Saturday, April 26, 2008

Saturday Rock Blogging: Foxy Lady

The dow jones looks like its forming the right shoulder of the sexiest head and shoulders pattern I have ever seen. The scale of this thing is huge with the neckline at 11,750 and the top of the head over 14,000. Using Bulkowski's target (based on his statistics) you get a price objective at 10,400 and I would call that a conservative chart read. Confirmation of the pattern will be a clear weekly close below the neckline so we are a ways from there today. I am still expecting the dow to rally hard breaking 13k and closing above it's 200 dma. When the headlines start touting a net gain for 2008 thats when I want to be buying DIA puts because I'm thinking the big boys are trying to create strength to sell into. Once it becomes obvious that the breakout has failed the market should drop fast, but we'll just have to see. In other news, Megan Fox was crowned the sexiest woman in the world. Schwing!

Thursday, April 24, 2008

Another Leg Lower for the "Troubled Bond Insurer"

The "troubled bond insurer" Ambac (ticker: ABK) took another leg lower in its downwards spiral yesterday after reporting earnings. The last two legs cut the stock by more than 75% which would put ABK at $1.13 if it fell that far this time. How long can it be before these guys (ABK, MBI, RDN, MTG, etc) bite the dust? When they do its going to mean a whole nother round of big write downs at financial institutions. Odds are that the feds will step in and bail them out because they insure "$524 billion of municipal and asset-backed debt." Heavy things are falling down on ABK, heavy things they could not see? This one goes out to btb who insures me he will be posting much more often.

Saturday, April 19, 2008

That recurring theme

In my case, that would be the US Dollar versus the Euro and all that lively action. It's a traders dream. I have said regularly that "there is a distinct danger of intervention at these levels". Fridays intra-day move probably wasn't intervention, but we must be aware of the possibility and such a move is likely to come in early European trading hours when and if it comes.

As things currently stand, you can only think that there are some awfully flighty traders out there. I personally bought a couple of puts when I saw the hover. The Euro moved from 1.595 to the dollar, to 1.571 in the space of an hour in what Pythagoruz likes to call "a fast move from a failed move". The Euro was hovering at record levels but failed to push past the round numbered psychological barrier of 1.60 to the US Dollar.

In my opinion, without intervention, that barrier will tumble. It's just a matter of time and our favorite chart, the FXE 2 year weekly, with PSAR may be pointing out when that move will come. Let's take a look, and you can click on the chart for a larger image.

The PSAR, or Parabolic Stop and Reverse on this chart has been the most consistent indicator I have seen in a long time. When that meets the stock from the bottom side, you have a buy signal on your hands that hasn't failed in over two years. That isn't what the PSAR was originally intended for, but it's working here.

Based on this chart, I believe we'll trade around this range until the PSAR catches up to FXE. Barring any intervention by the central banks and the ECB in particular, that should be the start of the next leg up, beyond 1.60 US Dollars to the Euro. I'll be waiting for it.

Disclosure: I have no speculative foreign exchange position, at this time.

Saturday Rock Blogging: Wrong Place

Last week my friend Matt brought to my attention yet another big drop in CROX, the ugly rubber shoe company and I was thinking about when I tried shorting it a while back. I first took a position against the stock in late 2006 with the CROX October 30 strike puts ($15 split adjusted). Talk about being in the wrong place at the wrong time. This trade reminds me why charts are so important, I was dead right about the over valuation and the future of the ugly rubber shoe fad. If I had gotten short the stock I'd be up now as it made a new all time low last week. That would have been being in the right place at the wrong time. But with options its all about the timing, if you have the timing wrong you have it all wrong.

Friday, April 18, 2008

FT: Is it going to be a shallow or deep recession?

Find a longer and more recent Roubini interview here.

Wednesday, April 16, 2008

Earnings Season Turns Violent

Its been a rough earnings season thusfar despite today's headlines about INTC and JPM barely beating Wall Street's dramatically lowered earnings estimates. There were really ugly quarters at a few banks and a horrendous report from an ugly rubber shoe company just to name a few. But the earnings that got the most attention was the huge miss by the conglomerate GE last week.

That situation was taken to a whole new level today when GE's former CEO, Jack Welch, made some rather reckless remarks about the current ruler of the GE empire, Jeffrey Immelt. Something tells me you won't be seeing these quotes on CNBC. Here are a few of the highlights of Jack's comments I took from this article:

"This was a bad miss. This is a credibility crash. He's got to earn it back. He will earn it back. But to take GE apart, what's wrong with the company, it's falling apart, blow up the model, sell NBC, sell real off estate, let's go out of business because we had 24 hours of a mess?"

"Here's the screw up: You made a promise that you'd deliver this and you missed three weeks later"

"Jeff has a credibility issue. He's getting his ass kicked."

"I'd be shocked beyond belief and I'd get a gun out and shoot him if he doesn't make what he promised now"

Monday, April 14, 2008

"A New Era of Hunger"

Making ethanol from corn may have been the dumbest idea in the history of mankind, but even without bio-fuels agriculture prices are tied to the price of energy due to transportation costs. As long as energy keeps flying higher I suspect food will do the same. I wonder how much of the recent surge in agriculture and energy prices is related to fed encouraged speculation via low interest rates and the falling dollar.

After seeing this video and noticing all the headlines I thought the agriculture commodities must be making new highs again but I was wrong. The Corn, Sugar, Wheat and Soybean tracking etf DBA hasn't made a new high since late February and is still consolidating after a major run. It actually looks about ready to resume the uptrend soon, see below.

Thursday, April 10, 2008

The First Solar Bubble (FSLR)

Let me tell you the story of a Wall Street goldmine, its called First Solar, a photo voltaic producer that went public on the Nasdaq November 16th 2007 with the ticker FSLR. Up until now it has been a stunning generation of wealth, almost $20 Billion created on paper since that $25 close on the first day of trading. Here's what the first four months of trading looked like:

As you can see above (by clicking on the image), the first four months were filled with all the types of firsts the initial shareholders would have hoped for. After a 25% gain on the first day of trading it consolidated near $27.50 for a few months before it's first big breakout in Jan 2007. A few weeks later it's first of many big gaps was created after releasing it's first earnings report. The numbers were obviously fantastic and that gap remains unfilled, maybe justly so.

First Solar produces photovoltaics (solar cells) out of thin films of Cadmium Telluride (CdTe) which is just a semiconductor like Silicon. They essentially just sputter the stuff (CdTe and dopants) onto glass that continuously (I assume) runs through their machines. This makes their solar cells very cheap compared with other technologies because its a high throughput process and the cells are made from cheap materials (thusfar). One unfortunate drawback to the cheapness of their process is very low energy conversion efficiency. Because of their choice of materials and processing method First Solar's cells convert only 10.5% of sunlight into electricity versus ~20% for most Silicon based solar cells (of course this varies with the time of day and location). That means the FSLR solar panel needs to be twice as big for the same power output as a typical cell on the market. Buildings obviously have a limited amount of roof top space, so the low efficiency of their cells could become a problem for them in the future. What Wall Street has focused on is the cost efficiency and it turns out that "First Solar is contractually bound to reduce price per watt by 6.5% per year and plans to be competitive on an unsubsidized basis with retail electricity by 2010." So they might actually be able to compete with unsubsidized energy in two more years, now thats cool! In the end their products can be characterized as low efficiency but cheap.

They sell these solar cells mostly in Germany to industrial companies that get big subsides for using solar energy. Since the subsides are based on power usage only, companies can "profit" the most by going with the cheapest per watt solar cells. And that is currently FSLR but a new technology by Nanosolar is expected to beat them by a mile on that figure of merit. I don't want to go into details here, but let me say that there is serious competition in this space. Nanosolar says they can make cells for "less than $.99 per watt" compared with First Solar's $1.40 per watt, just for example. Nanosolar uses CIGS as their semiconductor which should be more efficient based on the band gap. In fact, many researchers see CIGS as the the best candidate for thin film solar. It still sounds like a decent story, so what has the stock done since those first four months?

The stock has exploded in an orgy of profits for anyone who has owned the stock. After being valued at $1.5B initially the company is now worth over $22B and they expect sales of less than $1B in 2008! Just for fun, another "energy" company called Chevron (CVX) is worth $186B and had revenues of $201B in the last year. So FSLR is worth 1/10th of CVX, now that is incredible.

Here's the deal, FSLR is going to have a very hard time lowering the cost of their cells because they are based on one of the rarest metals on the planet: Tellurium. "With an abundance in the Earth's crust even lower than platinum, tellurium is, apart from the precious metals, the rarest stable solid element in the earth's crust. Its abundance in the Earth's crust is 1 to 5 ppb, compared with 5 to 37 ppb for platinum. By comparison, even the rarest of the lanthanides have crustal abundances of 500 ppb." Recently a number of new applications of the mildly toxic metal have been found and its price has been sky rocketing in this commodity boom we are in:

I should note to be fair, "the extreme rarity of tellurium in the Earth's crust is not a reflection of its cosmic abundance" (from wikipedia). Theres more on the Tellurium situation for FSLR here.

Anyways, the semiconductor they use, CdTe is only half Tellurium. The other half comes from a less rare but extremely toxic (carcinogic) material: Cadmium. I work with Cadmium precursors and let me tell you this stuff is bad, bad, bad and we take some pretty extreme safety precautions. "Cadmium is an occupational hazard associated with industrial processes such as metal plating and the production of nickel-cadmium batteries, pigments, plastics, and other synthetics. The primary route of exposure in industrial settings is inhalation. Inhalation of cadmium-containing fumes can result initially in metal fume fever but may progress to chemical pneumonitis, pulmonary edema, and death." (from wikipedia) Yikes! And it gets worse, "Cadmium and several cadmium-containing compounds are known carcinogens and can induce many types of cancer." Yeah, so they picked the most rare material an the most hazardous material and stuck them together!

So of course there are going to be environmental problems with the stuff. "Cadmium is also a potential environmental hazard. Human exposures to environmental cadmium are primarily the result of the burning of fossil fuels and municipal wastes.[4] However, there have been notable instances of toxicity as the result of long-term exposure to cadmium in contaminated food and water. In the decades following World War II, Japanese mining operations contaminated the Jinzu River with cadmium and traces of other toxic metals. As a consequence, cadmium accumulated in the rice crops growing along the riverbanks downstream of the mines. The local agricultural communities consuming the contaminated rice developed Itai-itai disease and renal abnormalities, including proteinuria and glucosuria.[5] Cadmium is one of six substances banned by the European Union's Restriction on Hazardous Substances (RoHS) directive, which bans carcinogens in computers." (from wikipedia) Did you see that last part, its banned in the EU. How FSLR has gotten around that ban is beyond me, but it sure seems like this could be a problem for them in Germany. There is also the question of whether this technology does more harm than good since the material in these devices are so bad. Its a given that at least some solar panels will crack and break, releasing very nasty materials into the environment.

Theres another issue that I'm looking more carefully into, Tellurium containing compounds are very prone to oxidation. When exposed to air for long periods of time they will degrade significantly. This likely means that FSLR must encase their panels in a very thick insulating material (which I hope they do because of the Cadmium anyways). This insulation adds cost, non-power generating light absorption and is likely to contain some leaks. My guess is that over time the CdTe panels loose efficiency faster than other materials but I need to research this further.

Let me just summarize this here. First Solar has some very series problems ahead between heavy competition, sky rocketing materials costs and regulation of their extremely hazardous products. Meanwhile, Wall Street has tricked the world into thinking that this stock is worth more than twenty times this year's revenues. The stock has become a massive bubble by the speculation of ignorant (and naiive?) investors, even Cramer loves this stock! I expect this will be one of those greatest shorts of all time and maybe they'll even go out of business in a few years. I'm very bullish on solar energy and I expect most stocks in the sector to do VERY well, but FSLR is inherently flawed based on their material choices. I have marked support levels (and possible targets on the way down) on the weekly chart above in purple, and I would not be surprised at all if that gap at $35 gets filled eventually. First Solar might just be the first solar bubble to pop.

Disclosure: I own FSLR puts

Monday, April 07, 2008

Saturday, April 05, 2008

Saturday Rock Blogging: Spirit in the Sky (JASO)

Now here's a stock thats headed up to the spirit in the sky, Chinese solar cell maker JA Solar (JASO) which you have heard me talk about time and time again. It is my favorite solar stock and I first thought it might be a good buy at $8 (split adjusted). The stock made a monster move (+17%) Friday and the weekly chart looks great. On the other hand, there was no news to justify such a huge pop and I would wait for a big pullback to the $17 area before buying/adding it. But wow, what an amazing run since that IPO.

Thursday, April 03, 2008

Getting Jiggy With It (RIMM)

Research in Motion, maker of the Blackberry, pleased wall street with earnings yet again today and the stock is approaching the all time high at $137. There is absolutely nothing bad to say about this weekly chart. RIMM has been running since mid 2006 when it was in the low 20's (pre-split). After forming a deep base the stock looks poised to do what it did when it broke $30 and $50 for the first time (go up alot more). IBD will be all over this stock so watch for a violent move to the upside soon. Na na na na na na naaa naaaaa.... RIMM's gettin jiggy with it...

Wednesday, April 02, 2008

ICE Setting Up For a Nice Short

This chart looks alot like the AAPL chart I posted earlier. ICE is about to smack up against it's 200 dma at $152.50 after a nice run. As we know well, ICE tends to fake traders out with false moves and I wouldn't be surprised to see it break the 200 dma before reversing. Since ICE and the broad market are in primary downtrends, I'm thinking there may be a nice short entry on ICE at horizontal resistance around $155. There should be heavy resistance in the $152.50-$155 range which seems like a decent area to try a short. I'd place a stop around $157 and target that area of price congestion around $130 or the 50 dma at $133.71.

AAPL Short Entry Here @ $150

I'd put a stop at today's high of $151 then lower that to $150 tomorrow. The flattening 50 dma around $130 seems like a good target but watch out for RIMM earnings after the close tonight. Is it just me or does it seem like AAPL ripped off this video for their ipod commercials?

*UPDATE - They did use the song for an ipod touch commercial.

Tuesday, April 01, 2008

The Euro (again)

I have got to watch this market much more closely. Twice in recent days we've had a massive pull back from record levels, and as I mentioned in a recent post, there is a distinct danger of intervention at these levels.

Here is what the last week has looked like...

On Monday the Euro tagged 1.5895 to the dollar, just 5 pips from the all-time high of 1.59. Today we are seeing a pullback that mirrors the pull back from 1.59 a couple of weeks ago. Unfortunately I can't show the chart from a couple of weeks ago, because the action all happened outside of the US market times and I wasn't watching.

Like I said, I have to start paying more attention to this market because I'm missing some big moves here.

Todays move is being blamed variously on news from UBS and/or an announcement from Deutsche Bank that it expects some substantial write-offs in this quarter. Strangely enough both of those stocks are trading upwards in early European trading, and that makes no sense to me.

What makes better sense to me is the apparent profit taking when the Euro nears record levels. I'm sure that all traders in the Euro are aware of the political pressures to manage that exchange rate. German employment figures continue to reach post-reunion records, and unionized employees are in no mood for concessions. The only way, going forward, to maintain corporate export profits will be to manage rates.

Managing exchange rates will be it's own double edged sword though, as fuel imports are currently being paid for with a strong Euro, and consumer prices are inflating far beyond the ECB target rates.

"Germany's inflation rate, based on a harmonized European Union method, rose to 3.2 percent in March from 2.9 percent in February, the government said March 28. Inflation in the euro region, which the ECB seeks to keep just below 2 percent, may accelerate to 3.5 percent this month, according to economists' estimates."

Source: Bloomberg

From a longer perspective, I will point out the most common exchange rate chart that we post here, the Two Year Weekly FXE, with the PSAR.

The bull flag is in place, but note the enormous volume of profit taking from two weeks ago. The Euro-bulls are a jittery bunch these days, and in my opinion the better trade is the short side when nearing 1.60 Dollars to the Euro.

Disclosure: I have no speculative position in the Euro at this time.