Most recently the stock moved through the pinnacle 200 DMA, on above average volume. If this potential barrier can hold, ADM could quite possibly flirt with the bottom trendline near $33.00 per/share. While this level would make the company fundamentally undervalued, one must not ignore the buying and selling pressures depicted in the technical landscape.
Posted by CNL at 10:59 PM
I sold the bulk of my June $5.00 calls at $.35 and $.55 today for a gain of 75% and 233% respectively. The remainder of my June $5.00s will be held until expiration, since I am no longer playing with my money. Thanks Microvision!
As for MVIS, I am still holding my core position as well as my September $5.00s. I will also be looking for weakness so as I can buy more Septembers and possibly December $7.00s. For the sake of MVIS's long term trend I wouldn't mind seeing lower volume selling/consolidation for the rest of the week.
Posted by CNL at 7:19 PM
Tuesday, May 29, 2007
Below are 4 charts which I believe could yield substantial upside, assuming mother market continues climbing higher. Like most of the market two of these stocks have performed quite nicely, while the other two are potential bottom plays. Of them I currently hold positions in only MVIS, but will be looking to add positions into one or two of the others.
VeraSun Energy, Corp (VSE) is one of the many banished corn ethanol plays. Once the darlings in early 2006, pure corn ethanol companies such as VSE are viewed by many as future less. However, these this company and other are profitable and experiencing rapid growth despite shrinking margins. The market is also in rally mode and thus very few bargains are left to pick from. I believe VSE could be one of them, that is if oil prices continue to trend higher. Some of VSE's perks include their business connections with GM and Ford, and their ability to sell directly to end customers through their chain of E 85 fueling stations. To my knowledge no other ethanol producer has this ability.
US Bioenergy Corp. (USBE) is yet another beaten down corn ethanol stock. Although I know little of this company some perks include a cheaper P/E ratio compared to VSE at 11.8 and 13.9 respectively as well as having Ronland J. Fagen as a majority share holder. For those unfamiliar with Mr. Fagen, he is the founder and CEO of Fagen Inc., currently the premier engineering firm for corn ethanol facilities. His ownership could prove to be interesting.
Posted by CNL at 11:15 PM
Friday, May 25, 2007
P lacing technical analysis and sound fundamentals aside, its time for some unabridged speculation. Recently, shares of Microvision contiue to move higher on technology improvements and contract agreements. While I enjoy the fact that MVIS's technology is light years ahead of the competition, I am more interested with these non-disclosure contracts. As of late MVIS seems to be completely a washed in them. The real questions are what is their importance and how can they benefit ME as a shareholder?
While these contracts don't directly effect the bottomline, they give continual support and credibility to MVIS's technology. As a shareholder invested fully in a micro cap company(MVIS), its quite soothing to have the companionship of a larger player(s).
In November of 2006 it was cute to read about how a major teir 1 automanufcture has come on board to develop Heads Up Displays with MVIS. It was nice after the major Asian customer electronics manufacture contract was announced. Well now its May 2007 and we have not one, but two tier 1's, two major customer electronic manufacturers and a complete wild card commercial transportation contract to develop MVIS technology for aerospace applications! I am sorry but, cute and nice do not give true respect to the gravity of these contracts. One word comes to mind, sexy! The fact that all of these inevitably larger companies find keen interest in MVIS's technology makes me all the more secure with my position. The latest aerospace contract is the one which intrigues me most. There aren't may players in this arena and one of Boeing Co. world headquarters happens to be located some 30 miles away from MVIS's campus. I am not saying anything...but what if?
Benefit to Shareholders
Odiously the continual signing of these contracts has boosted the share price some 200% since late last year, but I believe updates from these existing contracts could provide further price movement aside from the much anticipated OEM contract. By updates I am specifically referring to the eventual disclosure of the players involved.
Non-disclosure contracts are signed for many reasons. Simply put, companies don't want their respective names released for competitive and credibility reasons. Companies such as Sony don't want to disclose at the time of signing because the technology and the potential for commercial viability is in the infancy stages. Why tarnish Sony's good name and damage potential brand equity by partnering up with bunk technology? After a lengthy call to investor relations I came to the conclusion that non-disclosure contracts eventually disclose when the time is right. This was made evident by Visteon's disclosure some 4 months after the contract was initially signed.
Going forward I believe that we could see disclosure of MVIS's PicpP partners. Depending on the clout of these companies, the share price will respond accordingly. For longs lets hope they go big.
Posted by CNL at 10:44 AM
Thursday, May 24, 2007
I was forced to sell some of my NBF holdings for $2.95 today. I will be taking a small loss on this transaction since I aquired them for an average of $2.99, however I need the funds for an impending MVIS pull back as well as protection against NBF's weaking technicals. Reguardless, I am still holding a core long position and will add shares on pull backs or when I get additional funds.
Posted by CNL at 9:50 AM
Monday, May 21, 2007
Thursday, May 17, 2007
For day and swing traders, chart analysis is primarily concerned with short term time frames such as the 30 minute and daily chart. The anticipated holding period dictates the various time frames required for proper analysis. With these shorter time frames, indicators will expediently signal impending trend changes. However, using these durations are much more prone to inaccuracies such as noise and whipsaws, when compared to longer durations. Essentially, we substitute accuracy for speed with sequentially smaller time frames.
For my long term holdings I use the more accurate and smooth weekly time frame for trend analysis. A great example (one which I failed to capitalize on) was appreciated during Hansen Natural Corp's(HANS) +1000% rally. Utilizing the weekly time frame and holding the stock instead of buying and selling through this multi-year rally would have resulted in monumental gains. From July of 2004 to July of 2006, HANS only once broke below the established weekly bottom trendline. Even during the November 2005 breakdown, the stock quickly regained its composure and resumed its nearly vertical climb. It was not until August of 2006 that HANS actually broke down, indicating the changeing of underlining market sentiment. It would have been at this point that longs should have exited positions and booked profits.
Aside from trendlines, there are several important indicators which work well with the weekly charting landscape. These are the Average Directional Index (ADX), Chaikin Money Flow (CMF) and moving averages (MA). These three are important because they dictate trend strength, locate accumulation vs. distribution and trend identification.
For the purposed of this analysis I will one of my long term holdings, Microvision, Inc. (MVIS) as an example. MVIS is a development stage company attempting to commercialize a miniature display and imaging engine based on its patented integrated photonics module (IPM). Observing the weekly chart, MVIS has printed a transparent up trend since August of 2006. During this uptrend the indicators(listed above) not only cross verified the trend but also strengthened during the subsequent rally.
Average Directional Index
ADX is a simple indicator which gages the strength of the underlining trend. The indicator ranges from 100 to 0, although readings above 60 and below 10 are exceedingly rare. Readings above 40 indicate a strong trend and readings below 20 indicate a weak trend(sideways trading). It is important to realize that this indicator doesn't define the trend as bullish or bearish it only dictates trend strength. According to the ADX indicator, MVIS's trend has been strengthening since October of 2006. Currently, the ADX reading is at 44, indicating an incredibly strong trend. For longs this is important since MVIS is in a clearly visualized uptrend.
Chaikin Money Flow
CMF gages the amount of buying and selling pressure by determining the daily average close relative to the high and low for a given period. For my charts I use a 20 day period. To determine accumulation and distribution, three basic observations should be noted. First, what is the value of the oscillator? With MVIS's chart, the indicator is clearly above zero and has been so since the start of the uptrend in October of 2006. Any readings above zero indicate accumulation. Second, what is the amplitude of the oscillator? The higher the reading moves above zero the higher the amplitude of the oscillator. For MVIS, CMF has been gaining in amplitude and is currently sitting at reading of positive .11. It should be noted that readings above .25 indicate strong accumulation. Finally, the duration the oscillator remains above or below zero identifies how strongly the equity is being accumulated or distributed. Aside from a minor dip below zero in early November of 2006, MVIS's CMF has remained above zero, indicating sustained accumulation.
CMF is also important when determining trend support. An uptrend is not sustainable if the stock is under heavy distribution. During instances such as this a divergence forms. The stock move higher while the indicator continues lower. Ultimately, a correction will be required. Either the share prices will have to move lower or the indicator will have to turn positive. For MVIS however, this is a non-issue. During MVIS's ascent the CMF indicator has remained positive giving the current uptrend sustainability.
MAs can come in all different durations and types. Without getting too specific, MAs smooth the price action out over a specific duration. The longer the MA duration the more smooth the reading. With the weekly chart this smoothing effect is all the more pronounced. For example, the 50 and 200 weekly moving averages print the average share price over 50 and 200 weeks respectively. Since the 200 WMA gages the average share price over an extensive duration it is viewed as the most accurate determinate of long term market sentiment. Essentially, a stock trading under its 200 WMA is generally considered bearish and a stock trading above their 200 WMA is considered bullish. MVIS is in fact trading well below its 200 WMA of $5.30. A break out above this level should be viewed as very bullish and thus beneficial for longs. Another important technical alarm to hed is the golden cross, or the instance where the 50 WMA crosses above the 200 WMA. For a previous post on the golden cross click here.
Despite the simplicity of moving averages, they are important during trend evaluation. During an uptrend, moving averages will gradually move higher starting first with the shorter durations first i.e. the 10 and 20 WMA. Once the 50 and 200 WMA start to move higher, the uptrend finally obtains long term creditability. MVIS for example has made a phenomenal move since its low during August of 2006, however the 50 WMA has only recently started to move higher. If MVIS's share prices continues to move higher so to will this longer MA, further strengthening the trend.
While technical analysis is viewed by some as tea leaf reading, charts hold much truth and knowledge as they map out battles held between buyers and sellers. For a truly holistic approach to investing one should combine sound technical analysis with sufficient due diligence.
Posted by CNL at 5:09 PM
Wednesday, May 16, 2007
Monday, May 14, 2007
Nova Biosource Fuels, Inc. (NBF), successfully listed their shares on the American Stock Exchange today. Although the reception wasn't quite what I had anticipated, the technicals continue to hold up. Heavy volume continues to appear on the up days despite strong resistance entrenched at the $3.15-.10 level.
A nice bullish ascending triangle has also appeared within the daily landscape. Although these patterns are bullish and indicate accumulation, overhead resistance needs to be broken for adequate conformation. Look for a gap above $3.10 or a long green bar which closes firmly above this level.
I will remain in my position and possibly add to it tomorrow.
Posted by CNL at 10:42 PM
Wednesday, May 9, 2007
Nova Biosource Fuels, Inc. is a development stage energy company with the goal of refining and marketing ASTM standard biodiesel and glycerin. Currently, Nova is involved with the initial stages of pre-construction for 2 out of 3 planned wholly owned biodiesel refineries with an expected capacity of between 160 to 240 million gallons annually. Despite being a rather small company with a market capitalization of only $412 million, Nova has been busy signing feed stock supply agreements with Conagra Trade Group, courting prestigious board members and finalizing the construction of 3 independently owned biodiesel refineries.
What makes Nova desirable is the types of feed stocks the refineries will utilize. Current commercial scale biodiesel operations use crude oils such as those derived from soy beans. Inversely, Nova intends to use 21 different feed stocks including those rendered from fats such as brown and yellow grease. Why the importance of proper feed stock selection? Since 60-75% of the cost to produce biodiesel is tied to the various feed stocks used, it is essential for producers to use inexpensive feed stocks. Given that soy bean oil is roughly $.25 per pound compared to the paltry $.12 and $.05 for the same quantity of yellow and brown grease it doesn't take a mathematician to determine the more economically attractive feedstock.
The catch here is can Nova successfully commercialize the production of biodiesel using difficult to process, lower cost feed stocks? Interestingly, the company has been producing 80,000 gallons annually at their pilot facility in Butte, Montana for the past 4 years. If former oil executives from Texaco, Halliburton Energy Services and and Mobil have faith in this technology, then maybe Nova might be on to verge of something huge. Commercially viable production of biodiesel from waste streams? Sounds good to me.
On December 19, 2006 the company raised $47 Million through placement of common stock and warrants. Nova intends to use these funds as working capital for operating expenditures.
Most recently the company announced substantial completion of its first biorefinery for Clinton County BioEnergy on April 13, 2007 and approval for listing on the American Stock Exchange.
This move should expose the company to additional investors as well as erase the tarnish often given to OTB listed company.
Posted by CNL at 7:26 PM
I was forced to cover and subsequently went long today, after WFR broke resistance at $60.00. The stock moved higher breaking the gap originally set at on 04/27/2007. The estimated target is $67.00.
I was hammered during this trade because I acted before conformation was given. The stock formed a double top at $59.78 and $59.90 on May 4th and 8th respectively. Although this formation marks resistance and indicates the possibility of a bearish reversal, conformation is needed. In this case the stock rallied, broke resistance and burned me.
Posted by CNL at 7:03 PM
Tuesday, May 8, 2007
After today unanticipated rally I decided to sell more shares of WFR short at $59.35. Apparently, shares responded to analyst's comments about WFR's 300 millimeter scrap wafers. That being said, I am not going to get into the ridiculousness of his comments, or the awkward timing since it has little relevance to the charting landscape.
However I did take the opportunity to short additional shares, which if the double top holds should amount to a respectable gain. At this point I am underwater some 3% and will be watching closely tomorrow for a high volume break through resistance at $60.00. If this happens I will be forces to cover, however if the rally loses steam and fails to test/break resistance at $60.00 the stock should trend lower and test support at $57.00.
Given the diminished volume of today's rally and the weakening MACD histogram, the subsequential action today and tomorrow could be attributed to the final stages of a post sell-off bounce.
Tomorrow I am looking for the stock to rally in early trading, eventually fail and end the day in negative territory.
Posted by CNL at 7:10 PM
Monday, May 7, 2007
Sold short shares of MEMC Electronic Materials Inc.(WFR) at $57.09. This company provides wafers to the semiconductor industry and polysilicon to the solar industry. Due to the current shortage of polysilicon and the rampant demand from the solar industry, shares of WFR have appreciated 60% since November of last year.
On April 30th however, RBC Capital Markets downgraded WFR to sector perform from outperform and cut the price target to $53 from $72. The analyst suggested that investors should book profits and reallocate capital else where. The stock responded by selling off on 17 million+ shares compared to the daily average of 5 million.
Technically, WFR created well established trendlines extending back into early November. After the analyst downgrade, shares gapped through the bottom trendline and preceded to move through the 50 DMA until support was found near $52.00/share. Imediately after we saw a weaker volume rally until resistance was met at the 50 DMA. Currently there is weak support at the $57.00 level, which if broken should lead to a testing of the $54.00 range.
My target is $54.20.
Posted by CNL at 12:28 PM
Sunday, May 6, 2007
I am adding Suncor Energy (SU) to my watch list. SU is a Canadian based integrated energy company that primarily produces and markets crude oil captured from oil sands located in northern Alberta. The company also owns and operates Canadian's largest ethanol facility as well as 71 megawatts of wind capacity with the 76 megawatt Ripley Wind Power Project scheduled for completion in late 2007.
Aside from strong fundamentals, the technicals of SU chart have become increasing enticing. I will reports more on this at a later time.
Posted by CNL at 4:30 PM
Friday, May 4, 2007
As I mentioned before, IMAX had built support at the critical 200 DMA after successfully gapping through it on April 24, 2007. This effectively created support at a level of prior resistance. After demonstrating a failed breakout on meager volume yesterday, IMAX consolidated at the level of $5.15. For the remainder of the day, volume diminished and the stock showed strong support moving no lower than $5.13. Today the story is entirely different. In early trading, the stock gapped to yesterday’s high on strong volume successfully breaking that level of resistance. With 5 hours of trading left; 600,000 shares have already traded hands compared to the daily average of 488,824.
This movement should most likely be attributed to this weekend’s highly anticipated release of Spider Man III, which will be featured in IMAX theaters throughout the world. The film which is set for release in the
Spider Man aside, there is still the overhanging uncertainty due to IMAX inability to file is 10-K 2006 annual report. The successful submission of this as well as a smooth resolution of previously announced accounting errors are essential for IMAX to continue its uptrend.
Posted by CNL at 7:31 AM
Tuesday, May 1, 2007
Sold STKL for a .80% loss today. Rational is mostly explained in the chart. High volume sell-off prior to earnings don't typically sit well with me. Sunopta was creating higher highs and higher lows, as well as building support after each sequential move. Today's -7.57% move slashed through weak support at $12.70 and strong support at $12.50. This coupled with today's candle stick analysis and I decided to cut my losses and move on. Earnings are always a gamble and I refuse to play them if a company demonstrates weakness prior to the release.
I also bought IMAX Corp. (IMAX) for $5.02 prior to the close. The stock has been rallying higher due to contracts and record attendance during the debue of the movie 300. This weekend's release of Spider Man III should only strengthen the IMAX venue.
Technically the stock is sitting enjoying support at the 200 DMA as well as a firmly established lower trendline.
The risk here is with some financial irregularities which has forced the company to delay the filing of its annual report and thus possibly facing a Nasdaq delisting. Ceteris paribus, the company should file shortly and lift the vail of uncertainty.
Posted by CNL at 7:14 PM