THE TECHNICAL CASE FOR AN 80% DROP IN RGR OVER THE NEXT 12-18 MONTHS
RGR has been a hedge fund hotel of the short variety for sometime now. More than 40% of the float is currently short, which has resulted in a rather vicious squeeze to take place in 2012. That squeeze has culminated in what can be classified as a "blowoff top" that is rounding out and continues to see continued distribution, while it sits on top of a generational trajectory point dating back decades. It is a picture perfect top that deserves to be capitalized on. Here is the first chart. A long-term look at RGR: click chart to enlarge And this is a shorter term look at RGR via the daily chart: A break above 55 is where this analysis is invalidated and the trade should be...
6 CHARTS THAT POINT TO A CHANGE IN BEHAVIOR FOR THE MARKETS DURING NOVEMBER
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3 REASONS WHY THE MARKETS ARE GOING NOWHERE FAST
While we may be coming up on an inflection point of short-term significance with respect to the markets, it is not a point where one will be justified to increase equity exposure exponentially. The legs of the market have been broken by a 300 pound thug with with a swing like Barry Bonds. It will take a considerable amount of time before the market has the wherewithal to stand on its feet, taking all comers. There are a number of factors that signal the market is not yet prepared to put the recent bearish behavior behind it, for an intermediate to long-term run at the upside: 1. Bottom pickers: If picking bottoms only leads to smelly fingers, then all of Wall Street must stink, at present. There are far too many individual and institutional investors who have become perfectly content with not looking at the potential for downside, but rather focusing on when a bounce will occur and how large its potential. This type of mindset becomes problematic especially when the markets have suffered significant technical damage in important indices such as the COMPQ, NDX and SOX. In 18 years, I have not seen a single bottom of significance take place when a majority of the focus is on capitalizing on the bounce rather than protecting from further downside. Invariably, this mindset absolutely needs to reverse before the bottom everyone seems to be waiting for can take place. 2. Technical damage: There is far too much of it across major market averages. I have outlined how we were in the process of failing at important generational trajectory points over the past few weeks. The type of technical damage we have experienced resolves in one of two ways: A. Panic to the downside resulting in high volume rinse. Capitulation, in other words. B. A prolonged sideways range that slowly causes the entrenched bulls to give up their optimism. I happen to think we will see a resolution with B over the next few months, rather than A. 3. Earnings shock: The earnings that have been reported during Q3, along with Q4 guidance are not going to support a prolonged rally until some of the variables start becoming less murky. Based on the caution expressed in nearly every conference call as of late, you can expect that October was a weak start to Q4. November will likely be just as weak until the uncertainty of what the elections mean for the United States and the world start becoming more apparent. It will likely be December before investors can accurately gauge whether the markets have become "investable" again based on available data. This sets...
HOW 1987-1992 MAY PRESENT THE HOLY GRAIL FOR THE CURRENT MARKET
This correlation study follows two crashes in relation to the exact same trajectory: 1987 and 2008. A break of the exact same trajectory point triggered both crashes. Both crashes were similar in scope. Both crashes moved right back up to the trajectory in a similar time frame. Both corrections following the rally off the lows were similar in time and price. Both rallies off the lows ended up getting pinned to the trajectory. The future potential of the current market becomes clear only when looking at the similarities of the past. Here is the study: click chart to enlarge What did the future hold for the Dow following the traumatic events of 1987, the subsequent rally back up and the seeming stalemate as prices became glued to the generational trajectory? One of the greatest bull runs of all time started some years later in 1995. Here is a look from the point at which the last chart ends: And finally, what all of this means for the future of the...
RANDOM MUSINGS OF A PROLIFIC NATURE
I haven't been doing much other than reading during the trading hours as of late. This isn't a market I have an interest in participating in for a variety of reasons that I have done my best to outline here over the past several weeks. I'm still sitting in a net neutral position, which means I don't really have to participate in the market until I lift my hedges. That is IF everything goes according to plan. Hedging is more an art than science. Chaos can and will appear when you least expect it. I have actually been increasing my exposure to WMIH this week. It is the only stock I am absolutely comfortable holding here since it has no correlation to the general averages, no business model to rely on for revenues and is essentially a shell until the board, along with Blackstone, figure out how to capitalize the company in an effort to utilize the NOLs. My research report on the company is here. The general market isn't really "investable" here. It will, more or less, be a mess of volatility for weeks, possibly months to come. It is the type of environment where the best you will be able to hope for is a tendency towards consistency of the unchanged variety. Consistent upside is virtually out of the question. Consistent downside is a significant possibility. When the best case scenario consists of hoping for an unchanged outcome, I would rather participate in cash as an investment, as I have done to a great extent in the portfolios during October. I don't think that enough attention is paid to the maintenance of emotional equilibrium for investors. Once you have been involved long enough, you will begin to discover what it is that takes you out of your equilibrium. This is, perhaps, one of the most important discoveries an investor can make, as it determines the structure of their investment philosophy going forward. There are those who will never discover this key concept, trapping themselves inside the spiked walls of purgatory within the financial markets for the remainder of their existence. There are also those who will simply ignore what they feel to the detriment of their pocketbook. You cannot be what you are not in the markets. It creates a hole that will always be susceptible to anomalous periods that will end up dissolving your strategy into acid. The goal is to have no holes. Plug them before they eat you. I was very impressed with FB earnings after the close today. You have to commend the company for so quickly adapting a mobile strategy, creating revenues that are already up...
4 CHARTS THAT CONFIRM THE BULLS HAVE HAD A VISIT FROM THE GHOST OF JUAN BELMONTE GARCIA
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AAPL: A DOWNSIDE PRICE TARGET BEGINS TAKING SHAPE
On October 7th, I posted a short-term analysis of AAPL stock price - as it sat above 650 - questioning the price structure, ultimately painting a bearish picture for the stock going forward. As we are well into the second half of October, the stock price has sunk to below 610, threatening the 600 mark right before their earnings release this coming week. Here is a look at where AAPL may be looking to touch from a technical standpoint. Don't get your panties in a bunch, but we still have a ways to go on the downside. click chart to...
PXLW EARNINGS BREAKDOWN
Upon looking into the PXLW numbers extensively, as well as listening in on the conference call, I can clearly see why the stock tanked afterhours. It has nothing to do with Q3 and everything to do with Q4 guidance. Here is the breakdown: - Towards the end of Q3 business started tailing off, which has become somewhat of a theme for all technology companies during this earnings season thus far. - Overall book to bill for Q3 ended below 1. - 5% sequential revenue growth, but down year over year. - Positive product news in that PXLW newest chip is in the new, cutting edge LG 84" ultra-high def display. Ultra-high def will replace the current HDTVs out there. Unlike 3D TV, it won't bomb either. PXLW seems to have a leg up in this segment of the marketplace. Only problem is that significant revenue creation from this trend is still more than a year away in my estimation. - Q3 margins declined both sequentially and year over year. - Adj EBITDA was up both sequentially and year over year. - PXLW generated $1.4 million in cash during the quarter, increasing cash on hand to $15.6 million with zero debt on the balance sheet. Now for the really rough part: It seems as though the end of Q3 made management extremely pessimistic. Again, this has been a pretty consistent theme among companies so far. PXLW is certainly not immune. They forecast Q4 revenues to be in the $13.5-$14.5 million range versus revenue of $16.3 million in Q3. A 14% decline in revenue sequentially. They are also forecasting further margin compression and higher expenses. That leads to a forecast for a loss of between .12-.23 cents per share for Q4, versus a .02 cent per share profit in Q3. This is a pretty dramatic turn versus Q3 results. I believe it is a short-term blip, as the company does have a history of volatile results from quarter to quarter. It will nevertheless be painful to the stock price over the short-term. PXLW will likely settle into the 2.30 - 2.50 range for the foreseeable future. Outside of positive macro catalysts changing the global outlook, I believe the company has lost whatever momentum it had gained recently. On the positive side, there is very little downside risk below 2.30. Certainly a long-term value play as well as a play on their leadership position in a cutting edge technology driving the company much higher in 2013-2014. Into the end of 2012, however, PXLW will likely be dead money in the 2...
A PRICE MIRROR ON THE NASDAQ TO CONSIDER
As those of you who have been following along during 2012 know, I have been rather steadfastly bullish for a great majority of the year. I was reluctant to change my opinion with respect to the market, not due to any profound fundamental insight I had, but rather due to the fact that the market had displayed a rather elegant propensity towards simplicity in its daily and weekly price patterns. Volatility had been contained. There were few sudden jolts that had the potential to shake confidence. The market reacted at points where it needed to react, ignoring points that should have been ignored. Bad news was turned on its head and greeted with rallies. This all changed recently in rather dramatic fashion as I began sounding warning bells about the markets in late September. Those warnings have only grown more consistent since then, even in the face of the recent short-term rally we have experienced so far this week. My primary concern lies with the behavior of both the Dow and Nasdaq at the most critical of critical technical points. Each of their respective generational trajectory points are in play here. These trajectory points have been responsible for the resistance on the upside since 2010. These trajectory points also have a very distinct effect on the market when they begin asserting their influence: The price patterns become choppy. The rallies start becoming less predictable. Leaders begin failing. All of the things we are experiencing here and now. Below is a chart to further illustrate the point: click chart to...
WHAT YOU SEE IS WHAT YOU GET
I'm going to provide further clarity into my change in bias regarding the markets tonight. I have been sounding these warning bells for roughly 3 weeks now, with a best case scenario of a choppy market ahead over the intermediate term. Mid-way through September I had a strong upward bias for the market. These biases are prone to changing on a dime, as they have, when a set of circumstances arises that are in direct contradiction to my prevailing bias. I don't wait for the trend to turn, like a majority of those who analyze the market consistently, before I put out strong opinions...usually against the prevailing trend. Some important turning points from the past 12 months to demonstrate this tendency: June 2012 - To the confusion of many I turned bullish a week ahead of the bottom, explicitly stating that it would be the bottom for the remainder of 2012. http://www.zenpenny.com/wp-content/uploads/2012/06/SPX.gif January 2012 - I suddenly and unexpectedly took an aggressively bullish position on the market, after being conservatively bearish for a number of weeks starting in December http://www.zenpenny.com/wp-content/uploads/2012/01/dj-301.gif October 2011 - Probing for the bottom in September with a stated max downside target for the S&P 500 of 1080, caused me to go on a buying frenzy on October 4th (exact day of the bottom) http://www.zenpenny.com/running-four-deep/ All of these decisions were misunderstood by readers at the time due to the prevailing bias being so strong and the structure of the markets appearing as weak (or strong) as it did. There were, however, strong indications of a change in trend that were being telegraphed by a potpourri of small clues littered in dark corners of the market where nobody bothers to look. I see those same clues here. That doesn't mean the Dow can't poke its head above 12,700 before falling. This rally may last another week. Entirely possible. I am not playing this market for one week rallies, however. I want points where the risk/reward is maximized in one way or another. At this point, I believe that risk/reward is slanted heavily to the downside. A few days of green won't change...