Technical Analysis for December 20

It's Official, I'm an Idiot!

My day went farely well until I got tired and decided to call it a day at noon when the action dried up. My mistake was FORGETTING TO CANCEL MY ORDER for LDK Solar! I initially had a buy order at $68 with the intention of scalping intraday and closing the position before Q3 earnings. Unbeknowingly, my fill got executed when I was counting my profit in my dreams. Immediately after waking up, I decided to find out how LDK did and what afterhours trading was like. They had only beaten guidance and estimates slightly so after hours. I was saying to myself, "that's why you lock in profit and don't gamble into earnings." I literally was feeling good about myself having executed my trading plan until it hit me, "$hit didn't I have a buy order at $68? LDK closing price was $66.33 and had traded as low as $58. I'm HOPING I can get out above $60 because I don't want to see this loss compounded. Although this mistake won't break me, its 30% of my portfolio right now because of the extra shares filled for daytrading. I might lose 5-7% of my assets if prices stay in $58-62. Although this comes as a huge blow to me, this has been a humbling experience and emotionally I feel fine...as long as the price goes to the mid-low $50s. I have a list of trading rules and I have obeyed them all to some degree. However, double checking your account status before sleeping is one I left off the list. It MAY become an expensive lesson, but there's a chance...we gap up...pweeez.

Get a Trading/Investment Mentor

I guarantee you will learn something new in terms of financial awareness and discipline. Whether or not you agree or disagree, another trader's insight gives you knowledge and there is no substitute for education. You may even find a new friend to bounce ideas and trades with. Developing a good relationship with another trader is an investment itself and you should not have to pay for the advice given unless you want to. A mentor doesn't necessarily have to be physically available to you. All the traders on the videos I post are my teachers and so are the several traders on message boards that I bounce ideas with. Don't be embarrassed to question or criticize because we all will learn something, as long as it is in a polite and respectful manner. It's a win-win situation for both parties.

New Positions

I finally bought NNRI which has been heavily pumped by Stocktiger. I got in at $1.23 as both a trade/investment. I'll have a stop in place for most of my shares should we violate the double bottom at $1.15 on the daily chart. If we rally to the upside, I'll be scaling out into resistence. Even though stochastics are not oversold, I'm betting that we will bounce off the rising stochastics trend line. Also, I'm seeing positive divergence in the MACD and RSI as well so on a technical level, I expect at least a short term rally. For me anyway, I see 9% downside risk with huge upside in my trade so I like the risk-reward.

I got hit again at $0.405 in PYR.V and don't mind the stock going lower and hitting my next bid level. Of course going up would be fine as well. My stop loss is 50%, but the upside target of 500-1000% makes up for risk. Also dipped my toe into Holloman Energy, HENC, at $0.51 at the close today. Last week I scooped up some IV.V at $0.54, now $0.61, and I am still holding all my shares in that one. I like the basket of junior oil companies I've acquired and I still have a lot of wiggle room to invest more should the opportunity present itself.

Holloman Energy is definately an intriguing company with enormous potential. Their probable/unrealized reserves are valued at $2.3 billion according to one analyst http://www.stocksjournal.com/PDF/HENC.PDF and their management team looks very savvy. They have been forecasting 1500-2000 bopd by the end of 2008. With a current market cap near $70 million, it is trading at an enterprise value ratio of 1. With a huge interest in the Australian wells, I think the company could trade at a premium and I would agree with the analyst in her valuation. The company should be worth $100-300 million ($1-3/share) depending on how well management delivers on their guidance. However, their plans do not look very visible and as a skeptical investor, I am cautiously optimistic of them actually reaching their targets in such a short timeframe. I would also feel more comfortable if they were to move to a more regulated exchange. Pyramid Petroleum has more upside on a valuation basis and is fast money, but Holloman Energy I think has more upside past 5 years and could offer similar returns. I'm going to play it like NNRI and sell most of my shares should my stop get violated and perhaps accumulate more at a lower price.

For all those whose convictions are being tested, I wish you the best whatever happens. Stocks are always a gamble, especially small caps on the bulletin boards, and you shouldn't bet what you can't afford to lose. Always have a game plan and execute it no matter what. As a contrarian investor, I like to go against the grain and bottom fish when perception is depressed. I've found out that message boards provide a good consensus of this. When everyone is a bear, that's when I go long, but only if I like the fundamentals and potential catalysts that can turn the stock around and squeeze out shorts. Of course I am wrong at times, but my risk-reward is easily defined as long as I execute my plan which includes a stop loss. I only have to be right roughly 20% of the time if my risk-reward exceeds 1:5 to being break even or up. The market owes us nothing and the only thing that matters is price.

Technical Analysis for December 19

Technical Analysis for Tuesday December 18

Vindication in LDK Solar

Accounting irregularities my a$$. Took profits at $73 and bought back at $68. I never lossed sleep over LDK since my purchase at $38 back in October even though it fell as low as $26. My conviction and belief in the company remained strong even as the charts blew up. I did however fail to execute my game plan which was to average down under $30. The charts made me hesitant to pull the trigger despite my confidence that the stock would make a full recovery. And I could have afforded to double down in shares and still not be overly positioned in my portfolio. The lesson I learnt is that charts can fail to tell the truth from time to time and that news can be the leading indicator for movement. By focusing more attention on the charts, I missed a great opportunity to triple my returns. Had I remained more concerned with the news, I would have realized that it was a shoe in that the audit report would come back without a hitch. The solar wafers are not easily accountable given the grade variance and storage space which can make accounting difficult and it's human nature that we make errors. The internal investigation came back clean and LDK's CEO kept reiterating that there were no material adverse changes in the company despite the rumors. The company continued to sell contracts and also raised guidance as the stock price declined which provided a lot value for savvy investors. Downside risk had been factored in and then some. The upside return will be unfathomable. Next time I will by options to better mitigate my risk/reward when an opportunity like this presents itself.

-----------------------------------------------

Fundamental analysis originally posted on google message board November 4

http://www.cnanalyst.com/solar/index.html

After doing even further extensive homework on solar stocks, I have to
reiterate LDK as being the cheapest and the most valuable player in
its industry. Although I like to look at P/E multiples, growth and
profit margins are even more important in my opinion. Also, I tend to
invest in profitable companies so stocks currently with negative
earnings I do not cover. With that said, to me it makes no sense to
see LDK and WFR lagging behind FSLR and other solar stocks. These two
companies are making < 100% return YTD yet First Solar is making
nearly 400%. Perhaps LDK will catch up or FSLR will fall or maybe
both may happen. I do not disagree with the fact that every company
is different, but one has to wonder if they really are that different
from each other to cause such a huge range in stock prices. The stock
market is irrational; otherwise I'm just an ignorant investor. Yes
LDK is being accused of fraud with a potential 25% inventory
overstatement and thus receiving bad PR, but shouldn't the closed
contracts and growth offset most if not all of this? Is the stock
price being manipulated? Can we not trust this Chinese company, but
other non-profitable ones are fine to invest in? As Penn and Teller
would say, "this is BULL$HIT!"


Based on the FIRST CALL EARNINGS VALUATION REPORT, the industry (not
specifically focused on solar) growth rate is 15.3% and PEG ratio of
1.64. LDK, 3 analysts give a 5-year growth rate consensus of 50% for
a PEG ration of 0.60! Moreover, their net margins are 31%. Here are
the other solar stocks' PEG ratios and net margins in order from
highest to lowest in market cap that are currently showing positive
earnings:


WFR (PEG = 0.77 based on 8 analysts) 32%
FSLR (PEG = 5.725 based on 2 analysts) 26%
STP (PEG = 1.40 based on 8 analysts) 13%
SPWR (PEG = 2.52 based on 12 analysts) 3%
LDK (PEG = 0.60 based on 3 analysts) 31%
YGE (PEG = 3.31 based on 2 analysts) 11%
JASO (PEG = 1.71 based on 7 analysts) 18%
TSL (PEG = 1.18 based on 1 analyst) 11%
SOLF (PEG = 2.63 based on 1 analyst) 10%


The downside of a negative audit has mostly been factored in to the
point that any news will boost the stock back up. I am not concerned
about the 25% inventory statement, but rather their integrity, net
margins, and quality of the wafers. The high margins give them that
competitive advantage as well as their growth with evidence to the 1
billion dollar facility being built for them. Here are some
theoretical price targets:


1. (Industry's PEG/LDK's PEG) x current price = target price based on
50% growth rate
(1.64/0.6) x $39.55 = $108.10


2. (FSLR's PEG/LDK's PEG) x current price = target price based on 50%
growth rate
(5.725/0.6) x $39.55 = $377.37


3. (Industry's PEG/LDK's PEG) x current price = target price based on
75% growth rate
(1.64/0.4) x $39.55 = $162.16


4. (FSLR's PEG/LDK's PEG) x current price = target price based on 75%
growth rate
(5.725/0.4) x $39.55 = $566.06


Based on the industry's PEG, FSLR should be worth $41.98 and LDK
should be worth $108.10. It is absurd to see FSLR rising and LDK
falling when it should be the reverse. I would agree with Jim Cramer
in that I wouldn't pay for a stock with a PEG over 2. At the same
time however, he is very very wrong when he blatantly told people to
sell sell sell this stock when the accounting irregularities have yet
to be proven and have been blown out of proportions. That douch is
recommending BIDU as a buy with a PEG of 3.28!

Very Blurry Market Right Now

The charts in the shorter term daily timeframe are favoring the downside and the Santa Claus Rally may be in jeopardy. Investor psychology is waining and the media is creating a gloomy image on the market with so called experts criticising the Fed's surprising move. Although it seems like there's a massive flood to the exit, I believe we are in the final phasing of the correction. When sentiment is very bearish, we tend to reverse up and vice versa when sentiment is bullish. Bulls are getting whipped now, but I think they will be rewarded a few months from now. Fundamentally, inflation risk has yet to be confirmed and still the market is factoring in the prices that mirror a recession. Fear overpowering greed seems to be the perception and that's all it is. There are a lot of attractive stocks with high growth that are trading at a big discount. Recession in the US should not affect the global demand in terms of the broader picture. The emerging markets are bigger than ever and there seems to be no signs of haulting in those markets. I believe global equities will continue to perform well and this period of profit taking provides a great opportunity to get long in foreign stocks. As history points out time and time again, the greatest economic countries experience a downfall and give rise to a new successor. It is inevitable that the US will no longer become the economic powerhouse with the likes of China and India.

I'm going to stick my neck out and say that we will not fall of the charts next year and most definately not in the emerging markets. The subprime woes seem to be stablizing and as proof, the Homebuilders ETF (XHB) is showing good relative strength as it is up for the month of Demember whereas the strong performing ETFs have pulled back. Although it is the worst performing fund on my list since August 31, buyers are stepping to the plate and shorts are covering. Bad stocks seem to be bottoming and good stocks look to be topping. These mixed pictures, to me, signal profit taking and usually the volatility declines. When that happens, prices usually go to the upside. I think downside risk is smaller in comparison to the upside, however given the poor sentiment, we could trade sideways with no clear direction in the immediate future. Down the road, I think there will be an upwards bias and most definately a flight to quality such as the emerging markets and commodities. I have been trying to play the game of the contrarian investor and it has paid off well thus far. While people are parking money in the more liquid large caps, I'm slowly accumulating positions in small caps for my long term portfolio. My swingtrades and daytrades have been exceeding my expectations, but my long term holds have been dogging me. The only thing that matters is price so time will tell if I've made the right call or not.

FRPT Short Squeeze Rally

Here is a 5-day chart of Force Protection with 1-min candlesticks and do make note of the huge volatility and price movement in such a small timeframe. I bought 1K shares with an average share price of $5.11.



Here is a 2-day chart



Short Interest:

FRPT $ 6.85
Force Protection Inc. 1.59
Shares Short 19,035,700
Days to Cover (Short Ratio) 9.0
Short % of Float 28.89 %
Shares Short - Prior 17,456,900
Short % Increase / Decrease 9.04 %
Squeeze RankingTM -151
% from 52-Wk HIGH ( 31.16 ) -354.89 %
% from 52-Wk LOW ( 4.52 ) 34.01 %
% from 200-Day MA ( 20.55 ) -200.00 %
% from 50-Day MA ( 18.83 )
-174.89 %
Price % Change (52-Wk) -58.10 %
Trading Volume - Today 15,360,815
Trading Volume - Average 2,116,200
Trading Volume Vs. Avg. 725.87 %
Total Shares - Float 65,900,000
Total Shares - Outstanding 68,247,649
% Held by Insiders 21.52 %
% Held by Institutions 61.10 %
Market Cap 467,496,396
EPS 0.70
PE Ratio 7.50
Sector: Consumer Goods
Industry: Trucks & Other Vehicles
SI Record Date 2007-DecA


Information Provided Without Warranty

The Week That Was

Seems like there are a lot of people on CNBC, especially the ones with a bullish sentiment, that are pissed by only a 25% Fed basis cut on Tuesday along with the "surprise announcement" the day after. Although I'm just speculating, I think the Fed wanted to catch shorts off guard on Wednesday to add fuel to the bull run. However, the $40 billion injection is rather meaningless so the selloff is justified. I shorted again by buying FXP at $68.90 and cashed in during the highs of Thursday at $77.97. Also on Thursday, I began building a position in FRPT anticipating a short squeeze rally and that turned out very well for me if you read my other post. Mid-December tends to be a temporary bottom for the precious metals before it ramps up into the New Year. As a result of this 40-year seasonal study, I double downed in WGI.TO at $3.30, FR.V at $4.43, and got back into IV.V at $0.54. The rising inflation should be a good catalyst for these stocks.

At the close of Friday however, I made some rather questionable decisions. I picked up a little bit of CMZ (Compton Petroleum) at $9.02 which had gapped up on news of an acquisition. The stock has been in the toilet and I guess I bought it as a momentum play for Monday, but I don't see much upside in hindsight and the stock is traded rather thinly. Perhaps I would have been better getting back into FRPT as a continuation play. I'll take what I can from CMZ and be done with it on Monday unless there is a good surprise for me to luck out on. The other iffy purchase was FXP at $79.22. Even though several support levels were broken today on most indexes, I'm getting a feeling we might reverse back up on Monday. If that is the case, then I might have set myself up for some pain by purchasing this hedge. Considering most of my stocks are commodities and inflation driven, it does not make sense for this to be a hedge play. I'm hoping for a spike down in the market so I can get out with a profit on this trade. Cash would have been the best option looking back now.

Technical Analysis for Monday December 17

Videos For 12/11/07

My Hands Are Tied

We've had a very big run in such a short time and you have to stop and think that perhaps a 50 basis point cut is factored into the market. I've been gradually liquidating my positions since the end of last week into this strength and have booked incredible gains. I would hate to give that up going into the Fed's decision tomorrow and I wouldn't be surprised to see a selloff especially if they cut only 25. 50% of my money is going long and the other 50% in cash. I also have stuff to do this week so I won't have time to watch the market or posts. LDK has been a gem and I was emotionally torn when I chopped my position in that to half. I know it has a better chance of going higher in the long run, but it is way overbought in the short term and I expect a pullback. Even if it continues to jettison, it's never a bad thing to take profits and manage risk. Discipline over emotions when it comes to stocks.

My position for this week are either swing trades/long-term investments:
6% LDK (Feeling sad having parted with half my shares)
5% ETFC (Will get bought out and/or turnaround...great price/book ratio)
2% USU (Small position on a revenge trade)
8% GWDC (Way too deep in this spec play...lots of good news and I will scale out on a pop)
7% WGI.TO (I love gold, especially companies that are highly leveraged as gold futures rise)
6% FR.V (Silver is pretty awesome as well)
5% FSY.TO (Uranium is the way of the future)
5% BBP.V (Great price/book ratio...linked with the Lundin Group...big discount since they have struggled to drill successfull wells...properties are very strong)
2% PYR.V (5-10 bagger on a comparable basis)
2% WNP.V (Getting killed, but I like the prospects...invested a little too much)
2% BDY.TO (Poor investment...trying to get money out...stay away)
50% cash (Bull market or bear market? I'm ready to go either way)

Pennant Pattern/Triangle Breakout

I managed to find one setup today so I hopped in with a small position of 200 shares at $44.34 in LDK. I had my stop set at $43.89 which was underneath the trend line. I thought I picked the breakout point as prices spiked, but being the amateur I am, I didn't wait for volume and candlestick confirmation. Also, buying at the breakout does not give a good risk/reward ratio. I risked $0.50/share to gain $1.50 potentially whereas buying at the support would've been a risk of say $0.25 (basically 1:3 vs 1:6). Anyway, I moved my stop up to $45.13 after the 2 bearish haramis and I was lucky not to get stopped out. I sold at $45.75 for a gain of $1.41 less commission. The Stockcharts service basically pays for itself :D

A small tutorial on how this pattern should be traded and my mistake:

Pennant/symmetrical triangle forming.



Still bouncing in the range.



A breakout at $44.34 or is it a fakeout?



A second pennant formation.



In depth analysis.



Pay attention to volume to confirm signal.

Videos for the Weekend

Indecision

Most of the stocks on my watchlist are in a middle range and I don't know with good certainty how they will play out. I'm probably going to play it safe for today and Monday and let the market decide for me. Not going to make much money, but at least I won't lose much.

Bought Yearly Subscription Into Stockcharts.com

Cost me $309.35 for 13 months access. Having reliable charting tools can only help you make profits. I don't mean to be advertising them just to let you know.

At least now I'll be able to save and post some of my plays daily or at least I'll try to. I was born with slow hands so it takes me forever to type these posts. I had cement hands when it came to hockey so naturally I played defence. In baseball I struck out more than making any contact with the bat...never caught a flyball either, but I digress.

Raising Cash and Sitting on the Sidelines After Liquidating My Portfolio

Well today we tagged the 1490 resistence a couple of times in the S&P before finally busting through for a small pop. This level will be heavily defended by the bears and I believe those go long right at the breakthrough may be falling into a bear trap. The volume going up was not very impressive and I expect sideways trading or a late day selloff. I would not be a buyer yet nor would I be a seller unless volume picks up and favors a direction. I don't want to gamble by holding overnight where we could gap up or down, but I'd rather just daytrade and hop in and out. Preserving capital to fight another day is the key to this game.

I sold FRPT at $9.94 after gapping down during the open. Although I believe the stock will ultimately go higher, I didn't like today's signal and I I'd hate to lose all my profit.

Exited LDK at $41.15 and will buy back during the day's close at a lower price.

I made a very nice gain on KUN averaging out at $8.94

I also took a small position in FXP at $64.85 as a bounce play off support but prices reversed and I had to sell for a loss at $63.55.

Another Good Day as the Market Gains Momentum to the Upside

The S&P 500, we have been consolidating in a 1460-1490 price channel for the past 5 days and we closed today near the highs. I think short sellers were close to taking us lower intraday with the head and shoulders formation, but the neckline did not break as the bulls stepped up in the last hour to rally us up. Tomorrow, I think the momentum will carry us up to test 1490-1500 which would trigger the shorts to defend once again. If we gap above, this would really scare the bears and would be bullish. It is possible we trade sideways and stay in this tight price channel, but I think we have consolidated enough. I'm still sitting 20% on cash and may use it to rebuy FXP or DUG at support.

E*Trade was being a pain in my portfolio once again. It went from a high of $4.10 all the way down to $3.49 before reversing back up to close at $3.79. To make matters worse, I put in an order at $3.55 after the bounce but just missed it. It's trading in a $3.50-6.00 channel and I'm not too worried about my small position at $4.65. Just wish I could've got more off the bounce.

I got stopped out of LDK at $45.98 after an incredible run up these past 5 trading sessions. I repurchased shares on the selloff at $42.93 and sold half at $44.85 as a scalp while holding onto the rest for tomorrow's action. I'm in LDK for the long haul and have been holding at least some shares since October.

As a momentum play, I bought KUN on the intraday pullback at $7.03 and sold 20% into the rally at $7.35. This stock can really run up big as the charts show in the past. Last time when the stock approached the 50dma, it island reversed lower 20-25%. Last time when the stock broke and closed above the 50 on momentum, it went up 400%. I like the risk reward and I have a have small position which I will scale out of.

I got stopped out of CTDC at $6.90 for a nice swing trade gain. It has potential to continue up, but I don't like the setup for a swing trade. I'll keep an eye on it to see if the momentum picks up after it consolidates a little.

Still holding onto FRPT which closed at the midpoint of the day $10.57. The volume was less today, but significantly higher still in the last 30 or so trading sessions. I think the shorts are starting to cover more and more of their position as institutions drive the prices up. $10.42 will be my stop right underneath a pivotpoint. I expect $11.80-12.00 will show resistence and a break above on good volume should send prices to fill the gap up to $14.75.

ESLR was a break even trade for me today. I bought the stock at $14.01 and was stopped out at $14.22 for half my shares and stopped out at $13.89 for the rest.

And finally as I pointed out about my decision to close my FXP position yesterday, the risk/reward of the market dropping was not very good. The bears took the market down ever so slightly and also on diminishing volume. As a result, I went long on some depressed stocks due for a bounce while holding onto 20% cash. In hindsight, this turned out to be a very good move since FXP gapped lower from $72.10 to $66.65 at the open and closed at the day's low of $63.70. Had I not exited the position in favor of 20% cash, my day's profits would've been wiped out.

Hedging Today...My Stocks Are on Fire!

I decided to play today without a stop on FXP. I'm going to be giving up my gains in this stock, but I'm still up huge because of LDK. I bought more shares of ETFC for an intraday trade. I think FRPT will be strong for the next few days. I'm looking at RCH and CTDC as momentum plays.

Practically all my positions went well for me today and I was up about 5% in my portfolio while the indexes were slightly down. LDK Solar just went ballistic today on news that they will have $700 million for financing after tapping into their line of credit along with loans. Coupled with the momentum of other solar stocks, both catalysts sent the stock up about 27%. The huge run up also implies that investors do not believe the accounting irregularities' claim by Charlie Situ. This stock has been highly manipulated by the big boys and it is just the classic example of the small guys getting screwed. Management was sure there were no discrepancies, but the corporate media pounded the stock with negative news, lawsuit claims, and shorting before picking up shares at the bottom. The pop today is only vindication for those who held on and/or averaged down before selling into today's rally. I expect a continuation play tomorrow and it could go to $50 as the day traders hop in late. I've been holding this stock since October 8th and have been picking up scalps on the way. LDK has been very nice to me without a doubt.

I closed my position in FXP at $72 for a small gain. The sellers did not take as much control as I thought they would in the last 2 trading sessions so the risk/reward to the downside isn't that lucrative anymore. We are consolidating in a narrow range and it's best to be in cash and wait for the market to determine the direction. I'm cautiously bullish that we will have a Santa Claus Rally.

Purchased FRPT at $9.60 and it closed the day at $10.15. There have been huge blocks being purchased in the last 3 days by institutions. Compound that with technical indicators and you get a stock that is ready to rally.

Bought CTDC as a breakout play above $5.80 and sold most of the position for a scalp play. I'm happy that I kept a small position to benefit from the huge run up in the last 15 minutes of the day to close at $6.97. Like LDK, this should be a continuation play after breaking a long term downtrend. I see the 50dma as the first target at $8 and I might repurchase shares for the scalp.

ETFC was my only disappointment as it traded down to $3.94 for a loss of about 4% for the day. I expect this to go back to $6 in the near term as the stock is in a rising channel on the daily timeframe.

Long FRPT as a Bounce Play

I didn't buy the stockcharts subscription since I'm a cheap bastard so here's a print screen annotation. Apparently it has been shorted based on a lot of rumors and speculation that the Iraq war will end soon so the company with receive less contracts. A head and shoulders pattern broke out on a technical level to also factor in momentum to the downside. I think a lot of manipulation is going around in this stock and the 'sharks' have been scooping up a lot of shares in the last two days. Stochastics are oversold and there is positive divergence in both the MACD histogram and the RSI. I think a purchase in the $8.75-$10 range is a great purchase with a stop below the trend line at $8.50 or so.

Profit Taking in PYR.V

I would advise everyone to take profits whenever they have an opportunity because it limits your risk and exposure should the trade turn against you. That is what I did with my Pyramid Petroleum, my best prospect for 2008. Stocks never go up or down in a straight line and price movement is never easy to predict. To protect yourself from uncertainty, I suggest you should trim your position on any significant rally and buyback shares at a lower price. If the price keeps inflating, so what, at least you still have your foot in the door to ride the move for more profits. Also, you can tolerate a price decline because the profits you have banked limit your loss. Holding onto a stock forever without taking some off the table is just greedy and one whisper of scandalous activity in your company could cause a sharp downfall.

I got lucky with a day's low $0.405 purchase for PYR.V on earnings day and no way was I gonna pay the premium at $0.50 which was the day's high. Of course, I would have preferred paying $0.355 of the previous day's low, but I had to do my research before entry. Today I sold half my positon at $0.50 after a two day gain of 25% for the reasons I've explained previously. Although I believe ultimately this will be a $1.60-5.00 a year from now, the interest and coverage takes time. I'm sure I'll get another chance as the shark traders knock the stock price around. I hope we see sub $0.40 again so I can load up more, but I worry that demand will pick up sooner rather than later.

Pyramid Petroleum (PYR.V)

The company is a junior exploration and producer of oil & gas in both Alberta and the Gulf of Mexico. They have reported net profits in the first three quarters for this year. Although I'm no expert when it comes to penny stocks, I assume that it is rare to have a micro-cap stock to show profit and be significantly undervalued. I think Pyramid Petroleum is an excellent opportunity and I would be comfortable as an investor knowing that they aren't burning cash needlessly. In Q1, management recorded a net profit of nearly $200,000 with a total share count of about 37,292,595. For Q2, they reported a net income of $550,000. And recently, they reported Q3 net income of $397,234 (EPS of $0.01) which is a 1360% increase from Q3 2006. Based on my estimates, net income for 2007 may be 2.25-2.75 million or annual EPS of $0.06-0.07 for a PE of 5.71-6.67. Shareholder's equity is $7,496,379 so with a market cap of $18.65 million, the price/book ratio is 2.49. PYR is my best prospect for several reasons:

1) This company is a producer unlike a lot oil & gas companies which are drillers
2) Not only are they generating revenue, but they are profiting according to the Q1-3 statements
3) This company is expanding its operations with acquisitons and is set to increase production from 1301 barrels of oil equivalent per day (boepd) to 1803 boepd
4) Their oil platforms are based in politically stable environments
5) Cash flow positive

Risks:

1) Majority of interest in Gulf of Mexico where weather can affect production
2) Low volume trading
3) The numbers

If and when the figures are approved by the stock exchange, then fundamentally this company should be worth a lot more.

I would encourage all investors to read the corporate financial filings of comparable sector stocks in order to get a sense of the net asset value (NAV). Firstly, the comparative figures give you get peace of mind in whether or not your purchase or sale of a stock is justified. Secondly, the heresay from others will not affect your conviction as much since you will have hard proof to back your beliefs. And finally, you get a better sense of the industry which only adds to your educational benefit, etc. For Pyramid Petroleum in the Oil & Gas industry, I'll compare it with the now acquired Rally Energy (RAL.to).

PYR Q3 Financial Report:
http://www.newswire.ca/en/releases/archive/November2007/30/c6191.html

RAL Financial Report from 2004-2006:
http://www.rallyenergy.com/PressReleases/PR%20-%20%20March%2020%202007%20Year%20End%20Results.pdf

Historical stock prices for RAL:
http://finance.yahoo.com/q/hp?s=RAL.TO&a=00&b=1&c=2003&d=11&e=1&f=2007&g=w

Historical light crude oil prices:
http://futures.tradingcharts.com/menu.html

When Rally was producing approximately 2,000 boepd, its market cap ranged from $37-118.4 millon ($0.50-01.60/share x 74 million shares) when light crude oil was $32-48/barrel. The current market cap range for Pyramid has been from $11.1-18.5 million ($0.30-0.50/share x 37 million shares) while crude oil has been worth $50-100/barrel. PYR should be worth 4-12x its price based on production levels and the rising price of oil for a fair valuation. However, the valuation of property and reserves are different in both companies and the valuation will vary depending on crude futures.

Overall, the prospects look pretty damn transparent to me. I don't see this as a speculative oil & gas company because they have already proven their numbers on paper unlike drillers who have unrealized potential. My price target ranges from $1.60-$5.00 which would make the market cap between $66-200 million.

Long FXP

I purchased FXP on Friday as a swing trade after the 3-4 day bounce from the retest of the August lows. I woke up late and missed a buying opportunity near the open so I bought it at $69.69 intraday on a rising price channel. I think a gap up above today's highs of $73.44 on Tuesday would trigger more buyers and I plan to scale out at $75.25, $80, and let the rest run if momentum continues. I've noticed the FXP doesn't trade in a direct inverse to the FXI because of the thin trading so there has been quite a degree of variance. My stop is at $71.75 which it may not hold given the lack of sellers in the market today. Perhaps the volume will pick up tomorrow. There is also the chance we just consolidate for the next few days in a rectangular channel as the market is really in a neutral zone. Overall, I'm bullish but I'll let price and the technicals base my decisions.

Back to Business

Last week during the Thanksgiving break, I decided to wait on the market to determine the next direction. I didn't daytrade, but rather just held onto my long positions which got crushed on Monday's selloff which closed at the Aug 16 lows to form a double bottom. I expected a big rally was due to happen and sure enough a 4% rally in the indexes in just 2 days! Is this another trap set up by the bears or are the bulls starting to take over? The general trend is still down, but the huge move up is reminiscient to the previous correction. Overall, I'm bullish going into December, but the downtrend makes me cautious. Tomorrow, I think we will continue up towards 13400 in the Dow only to reverse back down and form some higher lows on the charts. A pull back near 13000 would be very nice and I'm expecting that to happen to form a potential inverse head-and-shoulders pattern. I'll be waiting to go short as a hedge to my longs.

PEG Calculation for STV and Price Targets

First of all, this message is meant to be universal so all investors can understand the terminology. I apologize to those that may find this information redundant.

Upon further investigation, I have a better idea on the theoretical price for STV. "Net income" is the same as total profit which is reached by multiplying revenue with the profit margin. EPS (earnings per share) is then calculated by dividing the net income by the share distribution/dilution. If the TTM (trailing twelve month) revenue was $41.6M, TTM profit margin was 52.78%, and total share count was 55.0M, then the TTM EPS is $0.40:

Revenue x profit margin / share count = EPS
41.6M x 0.5278 / 55.5M = $0.40

Here is an updated calculation after third quarter earnings and fourth quarter guidance:

Net income was 12.2 million after the first two quarters, 8.8 million for the third, and fourth quarter revenue is expected to be 15.5-17.5M so I'll use 16.5M for my figures to find the net income for the fourth quarter.

Fourth quarter revenue / third quarter revenue x third quarter net income = fourth quarter net income (assuming profit margins and share count remain unchanged)
16.5M / 14.4M x 8.8M = 10.1M

Annual net income = 12.2M + 8.8M + 10.1M = 31.1M

Current EPS = annual net income / share count
Current EPS = 31.1M / 55.5M = $0.56

Taking the closing price of $38.59 from 11/15/07, here is the PE (price to earnings ratio):

PE = price / earnings
PE = $38.59 / 0.56 = 68.9

The company expects its year-over-year growth to be in the range of 61-82% so now here is the PEG (price to earnings over growth ratio).

PEG = price / earnings / growth

1a. PEG based on 30% growth = $38.59 / 0.56 / 30% = 2.30
2b. PEG based on 40% growth = $38.59 / 0.56 / 40% = 1.72
3c. PEG based on 50% growth = $38.59 / 0.56 / 50% = 1.38
4d. PEG based on 60% growth = $38.59 / 0.56 / 60% = 1.15
5e. PEG based on 70% growth = $38.59 / 0.56 / 70% = 0.98
6f. PEG based on 80% growth = $38.59 / 0.56 / 80% = 0.86
7g. PEG based on 90% growth = $38.59 / 0.56 / 90% = 0.76
8h. PEG based on 100% growth = $38.59 / 0.56 / 100% = 0.69

Price target (52 weeks) = price x [(growth percentage / 100) + 1]

1. Price target based on 30% growth = $38.59 x 1.3 = $50.17
2. Price target based on 40% growth = $38.59 x 1.4 = $54.03
3. Price target based on 50% growth = $38.59 x 1.5 = $57.89
4. Price target based on 60% growth = $38.59 x 1.6 = $61.74
5. Price target based on 70% growth = $38.59 x 1.7 = $65.60
6. Price target based on 80% growth = $38.59 x 1.8 = $69.47
7. Price target based on 90% growth = $38.59 x 1.9 = $73.32
8. Price target based on 100% growth = $38.59 x 2.0 = $77.18

Price target (52 weeks) with PEG comparison = comparative's PEG / PEG x [(growth percentage / 100) + 1] x price

a. 30% growth vs 1.50 PEG target price = 1.50 / 2.30 x 1.3 x $38.59 = $32.72
b. 40% growth vs 1.50 PEG target price = 1.50 / 1.72 x 1.4 x $38.59 = $47.11
c. 50% growth vs 1.50 PEG target price = 1.50 / 1.38 x 1.5 x $38.59 = $62.92
d. 60% growth vs 1.50 PEG target price = 1.50 / 1.15 x 1.6 x $38.59 = $80.54
e. 70% growth vs 1.50 PEG target price = 1.50 / 0.98 x 1.7 x $38.59 = $100.41
f. 80% growth vs 1.50 PEG target price = 1.50 / 0.86 x 1.8 x $38.59 = $121.15
g. 90% growth vs 1.50 PEG target price = 1.50 / 0.76 x 1.9 x $38.59 = $144.71
h. 100% growth vs 1.50 PEG target price = 1.50 / 0.69 x 2.0 x $38.59 = $167.78

For PEG comparison of 2.0, just multiply the price targets above by 1.33. For PEG comparison of 1.0, multiply 0.67

Market is Undecided and I'm Going with My Gut

The day was excellent for both my short and long positions until the last hour when the market went sideways in huge swings. The market closed right at support which is the worst place possible for my short positions. I waited until the close for more clarity as to which way we'd go for tomorrow in terms of set up. A close below support and I would hold my shorts while a close above by a decent number and then I would sell the short positions and go long. At 2:30 we had a big selloff and then a 50% Fibonacci retracement at 3:15. Later, we had another selloff at 3:30 to form a double bottom before rallying back to the %50 retracement level at the close. I closed SKF at 95.71 for a gain of $7.83 and FXP at 78.66 for a gain of $6.38. I took off my hedge because I think there is a decent chance we rally off the double bottom with a 30% chance of a gap up. Tomorrow should be choppy as value investors are starting to come in while the panick investors finish their exit. Even though the market was down, the volume during the double bottom close was huge which is telling me we should be flat to up tomorrow. Had the volume been greater favoring the downside, I would have remained short as a test of the August lows would seem likely, although it is not of the question in the near term. I think the morning tomorrow will be positive so maybe I'll re-enter at resistance for my shorts. I'm never unsastified after locking in profits. If we gap down/selloff hard again off the open, which is a 20% chance, then I won't be too bummed out since I have already bagged my gains. The worst feeling is giving back profits.

I've been long with LDK at $40.50 and have held it through for over 50 days picking up scalps along the way. I made it a long-term play so I didn't have a stop. I was pissed when it tanked to $30 and even worse when I didn't average down when I had the opportunity. My money went into E*Trade so I can't complain too much. Yesterday's candle was very bearish closing at the day lows on an up day so I thought it might have more downside pain, but the rally for LDK today on a down day in the market is a huge reversal. I ended up doubling down at the close ($34.20)in anticipation for a gap up. The increased guidance caught a lot of shorts off guard and tomorrow they should be covering. I'm going to sell half of my position back into strength and double back on weakness. This stock is like a short position itself acting in inverse to the market. The consensus EPS is $1.34 and LDK should have a growth rate of 50% which would give it a PEG of 0.51. This one is a bargain and the inventory report should be solid in my view. Also, the price of a bad report has mostly been factored in already. Limited downside with a huge reward in the future. Being backed by the Chinese government and a new facility already being built is added confirmation that they will succeed.

Another Chinese stock I've been long is STV. I made some good scalps near the IPO date and held a core position at $40. Again, I missed an opportunity doubling down at $30, but these Chinese stocks are really speculative and I didn't want to be in for more risk. The stock has been rallying on anticipation of blowout earnings which are released today. I'm gambling by holding my shares into the call. This just in, they beat EPS expectations, but on lower revenue, and so now I hope Wall Street decides to flood more money into this stock. I will be mad to see this stock drop like other stocks after reporting earnings. The number was $0.20 which beat Reuters' consensus of $0.15. I'm going to approximate the annual EPS to be $0.90 and a growth rate of 40%. The PEG would be 1.07 and that is a conservative estimate. Although speculative, this company is predicted to be the front runner when it comes to digital TV in China and has a lot of room to grow with solid margins.

HLYS was a bust on very light volume however. I'll watch this one to see if buyers are interested. The PEG is harder to calculate since their operations have lacked transparency. They are still growing and I think earnings will turn around in the future. I'd hold off investing in this one, but it should be worth a good trade in time.

Hedging My Bets

First off, I got stopped out of ETFC at $5.85 for a nice overnight trade from $5. The stock had trouble breaking $6 and volume was light until the selloff where people were locking in gains. I rebought during the day at $5.70 and got stopped out for a small loss at $5.67 while it closed at $5.54. I decided not to reinvest due to the lack of buying volume and the fact that $6 wasn't even broken besides the first tick. I think it'll retest $5 before it breaks $6.

Went long on the short ETFs SKF and FXP. Nice gap up selloff in FXI at the open which broke $190 support and became excellent resistence during the day as I expected. $186.50 offered some support until the late day selloff. There was a small bounce however at the 50 dma to close at $187.01. I'm expecting another leg lower for Thursday in the market. The financials couldn't rally past the $85 support level in SKF while the 20 dma served as a seesaw during most of the day. The $88 level held as strong support, but the volume during the selloff was lighter than I wanted. I'll have to watch the volume carefully to see if the sellers are going to take control or not in the financials.

I bought HLYS at the end of the day after they released news that they won a patent infringement case. Immediately after the news, there were a few block purchases totalling about half the volume for the day. I got in at $6.74 which was dumb of me since I forgot to trigger a limit price. I paid the market and overpaid 14-19 cents/share. I think the first level of resistence will be the 20 dma at $7.40 and then the 50 dma at $8 which coincides with a gap. My stop is at $6.50.

Potential Inverse Shorts: FXP, QID, DUG, SKF, EEV

I think the first resistance level is $187-90 for the FXI or $75 for the FXP, but entering a short here would need a wide stop I think. I doubt the 50 dma will cause a bounce either way. I'm hoping for the FXI to hit the declining 20 dma near $200 and then I would short it by purchasing FXP with a tighter stop. Of course with the added volatility of a double inverse fund, the potential losses when shorting this Chinese index could be devasting even with a tight stop. I'm long in a some individual Chinese stocks as a hedge.

The QID should be worth a tight stop entry at the 50 dma or $38.35 which would preceed a gap fill left from November 8th. Otherwise I expect the 20 dma at $32 to be the next support level.

Oil & Gas has been going back and forth in both price and volume as of late. I'm kind of undecided, but one can look for a bounce for DUG at $41 as the 20 dma looks to be forming a golden cross over the 50 dma. Oil might reverse however so DUG is the most speculative short IMO.

I like shorting the Financials if we open near the 20 dma at $88.25 on SKF. A gap below and I look for $85 as support followed by the 50 dma at $82.50. Should these levels fail, then I think we would have seen a bottom in the Financials. Until then, I'd go long SKF since the subprime woes aren't completely over yet.

The emerging markets should find resistance at $160. Buy EEV near $70 with a stop at $69.50.

E*Trade

I had an awesome afternoon rally with ETFC having rode the express train from $4.05 to $4.64 before closing my intraday trading position. The day's high was $5.50 and it closed at $5.00. I took the profits and felt the rally had topped at $4.75 and would backtest $4.50, but I was wrong so I missed on another 80 cents. The "bankrupt" scare initiated by Citi Analyst Prashant Bhatia caused a 60% drop on 11/12/2007. Apparently the cash/share value is about $4.50 and the CEO was confident that they had enough money to cover a write down up to $1 billion. Also, takeover rumors swirling and strong premarket were strong. In sum, I expected a short covering bounce as the stock was oversold and the premarket gap-up signalled to me that the stock could have a very nice move in the day. I waited about 15 minutes after the open and got in at $4.05 with a stop at $3.95 which was perfect with support at $4.00. The bid sizes were incredibly huge in comparison to the ask sizes which was another indicator of a big move up. After the retracement from the day's highs, I decided to repurchase a position, albeit smaller, to hold overnight as a swing trade. I'm expecting a move to at least $5.50 and hopefully a breakout to most of the gap up to $8 which was left on Monday. Of course, another belly up comment from the financials overnight could hurt me and that's why the game is to limit risk. I'm setting my stop at $4.85 and will move it up accordingly. After hours has E*Trade at $5.24.

A lot of traders had predicted this short covering rally after 4 straight days of hard selloffs. I got caught yesterday trying to catch falling knives in JASO and TSL as both support levels at $50 were smashed without much of a battle. I also tried a bounce play at their moving averages, but their were no bulls in sight. Typically the 200 dma is strong support/resistance. Too bad it didn't hold true in these stocks. I got frustrated and was trading a bit emotionally at the close expecting a rally into the close, but the opposite happened and I lost even more.

Shorting Oil & Gas

The ongoing subprime mortgage woes and credit crunch has thrown some substantial hits to the market. All types of stocks have come down considerably including the hot momentum ones like gold, technology, solar, etc. People are selling off to lock in profits after a nice recovery from the August correction. I also took profits by selling some of my holdings on the first day of this ongoing correction which stands at 3 days. The QQQ was overbought, but until it showed weakness, I maintained a hold position because it had yet to breakdown from its rising channel. Eventually it started to flatten out and roll over which was a signal to take profits in case the market goes down on a potential reversal. A lot of good stocks were getting crushed on earnings, even the ones who exceeded expectations. I decided to leverage my portfolio as well by shorting the QQQ and DIG. The every so hot stocks such as GOOG, RIMM, AAPL, BIDU were getting ahead of themselves both on a fundamental and technical level. Their PEG ratios exceeded 2.0 with the exception of Google and the charts were going parabolic. When they break down, they often fall down hard. I bought the QID (inverse of QQQ) at $37.20 expecting to break the 50 dma which it did and then exited the position at $40.30 when my stop got triggered. It was oversold so I didn't re-enter the position and I also thought it would retest the 50 dma. The risk/reward was not in my favor to continue. However, crude oil has had an incredible run also and is the only thing that hasn't come down yet. I got in early by purchasing DUG at $39.84 and I still am holding it as a swing trade. $43 is my target to complete an inverse head and shoulders pattern. I am watching JASO as a bounce play near $50 for today or tomorrow as I expect it will touch soon.

How the PEG Ratio Works

The PEG ratio is an indicator for determining the potential value of a stock while taking into account its price relative to its earnings growth.

PEG = Price / EPS (earnings per share) / Growth Rate

ex. $19.91 / $0.70 / 15.0% = 1.89 PEG for EMC

The lower the PEG, the more undervalued a stock is. The higher the PEG, the more overvalued the stock. Convention says a security with a PEG < 1.0 is cheap while a PEG > 2.0 is expensive. The value of 1.0 is believed to be fair value, but it can be adjusted when comparing a stock to its industry. A low PEG expresses the lack of demand for a stock which can be explained for several reasons. A stock with a high PEG is generally beating market expectations to deserve a price premium. Be aware that these numbers do not project all aspects of a security like cash flow, balance sheet, etc.

PEG for Industry / PEG for Stock x Current Price of Stock = Theoretical Price of Stock Compared to Industry

ex1. $33.35 / $5.04 / 16.9% = 0.39 PEG for WCG
Industry PEG = 1.37
Sector PEG = 1.62
Market PEG = 1.44

1.37 / 0.39 x $33.35 = $117.15 for WCG

Wellcare Health Plans Inc. appears to incredibly cheap since it is trading at a huge discount to its industry, sector, and the market. This security should be worth about 3.51 times its current value if it were to equal its industry. However if you put it under the microscope, you will find out that the price has plummeted due to an FBI raid on 10/25/2007. The allegations of fraud, lack of transparency, and sentiments of fear has marked down the share price and for good reason. An investor of this security would have to consider the risk/reward. If convicted of fraud, then the stock could go to $0. If Wellcare is innocent of any wrongdoing, then the share price should go back to previous levels in time. Always do your homework and perform background checks on your investments.

ex2. $206.85 / $1.35 / 50% = 3.06 PEG for FSLR
Industry PEG = 1.49
Sector PEG = 1.49
Market PEG = 1.44

1.49 / 3.06 x $206.85 = $100.72 for FSLR

First Solar Inc. looks to be extremely expensive when paying about double for its growth. Perhaps the analysts have it wrong when predicting a 50% growth rate as the market may be suggesting a 100% growth rate. In any case, the stock is overpriced on a valuation basis and appears to be inflated by speculators. On a technical level, FSLR has become parabolic and is due for a correction to find support. Unless earnings catch up, the share price should go sideways or fall to meet up with "fair value."

In my opinion, both WCG and FSLR are bad investments. Although Wellcare Health Plans is uber cheap, the allegations of fraud from the FBI are overwhelming and it is not worth the risk to buy. On the other hand, First Solar is too expensive at current prices and would not be worth purchasing until it pulls back. However, its high growth rate and strong performance makes it a much better investment over WCG since the downside is more limited while the upside can be incredible.

Remembrance Day / Veteran's Day

I wish to pay tribute to all the soldiers who fought and sacrificed their lives during the wars to protect the interest of their families and countries. May they rest in peace.

Welcome to PEG Investing!

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