4/26/12

I don't trust this rally yet. But, here are a couple ideas. 
Capstone acting hunky so far....
And Molycorp may be a tentative buy at this level on the basis that there was a good little decline and the volume remained low. Not much selling. Accumulation?? We'll see.
Long silver again.

Never add to a losing position....
gh

Here is an idea!

Every once in a while as I'm sitting in front of the computer screen watching the markets and watching CNBC a idea comes along that seems right. Usually if it is presented on the TV I am skeptical from the outset and that was no exception today. But when they mentioned Capstone Turbine my ears perked up because this stock was a favorite speculative stock of mine a few years ago. Capstone Turbine makes "micro-turbines" that are fueled by Natural Gas and generate electricity. When energy prices are on the rise this stock used to do well. I see that now it has been in a range for some time. Well, NG prices are declining with no end in sight. Electricity prices are rising with no end in sight. And on the CNBC interview today the CEO of the company mentioned that they can generate electricity at $.03 per/ Kw.
That is cheap. They talk about getting orders from the operators in the shale gas production areas who want to use the gas available to generate their own electricity.  In the past these turbines have been used by universities and hospitals to generate onsite power. So on the surface there may be a good story here.

Whenever something stimulates my interest in a stock I immediately bring up a long term chart. It is important to look at the long term prices to get an indication of the potential for price movement. When I look at a longer term chart I notice that CPST has been weak over the years, which is why I quit trading it some years ago, but lately has been in a sideways range. At the very least when looking for a bottom in a stock a range is a good indicator. The fact of a trading range over a period of time means that the sellers have had many opportunities to sell if they wanted to. It also means that that selling must have been met with some buying since the price has stayed in a range, and didn't collapse under the selling. A long term range has also probably persuaded the "bottom pickers" that it isn't going anywhere and they have given up. Maybe.
The problem with a stock being mentioned on a national newshow is that the publicity will cause a surge in volume. This may be the opportunity that a large holder of the stock was waiting for to sell. Or it may just be that a large holder will take the opportunity to get rid of stock that they weren't that fond of. In any case publicity is often a mixed blessing.
But here are the charts. The stock has been in a range for awhile. Very good volume on the upmove today. There is room to run, maybe... And the story does make sense although I would actually feel more confident if the stock had already been in an uptrend for some time! But, I bot some today.....

The last factor that must be considered is the general market conditions which have been weak lately. Although sometimes these really small stocks can evade the general weakness. And there are always those that go up in a down market just by virtue of the particular story. We'll see.

No big losers. Control risk........
gh

watch this

Bill Moyers here.
I got this from Jesse's Cafe Americain blog.
Watch it here, or better yet visit Jesse's blog. (See sidebar)

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What does "the market" think of the news.....

Yesterday a headline crossed on Bloomberg that the CME had LOWERED the margin requirements on gold and silver. Today those are weak. When they raised them those markets had a serious downdraft. Yet no lift with that news today.

This morning Jim Cramer announced that he will be talking about Clean Energy (CLNE) on his show. No lift in the price of that stock. Usually we see a strong upmove, at least for a while, with such pronouncements. Not today.

The usual bull items aren't working.

It is important to try to gauge the "sentiment" of markets to trade successfully. One way to do that is to see how they react to news items.

AAPL down today. Taking the QQQ with it............

gh

The Euro may fall

The Euro currency is in a long term downtrend although has been holding up lately. I see a "head and shoulders" pattern on the Euro chart. The H&S pattern is in the context of a long term downtrend so I expect the pattern to complete itself by breaking through the "neckline" and continuing the downward trend of the Euro. When the Euro make a sharp break it makes the US Dollar strong and that is usually bad for the US stock markets. (A strong dollar buys more stocks, so it takes less dollars. And a strong dollar inhibits US exports).
The US stock indexes have been getting choppy lately. They often get choppy in a prelude to a down move. We'll have to wait and see......
More government debt problems probably on the way. We will get our turn someday!

Here is the chart:

Control risk,
gh

Here is a thought....

Markets were down sharply yesterday to continue the recent downdraft. Spain was in the business news with attention paid to recent increases in interest rates on government debt. The bond investors are dissatisfied with the prospects of a bankrupt Spanish government. But overnight Spain's leader re-iterated his commitment to austerity measures. Meaning he is amenable to reducing the government spending and debt. This means putting more load on the poorer people in that country. Poor people who have come to depend on their governments in recent years are going to pay the price as they usually do. The rich get richer and the poor get poorer. But if we CUT the taxes that the rich pay they say they will create more jobs. Well, in this country the taxes on the rich were cut dramatically nearly ten years ago. Where are the jobs? Oh, its the "uncertainty" now. When things like this pesky president are gone, then the rich will get about creating jobs. Yea! The fact is that business will not create jobs until they can see a clear chance of making a profit. They don't put people to work out of the goodness of their hearts. And since the poor and working class have less money than ever I don't know who business would sell products to. Except Apple of course, who seem to have found a gold mine in worthless gadgets to sell the public. So we can play video games while we sit on our arses. Oh, we can get our e-mail at all times too. So those of us that ARE working can never leave our work. We can do our work 24 hours a day. Very productive. I wonder just what percentage of these devices that AAPL sells actually contribute to productivity. Mostly I see people sending cute pictures to each other while they are supposed to be being productive.
But I digress.

We have seen Ireland, Iceland, Greece, Spain and Portugal mentioned as candidates for impending government bankruptcy. The first three have "worked things out". Meaning they have taken measures to allay the fears of those holding their debt. In Icelands case the people of that tiny country actually told the debt holders to shove it. But the rest of them are following the script and putting additional taxes on the people to give to the bankers holding the debt.
Over the last decades business has benefitted from the economic stimulus of low interest rates and govenment debt spending. I think of a successful business as a seine the catches some of the money that is flowing by. The net is cleaned and the profits are pocketed. Over the decades the amount of "pocketed" money has only grown. This is the money that is put in a safe place. And the safe place has been the bond markets. And this is in part why interest rates have remained low even as economies were going strong. And this huge pool of money that is "chasing yield" is why the derivitive instruments that contributed to the real estate bubbles were created. And why money was lent to sub-prime lenders that should have never been permitted to get in debt. This money is trying to find a safe place, and creating problems in the process.
But increasingly it is becoming apparent that the size of government debt is on an unsustainable path without economies that continue to grow. And "big money" wants to make sure they get their money back. And money is what buys elections. Hence the movement to cut "discretionary" spending and "entitlement" spending by governments around the world. And the movement to raise taxes, particularly on the little people. Since much of the debt of the small countries in Europe is owned by large holders who are not from those countries, taxes are being raised on business in those countries despite the objections of some of the richer citizens of those countries. It is a foregone conclusion that those economies are in for a long slow period of time. This slowdown makes it more difficult for the other countries in the world that do business with them to sell things to them, and so slows to some degree all world economies. And this puts additional strain on governments around the world. But slower government spending reduces the amount of money that is being created and spent in an economy, so the circle is self-reinforcing: less money circulating in an economy means less money to be made by business, less money that people have to spend. This is all a continuation of the cycle that started back in 2007 when the property markets stalled. The debt and money markets take a long time to adjust since money keeps looking for a safe place and going from one set of assets to another. Losing a little each time.
And in my mind it all comes back to the availability of energy. I believe the break in the property markets was precipitated by energy prices. As I remember oil was hitting $140 a barrel back then and the bond market was set to go through a floor, interest rates were starting to rise. Energy is the driver of economic activity. High energy prices are the tax that slows things down, not the taxes that governments collect and spend. And the prospect of slower growth or non-existant growth is what makes the banks reluctant to lend. Particularly with interest rates low. The risk of non-payment is too high for the return ON the money. So big money seeks the safety of government debt, but that safety is fast fading.

Yet we all are fixated on the government debt. But we can't raise taxes on those with the incomes or those who hold all the money because they have bought the conversation with their lobbying moneys. We could balance our governments books by raising taxes and cutting spending on some of the largest outlays. The government spends the money it collects. That money is re-circulated into the economy. To be caught in the net again. The gains in GDP of this country over the last 30 years have been through the creation of debt. And that debt created money has been reloaned. Now it is coming time to stop creating debt due to a lack of growth in the world economy. Yes, some countries have been growing, but at the expense of growth in others. China will have a hard time growing if the U.S. doesn't grow, etc...

And why do we expect "growth". We expect growth because that is the only way a debt-based system can function. Debt creation is money creation. Debt must be re-paid plus interest. Growth in an economy is needed. And economy grows by increased economic activity. Economic activity is activity by people. Economic activity happens when people drive and shop and make things. And all of those are driven by hydrocarbon useage. The rapid rise in world living standards and economic activity is directly correlated with the useage of hydrocarbon fuels. Starting with coal in the 18th century and oil in the 20th century. Each was more economic to use than the former. What is next? Natural gas will play a role. It is plentiful now with the new methods of recovery. But it is not as convenient as oil. It is not as amenable to transportation. And that will pose problems for consumer economies. And to the extent it is used in manufacturing it will create pricing problems and oversupply.
And finally. The specter of inflation has been held over the markets for how many years now? Inflation is needed for people to get out from under their debt. Yet money is created by the creation of debt. And debt depends on growth. And cheap energy is neccessary for growth. Therefore, counter-intuitively, high oil prices are deflationary. Initially they were inflationary, but that was as governments had the leeway to create debt/money. Now we are tired of all the debt. The tax of energy has taken the risk taking impulse out of the consumer.
gh

Here is the news.

On March 29 I posted that I thought I saw signs of insider buying in MolyCorp. Well, here is the news

"Molycorp Inc. (MCP, $35.30, +$2.11, +6.36%) said its proven and probable reserves of rare-earth minerals at its flagship Mountain Pass, Calif. facility have increased by 36%, according to a new independent estimate."

. Still a good looking chart..........

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OMG! Another crisis

Well here we are with another "crisis" looming. For the last couple days CNBC ("the first in business news") has been warning of another crisis coming in Spain! OMFG!
Seriously, there may be some merit to their warning. But I have to wonder why there will be a world economic crisis due to something that has been on the radar for at least 2 years. Ireland and Italy and Spain and of course Greece have been a topic of conversation for what seems like forever. I don't think that the BIG money has been asleep during the last few years and so I doubt that a crisis in Spain will take anybody by surprise. The world is wary of risk and should be in light of the events of the last few years.
For these reasons I doubt that there is much risk of a systemic crisis due to the debt in Spain. There may be some banks somewhere looking for some more free money from the taxpayers but I doubt a credit event.
Of course after the rest of the world works it's way through their problems then it will be our turn. But that is a political debate that I won't get into now!

The risk trade in gold continues to unwind so gold is down over the last weeks.....
The FED minutes yesterday gave a signal of higher interest rates, or at least a lessening of the push to keep interest rates low. So bonds should go down to a "normal" level. And if money is coming out of bonds it has to go somewhere and the other broad categories are cash and equities. ???
Iran and oil is still "out there". The news mentioned an insurance company that will no longer insure ships carrying Iranian oil.....

But I continue to think that the underlying support for the U.S. and world economies will be the increased availability of natural gas. NG is a cornucopia of cheap energy that will be exploited over time. And energy is the basic input to a modern economy. Energy is the source of wealth and prosperity. And a sustainable relatively low cost of energy will translate into increased availability of money through lending and credit which will feed through the economy and cause a general rise in the velocity of money as people get about doing something. As mentioned in an earlier post, consumer sentiment continues to be on the rise despite all the bad news and that is a very positive sign. Cheap energy fuels consumption so basic materials should see some demand even if it is less costly to mine.

For now.......
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AIG looking good

I bought some AIG last week on the apparent strength. This stock continues to look like a buy. And as an example of what to look for it is a good example. The general market is down sharply today and AIG is very strong. This is a good indicator of future performance.

The charts:

control risk...................