Friday, July 24, 2009

Update on Uranium One

As of the market close on the TSX today, Uranium One has broken above all of the short term moving averages. Another note is that the 20-day and 50-day EMA's are sitting at the golden cross position.

UUU Just recently announced record production for the history of the company and I think this should translate into some fairly sweet earnings come the Q2 announcement. I am expecting a Euphoric bounce on the announcement which will most likely take the stock to fairly overvalued levels.

This is the point at which I plan on closing out the position. I do like UUU long-term but I am still bearish on the overall markets in the medium term and I think that it will be available at a much deeper discount to NAV in the future.

Why am I bearish? Well, there is this:

Also the fact that, despite the dismal, horrific, terrifying on-par slide of the 500 companies listed on the S&P 500, the market is still rallying because of these "earnings surprises". I'm not particularly surprised, nor is their ANY WAY I'm buying it.

Mattel 2nd quarter sales sink but results beat estimates on Cost Cutting - emphasis added

Starbucks shares jump after anylists praise cost-cutting - 3rd quarter beats

Yum brands profit tops estimates but revenues slump

Ford posts profit after restructuring; Shares Jump

- and an excerpt: Ford Motor posted a $2.3 billion quarterly net profit, mainly due to gains from a $10 billion debt-reduction plan, and said it was on track to at least break even in 2011, sending its shares up 10 percent. (emphasis added).

I'm sure you, my highly intelligent readers, got the point at the first post. But you know what it's like to get on a role... :)

Anyway, there is a pretty freaking huge point the market is missing here - remember that markets over the long term are excellent indicators of underlying fundamentals but in the short term are extremely moody (see The Psychology of Trading Part I and Part II I wrote way back). These earnings are not based on sales growth They are not based on any growth whatsoever. Actually over 90% of companies reporting earnings reported a decrease in revenue.

All this means is that most businesses are cutting costs left and right (i.e. firing tons of people and hugely decreasing production to meet crashing demand) and that they've had some excess inventory they were able to liquidate.

And yet the price of stocks continues to rise. See, normally stock prices go up on revenue and earnings growth. This indicates that the fundamentals of the company are improving - they are gaining market share or creating new market share, there is healthy demand for their product or service, their management is doing a good job maintaining margins in a rising production environment, etc etc etc.

Hmm.... a touch different from the business climate of '009, isn't it...

Being a contrarian can pay of huge huge huge sometimes. Remember the top of the dot-com bubble? Even halfway up it? Imagine if you'd went short on Yahoo and even halfway up the mighty mountain of hype? Imagine if you'd bought long-term put options? When everybody runs one way it's often a good time to check out what they're leaving behind.

And that's all for now.

Happy investing folks.


Thursday, July 23, 2009

A Couple of Charts.

I was looking at the S&P 500 chart last night (courtesy of, and noticed that there really is still room to run in the upward rally from a purely technical level.

I honestly had thought that this rally was near exhaustion and reversal a couple of weeks back but it appears that there is room to run. So our long positions are doing very very well (for example, Teck Cominco, which I purchased back in December for less than $5.00 is up over $25.00 / share today!). I am still intent on holding my precious metals producers for the long term as there is just too much upside potential (despite the fact that most of the are up 300% or more already in less than 6 months).

On that note I will disclose that I am liquidating my Tck.b position today. Give me a sec.... okay, done. $25.81 / share at 11:46am. Given that the entry point on that trade was $4.83 / share I'd say we made out pretty nicely on that trade.

I think there might be a bit of upside on this stock in the very short term but I am totally uncertain how the market is going to react going into this fall and winter and I'd rather lock in my 520% gain instead of hold out for more to a bit of greed. Besides, it's trading right around Net Asset Value and it's not paying a dividend right now so I'm selling something I got at $.20 on the dollar for $1.00 on the dollar. This powder I will be keeping dry for the next leg down in this bear market so I can scoop up some other companies for the same discount.

Also I am still keen on Migao Corporation and Hangfeng Corporation, but am still waiting for a good entry point. I'll keep you posted on that.

Oh yeah, almost forgot - here's the S&P500 chart.

Keep in mind I'm using weekly candles and EMA's to paint an even longer-term picture.

And another chart I'll throw up is an update on one I posted a few months back. The famous Dow:Gold ratio chart. Remember that in all of the major recessions in the past the Dow has traded down (and gold up) to a level of 2:1 or less (It was 1:1 in the 1970s recession). Even though the Dow has broken the 9,000 level (and could run up over 10,000 if this insanity keeps up for much longer), we should begin to see a significant run to gold within the next 12 months as all of this highly (translate: Insanely!) inflationary activity by the Federal reserve robs the dollar value of all you hard-working savers out there.

Once gold gets to a certain price point it will be out of reach for a lot of small investors. Where do they turn? Silver of course! I personally have a much much heavier weighting of physical silver in my savings than of gold for this reason. Also the fact that there is actually 1/6 the amount of purchasable, physical silver for investment compared to gold. This is because silver is so widely used industrially.

Anyway, that's it. Here's the Dow-Gold chart for all of you chart-o-philes out there :)

Feel free to flip an email if you have anything you'd like a second opinion on! Cheers!


Sunday, July 19, 2009

And something else you should see.....

Jim Rogers recently announced that for only the second time in his entire investing career he has NO SHORT positions. This is due to his reasoning that governments are printing so much money that inflation will cause asset values to rise across the board (although slower than their inflation-adjusted dollars are relatively valued).

This might make you shake in your boots if you are holding USD's.

Do you still think the talking heads on MSNBC calling for a "Japan style recession" know what the hell they are talking about?

Thanks to anarchyjapan for the chart.

Oh, and please pass this video on to everyone you know...

Broken Head and Shoulders???

In my last post I wrote about how the major US indexes had broken below the neckline on a strong head-and-shoulders pattern. Generally this indicates a significant move to the downside.

However what we have seen since then is a few earnings "surprises" that have bolstered the markets and caused another run-up in price off of the neckline. Here's a chart to show you what I mean.

A few points to note:

  • RSI is sitting in overbought territory already on this upward move. It is at the same level it was at on June 8 where the price was establishing the top of the head at 950.

  • MACD did just flash a buy signal which could be either a short-term run-up or a long term reversal in the downward MACD trend.
  • This reversal has still not made it up to the top of the head and broken through at 950 to confirm a true pattern reversal.
As I wrote in my last post, a head-and-shoulder is one of the most reliable patterns in trading. But even the most reliable can go against you from time to time. This is why stop-loss points are extremely important in your trading strategy.

A similar situation occurred last in December of 2007 when I first started this blog and was following the price of oil. A nice head and shoulders pattern formed in oil and it looked as though it had room to drop at least $15 - $20 per contract based on previous chart activity.

However even though I took out a position in the Ultrashort Crude ETF, I had a tight stop at the head line of the pattern. I also wrote that if a head and shoulders pattern is able to break through the top of the head line definitively that generally a new uptrend has been formed and you are better served to take out a long position instead of holding a short that could run very far against you.

In that trade I lost a small amount on my short stop-loss but went on to gain over 8x that much in the ensuing long trade as oil ran from about $90 / bbl up to $140 / bbl (I booked profits at $135.00)

The lesson here is that as a trader you should first trade with the overall fundamentals of the economy. But you need to maintain a rational approach and never favor one side or the other of a trade except based on hard evidence that is presented to you by your charts and data.

Currently I am very very bearish on the US economy (which I'm sure if you've read even a couple of my posts you can tell). But the market is not always as prescient as people believe and can often be skewed mid-term by a wrong shift in psychology. Just look to the housing bubble and the dot-com bubble.

But the market IS efficient long term and does price in realities and will hit NAV at some point. The technicals will be your guide as to when that is about to happen but if you can play a swing trade against your core gut belief because everyone else is high on euphoria, then play the evidence.

Remember that is is often more an effective and rigid system of trading and execution that make the few money-makers in the market. The only time to pay attention to your emotions is to realize that your emotions are part of the larger group of suckers out there and that if your emotions are telling you one thing and your head is telling you the other, trade with your head. The stronger those emotions are pulling at you, the bigger chance you have of making a highly profitable trade by ignoring them.

Happy investing all. Remember to keep a core position of hard assets and companies that deal in them. The US government just surpassed the $1 Trillion mark in deficit and there is most likely at least another $1 Trillion to go THIS YEAR. This money is not generated through savings but printed by the Federal Reserve, and is debasing your cash savings minute by minute. Protect your wealth.