Monday, February 28, 2011

First Trading Day Of The Month - Voodoo Statistics

Here's a few quick stats...
  • The first trading day of the month has been positive for the last 7 consecutive months.
  • 19 out of the last 23 months (83% of the time) the first trading day has been positive.
  • Of those 19 days the average gain has been 1.3% in the S&P 500.
Here's a few other things to think about...
  • Once every joker running a free blog is aware of a trend, the trend just might be over.
  • Of the 4 out of the last 23 months where the first trading day was NOT positive, the average loss was 1.7% in the S&P 500.
  • The pattern over the past 23 months has gone: 5 UP, 2 DOWN, 7 UP, 2 DOWN, 7 UP (I don't have data beyond 23 months, so the initial 5 UP could actually be greater - I don't know).
The point of the above is that if you're looking for a pattern, then maybe you should be expecting the first trading day for March and April to be down, not up (i.e., 7 UP followed by 2 DOWN). And based on the average down days, you might consider preparing yourself for a 1.7% decline, or a drop of  22.5 points based on yesterday's close in the S&P.


Another way to look at things is that if you average the first day of the month with the last day of the preceding month, the average gain has only been 0.2% over the last 23 months. Considering the S&P posted a gain of 0.6% today, statistically we should be looking for a loss of 0.4% tomorrow, or about 5.5 points on the S&P.

Alternatively I suppose you could just flip a coin. But I've got my S&P hedges on just in case...

Sunday, February 27, 2011

Natural Gas: Weekly Storage Analysis and More

Natural gas inventories declined by 81 bcf for the week ended Feb 18. Near record temperatures observed in the northeast during the latter part of the week saw demand for natural gas weaken during the reporting period.

The 81 bcf draw compares to a draw of 233 bcf in the previous week. The same period last year saw a decline of 175 bcf, while the 5-year average is decline of 149 bcf.

Total working gas in storage now stands at 1,830 bcf, 48 bcf less that where we were at this point last year, and 61 bcf below the 5-year average. 


While inventory levels remain healthy, it's a refreshing change to see inventory levels no longer nearing or making new record highs. Part of the credit certainly goes to the cold winter we've experienced so far this year. I'll need to do some additional research to see what other factors may be impacting the supply/demand balance, but there are some signs that industrial demand may finally be picking up a little.

And while natural gas prices still remain stubbornly near multi-year lows, there are a number of fundamental factors in favour of the bulls:
  1. Market sentiment remains solidly bearish.
  2. All things being equal, triple-digit oil prices make current natural gas look cheap on an equivalent-BTU basis. 
  3. Inventory levels are no longer at record high levels.
  4. The 2011 Hurricane Season is only 3 short months away, and early forecasts are calling for a 40% increase in Atlantic hurricane activity vs. the norm. See Tropical Storm Risk for the full forecast.
  5. Longer term, the possible role that natural gas might play in North America's energy plan needs to be considered.
  6. Finally, look at natural gas names like ECA, HK, DVN, CHK, SWN, RRC. All of these stocks have been rallying even as natural gas prices are near recent lows. That alone tells me we are not going to see a 2-handle on natural gas prices as some are predicting.   
The biggest thing going for the bears (and it's a big one) is supply. Shale gas has changed the supply/demand dynamics in North America for the indefinite future. But that at some point you have to think that this supply has been priced into the market. And with environmental concerns, higher shale depletion rates vs. conventional wells, and the fact that many of these shale plays are simply not economic at prices under $6/mmBTU, the recent supply of shale gas we've become accustomed to could begin to slow in the near future.

Technically, the natural gas contract put in a big reversal off the lows on Friday. And the fact that natural gas was unable to sustain any kind of move lower after the -81 bcf release on Thursday has to be looked at as bullish. From a risk/reward perspective, I like the idea of playing natural gas from the long side over the next couple of months as long as last week's low holds.


I remain long HNU.TO from 4.92 and HK from 20.45. I took some profits on 25-30% of these positions on Friday to reduce the risk a little and improve my average, but I think the chances are good they both see much higher prices over the next couple of months. I also particularly like DVN and may look to initiate a position in the 88-89 area if I get a chance this week.


UPDATE: Clean Energy - Last Year's Trade?

My original post was written Feb 13, 2011, shortly after Congress proposed deep cuts to clean energy funding.

At the time of writing, there were no near term catalysts that were expected to give clean energy any type of  boost. However shortly after writing the article Libya blew up and WTI oil prices subsequently spiked. Triple-digit oil prices suddenly make alternative energy plays like CLNE or WPRT much more attractive.

Those who follow me on Twitter were notified when I covered my shorts in WPRT and CLNE. On Feb 17 I covered my WPRT short @ 15.81 for a 8 cent loss and on feb 18 I covered my CLNE short @ 11.96 for a 12 cent profit. Within days both of these stocks screamed higher along with global energy prices.

Chart: WPRT



Chart: CLNE



I was fortunate enough to cover my short positions in each of these stocks, which saved me from substantial losses.

This highlights 2 important lessons:
  1. Never become married to a position or a trading strategy.
  2. When the fundamentals or the technicals change - get out of the position.
The unfortunate thing for me is that I recommended both of these stocks as potential longs in my first blog post on feb 1 when the Egypt turmoil first began. But obviously I was a little early on that one...

Friday Recap - A Much Better Day

I posted on Thursday that I had my worst trading day in recent memory.

I didn't make any major mistakes, the market wasn't crashing, and my positions were fairly well diversified. It just so happened that virtually EVERY long and short position I had was down a couple percent or more. Statistically that is just going to happen every now and again. As a result I suffered a loss of almost 3% of my entire portfolio.

I reacted the only way I could, I cut back a few positions on Thursday to reduce my overall risk.

It's amazing how much of a difference a day can make. Friday saw my entire portfolio recoup about 2/3 of Thursday's losses - even after closing some positions on Thursday for losses. My trading accounts actually recouped 100% of their losses (some of the longer-term accounts were still down a little over the 2 days).

The lesson here is, when the markets are kicking you in the teeth don't panic and don't try and make it all back in one day. The worst thing you can do is double up and add to a losing situation. Almost as bad is to panic and sell everything you hold.

By cutting back on some positions that were bleeding, I was able to increase my cash position enough to feel comfortable initiating new trades in HK and HNU.TO later in the day. Those two trades were up 6.0% and 7.1% respectively on Friday.

The end result is I'm back to being in the black for the month, and my streak of 9 consecutive winning months appears to be intact.

Thursday, February 24, 2011

Shit Happens...

There's nowhere in the official "Trader's Rule Book" that says that even if you follow the rules you won't get smoked every now and again. Anyone who doesn't believe that can come and take a look at my trading book today.

I somehow found a way to lose almost 3% of my portfolio today - the single worst trading day I've had in over 6 months - on a day where the markets were basically flat. This brings my P&L back to flat for the month so far. My streak of 9 consecutive positive months is also now at risk.

Scrolling down my P&L speadsheet all I see is red. With one exception, none of my positions represent more than 5% of my total portfolio. I have some long positions, some short positions, some gold, some natgas, some tech, some energy, some currency and some cash. Some of these are trading positions, and some are longer-term holds. But just about every one of them found a way to lose 2-5% today. The way the day went, I wouldn't have been surprised to see my cash losing 3% as well.

I haven't done much in the way of trading this week. A couple small trades here and there. And for the first 2 trading days of the week the portfolio worked well enough to post small gains each day. Today, for some reason, everything fell apart.

Sometimes you just have to throw your hands up in the air and say, "Shit Happens".

I reacted the only way I could. I covered some positions, and scaled back on others. I have been long gold and short EUR/USD for a while now (effectively net long gold in euros). The gains in my gold position have been pretty much offset by losses in EUR/USD. Today I covered the EUR/USD short but stayed long gold. I also initiated a short bond position via long $TBT @ 20.29. So if gold continues to fall tomorrow and bonds rally expect to be reading "Shit Happens, Part 2" tomorrow.

Time for another drink...

Tuesday, February 22, 2011

Just Say No... To Buying The Dip

I recognize that just about every dip since March 2009 has been a screaming buy. Since that date the market rallied over 100% and decimated short sellers at every turn along the way. If fact, the market got so efficient at killing shorts that they should probably be classified as an endangered species today.

But there are a number of signs that suggest to me that today's "pullback" may be different. Less than two weeks ago fund manager Whitney Tilson covered his high profile short in Netflix and sent a letter to investors vowing to stop shorting similar stocks in the future. And there are a bunch of floor traders I've seen interviewed on CNBC recently that have been bearish since 2009 and have just recently turned bullish. Earlier this month I heard more than one of these guys saying something like "everyone knows me as being a long term bear, but as of today I am now bullish stocks". Really? You were a bear as the market moved almost 100% against you, and now you want to buy? Are there any real bears left out there? Does this not feel an awful lot like the dot.com top in 2000?

I have been particularly nervous about this market over the past week or so. Scanning charts is a nightly ritual for me. I do this every night to look for potential setups and trade ideas for the coming days. But over the past week, while the overall markets continued to march higher, many individual stocks have been showing (some screaming) warning signs. Gap downs, bearish engulfing candles, bearish momentum divergences and slow grinds below short-term indicators like the 20 day moving average.

I tweet all of my trades on twitter, so those who follow me know I have been actively cutting back long positions over the past week. Names like AAPL, AIXG, HK, TBT to name a few.

However, while I sold off individual names, I was reluctant to short the S&P outright as, quite frankly, it just kept going up. As well, I have been patiently waiting for a "melt up". That one day, where the Dow rallies 200-300 points, as the final denier throws in the towel and goes long stocks. To me that would signal the "all safe" sign to jump in and short the S&P 500. From a technical perspective I have been eying the 1355/1360 level as a possible top.


In the meantime, in addition to cutting back longs, I have been getting long gold (Time To Go Long Gold Again?), shorting EUR/USD (EUR/USD - Short Trade Back In Play) and shorting Brazil stocks via the EWZ (The Short On Brazil). Not all of these have gone my way yet. In fact only the gold strategy is currently in the money. But these are longer-term strategic plays and I am willing to give them more room to work than my typical trades. And I also look at all of these as proxy-hedges against an overheated US stock market. The idea being that each of these strategies have merit in their own right, but would likely perform even better should the US stock market start to stumble.

There are other reasons to be concerned here. We are getting close to the spring where "Sell in May and go away" may come into play. In fact, we could start to see people attempt to pre-empt the May selling and start selling in March/April ahead of that period. And everyone knows that Joe Retail Investor missed much of the last 100% rally. This Feb-Apr period could see the remaining retail investors on the sidelines finally jump into the market as deadlines for IRA and RRSP contributions approach. After this final bout of buying I have to wonder where the next round of buyers are going to come from.

I can't say with certainty that today marks the near-term top in US equities. It is entirely possible that we still get that one last melt-up and test 1355/1360 in the S&P500 over the next few days/weeks. And I'm still holding a small handful of longs (like SIO.V and SNE) regardless of my overall market view. But there are too many warning signs out there and risk/reward does not favour aggressively buying dips here.

Thursday, February 17, 2011

Sensio 3D Update: Where Will The Revenue Come From?

Sensio is a leader in the 3D industry. They own leading-edge 3D technology and the expertise to bring the 3D experience to industries, cinemas, televisions, etc.

The new 3D revolution is still in its infancy. Up until very recently 3D content has been sparse, and the cost of 3D TVs were prohibitively expensive. However with more and more content becoming available (new 3D channels being launched, major 3D video games being released, etc) and prices starting to come down, 2011 could be the year where 3D truly hits its stride.

Is Sensio positioned to profit from this trend?

Sensio has been extremely busy over the past year positioning itself to take advantage of the forecasted growth in the 3D sector in 2011. I think 2011/2012 will be the period where Sensio transforms from a start-up/concept company to a revenue growth company.

So going forward where will Sensio's revenue streams come from? I see the following 3 areas as being key revenue drivers starting in 2011:
  1. Consumer Electronics (as a component supplier to 3D TVs and other devices) 
  2. Live 3D Sporting Broadcasts
  3. 3D Television Broadcasting
Consumer Electronics
  • Vizio
    • On January 5, 2010, Sensio was selected by Vizio to incorporate Sensio's decoder, the S3D Core, into its full line of HD3D TVs.
    • Sensio makes money on every Vizio 3DTV sold
    • Vizio 3DTVs just started hitting the market in Q4 2010. As sales of 3DTVs grow in 2011 we should start to see revenues from this segment grow substantially. 
  • Semiconductor Manufacturers
    • Over the past 6-months Sensio signed deals with 4 separate semiconductor manufacturers to incorporate Sensio Hi-Fi 3D technology into their 3DTV products (TV, set-top boxes, etc)
      • Aug 26, 2010 - Trident Microsystems
      • Oct 5, 2010 - Unnamed Tier 1 supplier (a "preferred supplier to the leading manufacturers of digital entertainment solutions")
      • Nov 10, 2010 - MediaTek
      • Jan 25, 2011 - Zoran Corp
    • These manufacturers supply many of the biggest names in the industry, including Cisco, Toshiba, Sanyo and Samsung.  
    • Given the range of suppliers involved, these deals have the potential to supply a high percentage of all 3D units sold in the future, without the need of contracting directly with the television manufacturers themselves.
    • This is another revenue stream that will just start hitting the top line in 2011.
  • Other Patents
    • Most notably Autodetect and S2D Switch which were announced on Jan 3, 2011.
      • Autodetect allows the TV to automatically detect the type of 3D signal being broadcast (side-by-side, top/bottom, etc, etc) without the need for the viewer to manually determine the signal and then manually switch the TV via on-screen menus.
      • S2D switch allows 3D content to be converted and played in 2D.
    • Major TV manufacturers showed great interest in products when introduced last month during CES 2011.
    • Existing 3DTVs on the market lack these critical features.
    • Expect to see at least one deal signed in first 1/2 of year .
    • Potential for virtually ALL manufacturers to sign on to license these patents.
Live 3D Sports Broadcasts
  • Sensio's revenues, while modest, jumped by 89.6% in the last 6-months of the year vs. the prior year. This jump in revenues was primarily driven by licensing revenues related to broadcasting 8 FIFA games worldwide in 3D in 2010.
  • Just this week the NBA announced that they have selected Sensio to broadcast the 2011 All-Star Game, as well as several regular season and playoff NBA games globally in 3D cinemas. For more on this, see my previous post Sensio: NBA 3D Deal Shows Promise from Feb 15, 2011.
  • To date these have been one-off events, but if successful this could easy snowball into regular recurring income streams with FIFA and the NBA, as well as others leagues such the NHL, MLB, NHL.
         Side Note:
  • For FIFA 2010, Aruna partnered with Sensio to broadcast the event in 3D (originally announced during NAB 2010 on Apr 13, 2010). Suddenly on May 10, 2010 FIFA terminated its relationship with Aruna. FIFA said it would now handle the 3D rights directly, and worked directly with Sensio to broadcast the games as originally scheduled.
  • I can only think that this gives Sensio a lot of weight going forward.
  • Also of interest is that this week's NBA announcement is also directly between the NBA and Sensio (apparently cutting out Cinedigm who had been involved in previous years). I have to think that cutting out the middleman and working directly with the rights holders not only increases Sensio's potential margins, but gives them much more control and more security going forward.
 Television Broadcasting and 3D Content
  •  Videotron
    •  On Nov 17, 2010, announced partnership with Videotron (largest cable broadcaster in Quebec) to launch a 3D content offering in Dec, 2010.
    • 3D content being delivered both in Sensio 3D for 3D-TVs, as well as Sensio SAFE Anaglyphic format for standard HD TVs (red and blue glasses). Note that Sensio's anaglyphics algorithm reportedly results in a better and more comfortable 3D viewing experience than traditional anaglyphic 3D
    • This is another stable revenue stream that will just begin to hit the top line in 2011.
  • Potential for others cable companies to launch similar offerings
    • Rogers or Cogeco in Ontario
    • Major US cable companies, etc.
  • Video-On-Demand (VOD)
    • On Jan 3, 2011 Sensio launched a 3D VOD service.
    • 3D library includes documentaries, independent  movies and blockbuster films.
    • I don't expect a lot of revenue from this initially, but this content is a perfect complement to their television broadcasting offering and should grow over time.
Other Potential Areas To Watch

  • On Dec 1, 2010 Sensio acquired Algolith's video-processing (video format conversion and noise reduction) portfolio - consisting mainly of 4 patents and 9 patents pending - to extend its range of 3D delivery solutions. Expect to see new product offerings incorporating these technologies in the very near future.
  • Sensio will be attending NAB 2011 in April.
    • Their press release states they "will be presenting a newly expanded offering that specifically addresses the broadcast industry’s concerns about image quality and compatibility in 3D, right down the line."
    • It was at last year's NAB 2010 where Sensio announced they would be broadcasting FIFA 2010. They may use this venue to announce other live events for 2011.
  • 3D Console Video Gaming
    • Ubisoft has been integrating Sensio 3D format into their 3D enabled video games for consoles like the PS3.
    • Look for other game developers to possibly start integrating Sensio 3D directly into their games as this industry is set to grow exponentially in 2011.
Share Price

It is my view that the current share price does not reflect the potential growth and revenue streams highlighted above. Once these revenue streams start to kick in, and as new deals are signed, the share price should rise significantly. In the meantime, at a market cap of only $60 million, SIO.V provides a cheap play on a growing sector.

Natural Gas - Is It Wrong To Be Bullish?

Two week ago I posted my analysis on why I thought natural gas was a short.

http://johnnystocks.blogspot.com/2011/02/why-natural-gas-is-short.html

Part of the rationale for shorting the market was that it was bitterly cold and that we were in the midst of a snowstorm. The idea, of course, being that everyone already knew it was cold and therefore was already long (i.e., "sell the news"). And storage levels at the time were still above both last year and the 5-year average, so fundamentally we still had a ton of gas.

In addition, the medium-term weather forecasts showed the balance of February warming up considerably so temperatures only had one direction to go. Therefore there was nothing left for the longs to do but sell, and there was plenty of opportunity to get short. The result was about a 10% drop in price over the next week or so.

Now a full two weeks later, with prices about 12% lower than they were on Feb 3, I sit here pondering whether we are seeing the exact mirror image of what we saw then (i.e., is it time to buy?).

Technically, looking at the UNG, there is definitely support in the 5.15-5.25 range, both from previous lows seen in October, and from the measured move target in the head and shoulders pattern in Jan-Feb. Also the RSI is oversold, which while doesn't mean it can't go lower, does suggest that maybe we are due for a bounce.


With record warm prices expected in much of the northeast on Thursday and Friday, I have to wonder how much of this warmth is already priced into the market? And how much of an impact will today's weekly EIA storage data have when released at 10:30am?

A Dow Jones survey of analysts reports an expected draw of 234 bcf for the week ended Fri Feb 11. That would be the 2nd largest draw ever for that week, second only to -249 bcf for the same week in 2007. Last year's number was -190 bcf, and the 5 year average is -150 bcf.

The blue line below represents working gas in storage assuming a draw of 234 for today. If storage comes in as expected we will have gone from near record levels of storage on Jan 1 to being 142 bcf under last year and 129 bcf under the 5-year average.

Mind you the next week's number will obviously but much lower, likely returning some of the deficit. And at 1,910 bcf we are hardly short on natural gas for this time of the year. But clearly we do not have the same over-supply concerns we had at the beginning of the year.

The draw on distillates inventories (released Wed) was also larger than expected, reflecting a larger draw on heating oil. If largely due to the cold, then maybe we see a larger natgas draw as well.

I am long $HNU.TO at an average of 5.215. HNU.TO closed at 5.16 on Wednesday. Clearly a risky play, and somewhat akin to trying to catch a falling knife, but I think decent risk/reward given the above. Plus after taking profit on my natgas short I have some money to play with . Let's just hope I don't give it all back today...

Tuesday, February 15, 2011

Long Gold (Again)

Due to the volatility around gold prices following Mubarak's resignation on Friday I decided to cover all of my long gold and long gold stock positions for tiny profits. I had been using the 100dma in gold as my pivot level, and with the weekend coming up, and the uncertainty post-resignation I made the decision to cover all positions and reassess once things settled down.

After covering my positions, gold prices continued to fall Friday afternoon, and closed solidly under the 100dma. Prices gapped up on Monday morning, but couldn't hold the highs of the day and once again fell back below the 100dma on the close.

Today however, following China inflation #'s overnight, gold gapped up again on the open and for the first time in 4 days closed back above the 100dma. As a result I re-entered my long gold position, buying HBU.TO @ 31.99.

This is about 60 cents higher than where I closed my position on Friday. That's 60 cents that would have stayed in my pocket had I just stuck to the original plan Time To Go Long Gold Again? that I posted on 2/9. In that posted I suggested using the 20dma as my stop, which never really got close to being triggered. However I consider the 60 cents I "lost" the cost of protecting against increased uncertainty ahead of the weekend. Prices could have just as easily gapped lower given the scenario. Now that things have settled down I feel more confident in the position. While I run the risk of being whip-sawed on this trade, I will likely use the 100dma in GLD as my stop on a closing basis.

EUR/USD - Short Trade Back In Play

The prevailing view on the street still seems to be that the USD is going to continue weakening to zero as the US tries to get a handle its debt situation. But fundamentally there are numerous reasons to be bullish, especially against the euro:
  1. Europe is still a mess. We're always just another crisis away from worrying about a euro collapse again. In June the market pushed EUR/USD under 1.1900 and everyone was talking about the euro being a failed experiment and that the cross was going to parity. In fact the market was so short EUR/USD that a lot of the move from 1.1900 to 1.4200 may simply be the result of the mother of all short squeezes.
  2. US interest rates are starting to rise. As interest rates rise, the gap between rates in the US vs. other countries narrows, bringing investment flows back into the US.
  3. The US economy is showing signs of strength. Strong economies generally = strong currencies.
  4. Notwithstanding recent strength in the US economy, equity markets worldwide are at risk of a pullback. The US stock market alone has rising 100% over the past 2 years. It is only a matter of time until we see a correction. Any sign of a hiccup in global stock markets would likely result in US safe haven buying - driving up demand for US dollar. 
  5. The European economies are still very fragile. Europe does not want, nor can they handle a strong currency at this stage in their cycle.
Technically, the chart also supports a long USD view:
  • The 100 day moving average (100dma) started to turn lower at the end of January. The last time the 100dma turned lower was on Dec 31, 2009. At that time EUR/USD was trading at 1.4322. It briefly went to 1.4579 by Jan 13 (13 days later) before falling to 1.1876 by June 6.
  • The daily charts appear to be creating a head and shoulders pattern. A clear break below the 1.3500 neckline should at a minimum target the 1.2900 Jan lows.
  • RSI is dipping under the 50 neutral zone and heading lower. This typically suggests that momentum is starting to build for a sustained move lower.


During the first 2 days of this week I've been accumulating a short position in EUR/USD via the EUO bear ETF (2x). My average price is 19.785 (which is right around 1.3500 in the cross).

I like the short EUR/USD trade, not only for the reasons above, but also as a hedge against long equity positions in my portfolio.

As discussed above, my initial target is 1.2900. A break above 1.3750 would make me reconsider my position.

Sensio: NBA 3D Deal Shows Promise

In a previous post 3D TV - A Contrarian Investment Play I mentioned a small company called Sensio. Sensio is based in Montreal and listed on the TSX Venture Exchange under the symbol SIO. Sensio has patents on a number of leading edge 3D technologies and has the potential to see incredible growth over the next couple of years.

Yesterday Sensio announced a deal with the NBA to feature the first All-Star Game in 3D for international fans. NBA and SENSIO to Feature First NBA All-Star in 3D for International Fans

Some highlights from the news release:
  • More than 100 cinemas internationally (including Belgium, Germany, Italy and Mexico) to provide NBA All-Star Saturday Night and NBA All-Star Game in 3D
  • Coverage will include the use of eight 3D cameras throughout Staples Center, including three special 3D Shadow cameras. The 3D Shadow cameras will be placed directly on top of the main broadcasts cameras, providing an efficient and non-intrusive way to capture all the action in 3D.
What the new release doesn't specifically tell you is:
  • Sensio will also be broadcasting 3 NBA regular season games in March and April
  • Sensio will also be broadcasting 2 NBA playoff games
  • The games will be shown in 30 countries worldwide
See the Sensio promo on there website at http://www.sensio3dlive.tv/en_sensio.html for more details on the above.

In addition, in 2010 Sensio teamed up with Cinedigm to bring the FIFA World Cup to hundreds of theatres worldwide. It was the first global 3D broadcast of a live sporting event and was very well received.

To put a little perspective on things, here is a bit of history of live 3D sporting broadcasts (not including recent 3D television broadcasts):

2007:
  • NBA All-Star Saturday Night and the All-Star Game was broadcast in 3D.
  • Took place by-invitation-only at a special viewing party in Las Vegas.
  • First ever live sporting event in 3D.
  • Later that season Game 2 of the NBA finals was broadcast in 3D to 14,000 fans in the Quicken Loans Arena in Cleveland.
2008:
  • Dallas Mavericks NBA game broadcast in 3D to 500 fans in Dallas (by invitation-only).
  • First live 3D sporting event in a theatre.
2009:
  • NBA All-Star Saturday Night (but not the All-Star Game) was broadcast in 3D in 80 theatres by Cinedigm.
  • First ever publicly marketed live 3D sporting event.
2010:
  • No NBA games broadcast in 3D.
  • Cinedigm teams with Sensio to bring FIFA World Cup to hundreds of theatres worldwide.
  • FIFA broadcast was first global 3D broadcast of a live sporting event. 
Note that in 2008 Sensio sold 50 licenses for its Sensio 3D cinema decoding technology to be used by Cinedigm. In 2009 it then sold another 50 licenses to Cinedigm. My understanding is that while Cinedigm was licensing Sensio's technology since 2008, it wasn't until the FIFA broadcast last year where they felt the need to team with Sensio.

Today's news regarding the 2011 NBA All-Star Game is interesting in that Cinedigm is not mentioned at all. As far as I can tell this deal is entirely between Sensio and the NBA. If that is correct, then it looks like Sensio is now making a move to manage the entire 3D experience themselves (as opposed to earlier events that just licensed their technology).

The key to the NBA news is not the one-off revenue Sensio will receive. I believe the NBA All-Star Game will be used as a test for Sensio. If they can successfully pull this off, then I think it will open up the door for more regular live NBA 3D broadcasts. And if the NBA jumps on board, then the NFL, MLB and NHL should not be too far away. The potential demand for an event like the NFL Super Bowl could be huge globally. This all has the potential to add another stable stream of revenue to Sensio's existing patents (which are now just slowly starting to be realized).

Technically, Sensio looks like it is putting in a bottom around 1.10. The stock closed right at its 20 day moving average at 1.19 today. A move above there could signal confirmation that the bottom is in and open up the potential for higher prices in the near-term.


Other possible catalysts for near-term share price appreciation would be further live 3D announcements, or deals with major television manufacturers to incorporate additional Sensio patented technologies. A buyout is also always a possibility given Sensio's leading edge technologies and extremely low market cap.

Sunday, February 13, 2011

Clean Energy - Last Year's Trade?

Update: Feb 27, 2011

My original post was written Feb 13, 2011, shortly after Congress proposed deep cuts to clean energy funding.

At the time of writing, there were no near term catalysts that were expected to give clean energy any type of  boost. However shortly after writing the article Libya blew up and WTI oil prices subsequently spiked. Triple-digit oil prices suddenly make alternative energy plays like CLNE or WPRT much more attractive.

Those who follow me on Twitter were notified when I covered my shorts in WPRT and CLNE. On Feb 17 I covered my WPRT short @ 15.81 for a 8 cent loss and on feb 18 I covered my CLNE short @ 11.96 for a 12 cent profit. Within days both of these stocks screamed higher along with global energy prices.

Chart: WPRT



Chart: CLNE



I was fortunate enough to cover my short positions in each of these stocks, which saved me from substantial losses.

This highlights 2 important lessons:
  1. Never become married to a position or a trading strategy.
  2. When the fundamentals or the technicals change - get out of the position.
The unfortunate thing for me is that I recommended both of these stocks as potential longs in my first blog post on feb 1 when the Egypt turmoil first began. But obviously I was a little early on that one...


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

Original Post: Feb 13, 2011

Congress last week proposed budget cuts of $900 million in clean energy funding. Obama had been budgeting $2.36 billion for energy and efficiency and renewable energy programs for fiscal 2011. The proposed cuts would chop almost 40% out of the budget for clean energy - which could have a devastating effect on clean energy related companies and their stocks.

What sectors could be affected?
  • Solar
    • Major solar names like FSLR, SPWRA and JASO have been very strong recently. While they could be affected, and could be due for a pullback, I have difficulty shorting stocks with such strong chart patterns.
    • FSLR's chart, for example, looks fantastic (see below). If I wasn't bearish on the fundamentals I would be all over this as a long trade.

  • Wind
    • I am not too familiar with individual wind companies specifically. A wind ETF like FAN or PWND could be affected, although as Tom Lydon at Seeking Alpha points out PWND has high levels of exposure to developed Europe and Asia, so some of these ETFs may not provide the best bang-for-the-buck as a short trade vs. other strategies.
  • Alternative Fuels
    • Names like CLNE and WPRT immediately jump to mind here. The charts on each of these companies look absolutely brutal right now. I am short both of these names as each of them have recently broken out out multi-year uptrends.
    • The biggest risk to shorting these companies would be a sudden (and at this stage unexpected) sign that Obama is warming to the idea of passing the Natural Gas Act to provide incentives to natural gas fueled cars and trucks. Longs in these stocks waited for all of 2010 and got nothing. At this stage there are no signs that 2011 will be any different than 2010, especially if the tendency is toward cutting budgets for clean energy initiatives.
WPRT

WPRT has just broken out of a 2-year long uptrend that started at a low of 3.01 in March 2009. The breakout of the trendline also coincided with a break of its 200 day moving average. As well all major moving averages have recently started to turn lower. Although the drop to date since breaking the 200 day moving average @ 17.94 has been severe, all technicals still point to much lower prices. The stock is currently trading at 15.10. My initial target is 12. Above 16.50 I would have to reassess the trade.


CLNE

CLNE has just broken out of a descending triangle that had been forming for much of 2010 and early 2011. The stock closed at 12.17 on Friday. The measured move of the break of the descending triangle actually targets 3.26, which is just 3 cents above the stocks Nov 2008 low of 3.23. From a trading perspective, however, I am looking for a initial move to 10-11. Above 12.75 and I would need to reconsider, but it would take a move above 13.50 to reverse the bearish chart.


Obviously the companies mentioned above that have the greatest percentage of revenues derived from the US would have the most to lose under the proposed cutbacks.

But cutbacks on clean energy initiatives are not just being felt in North America. Just last month the Australian government announced it would be cutting A$500 million in funding for solar power and carbon capture and storage projects. The government also announced it would be cutting A$2.8 billion on climate control measures including the Green Car Innovation Fund and the Cleaner Car Rebate Scheme according to Bloomberg.

Blame for the Australian cuts is primarily being placed on the massive floods in Queensland which are estimated to have caused $20 billion in damages. But while the reason for the cuts differ, it goes to point out that clean energy initiates are one of the first at risk whenever a government faces a financial deficit.

I would be interested in hearing about other companies not mentioned that would potentially be impacted by cutbacks in clean energy spending if anyone has further ideas...

Friday, February 11, 2011

The Short on Brazil

Brazil has the fastest growing economy in Latin America. Their economy grew at over 7% in 2010, and is forecast to grow over 5% in 2011. They have a lot of what the world wants - oil, fertilizer, grains, etc.

But recent events have given the markets cause for concern...

On Jan 19 Brazil raised interest rates from 10.75% to 11.25%, and the central bank has warned that this could be just the beginning of a series of interest rate hikes. As well large increases in bank reserve requirements have been implemented to try and slow lending.

The strong Brazilian real is already hurting exports and higher interest rates will have the effect of bringing in even more foreign money searching for yield, which will put further upward pressure on the currency. The real has risen by over 30% against the USD over the past 2 years and is considered by some to be the most overvalued currency in the world.

So we have an economy that is booming - but rising inflation, rising interest rates, and a strengthening real are presenting a risk.

Brazil's stock market was one of the few laggards in 2010. The stock market (using EWZ as a proxy) was essentially flat in 2010. In fact in 2010 it put in was looks like a double top around 80.


And now the dailies are starting to break down. On Feb 9 the Brazillian ETF (EWZ) broke down through 72, a key technical support area representing both a previous support/resistance line, as well as the 200 day moving average.


I used today's bounce back to 72 to short EWZ @ 71.96. My medium term target on this trade is 62. A move above 74 would be required for me to reconsider.

Mid-Day Update - 2/11 (12:15pm)

Mubarak's Resignation and Impact on Gold

Mubarak's sudden resignation has put a lot of uncertainty into the gold market. The initial move has been to push the USD higher and push oil and gold lower. Whether or not I agree with the initial reaction, the price action has turned the technicals lower and I must respect that.

I had been watching the 100dma in GLD for the last several days. Up until about an hour ago things were looking promising. But the post-Mubarak reaction has put in what looks like a topping formation in the daily chart. A close at current levels could see an accelerated move to the downside now.


I sold 1/2 my ABX to reduce risk as soon as I heard the news of the resignation. I then used the initial reaction low in GLD @ 132.67 as my stop on both my HBU.TO and my remaining ABX position. I ended up selling ABX @ 48.04 and 47.77 for a net small profit, and HNU.TO @ 31.40 and 31.34 for a net small profit as well. I also sold my PKL.TO @ .83 for a .01 gain. I am now flat all things gold.


The uncertainly and risk involved, especially ahead of a weekend, does not merit a position in gold in either direction at the moment. If the price of gold snaps back and rallies this afternoon or on Monday I can always look to get back in - but I'm not willing to place a bet at the moment.

One trade I did initiate on today's news was to buy MEOH @ 28.90. Methanex is a global leader in methanol, and had been performing well for the last few months, Its operations in Egypt have caused the share price to take a hit this month. I think there's a decent chance we could see this one start to post gains again now that some of the uncertainty in Egypt is over.


Thursday, February 10, 2011

End-Of-day Recap - Thursday 2/10

A fairly uneventful day for me today. Gains in SIO.V and ENS longs and COT short more than offset losses in WPRT and JASO shorts. P&L is flat over last 2 days, but February still looking great (so far).
  • WPRT posted a nice 3.4% rally today, so I gave back a little there, but my short is still up 4.5% and I'm sitting tight. Yesterday's big move down was accompanied by a nice spike in volume. No reason to believe the selling is over yet in this one. No near term catalysts expected that will change the overall trend. Pickens was in DC this week once again to try and rally support for his natgas plan, but no indications that he was able to make any significant progress. Still looking for 13.50 initially, and then an eventual move to 12.00. It would still take a move back above 16 for me to change my view here.

  • Sticking to the same theme as above, I re-initiated my short in CLNE @ 12.09 today. I was short this name last month and took profit @ 11.89 on Jan 31. This chart looks like it could be getting ready for an ugly move of its own as the long-term descending triangle has broken, suggesting much lower prices. Initially targetting 11 bucks.

  • I covered my short JASO today @ 7.42 for a .14 loss. I was questioning this trade in yesterday's post and while it showed early morning weakness, by the end of the day it had rallied and looks like could be setting up for a move higher now.

  • ENS is another stock worth mentioning today. I went long this stock @ 32.92, and pointed out the breakout above 34 earlier this week. After announcing earnings the stock sky rocketed today. It hit a high of 38.21 this morning, up just over 11%, before settling back down to 36.20 (+5%). EPS was .71 vs. consensus of .62. They also guided Q4 earnings up to .68-.72 vs. consensus of .62.
  • My initial ST target on the stock was 36.50, but since it blew right through that level I decided to stay long. I'll be watching the open on this one tomorrow as a guide to where it will be going next. A gap lower on the open would be a concern, but given the improved earnings and guidance I think we should see prices start to head back up from here.

The other thing I'll be watching closely on the open tomorrow will be the price of gold. GLD closed right near its 100dma today. See Time To Go Long Gold Again? for an update on my view on gold.

Wednesday, February 9, 2011

End-Of-Day Recap - Wednesday 2/9

P&L in the trading accounts were basically flat for the 2nd straight day this week.

Gains in AAPL long (+0.8%) and WPRT short (+7.6%) were effectively offset by losses in ABX long (-1.4%) and TBT long (-2.2%). Position sizes of ABX and TBT are somewhat larger than those in AAPL and WPRT.

I was out for most of the morning, so didn't trade much today.
  • Sold remaining HND.TO natgas short @ 9.38 (+1.60). Was offered all morning @ 9.67 but unfortunately only traded to 9.62.  Why Natural Gas Is A Short was updated as the trade was closed.
  • Subsequently bought and sold UNG as a daytrade bounce for a 4 cent gain.
  • Sold EPS.TO @ 3.41 (-.10) as natgas remains weak. Also slightly concerned that news regarding Buffalo's ban on hydraulic fracking could weaken sentiment toward the shale gas sector temporarily.
  • Sold TBT @ 40.36 (+0.83). My take profit stop loss was tripped on this one. I may end up regretting this trade as I think interest rates are still headed higher, but the daily candle wasn't looking great so I cut the position and took my profits
  • Shorted JASO @ 7.28 (see end of post for further discussion on this one)
And since I was out I was also unable to act on some of the setups I was watching. One in particular that I missed was EWZ. I tweeted yesterday that I was looking to short it, and it broke lower today. Any bounce toward 72 should probably be shorted now with a stop above the descending t/l.



Yesterday's End-Of-Day Recap highlighted WPRT as a stock to watch today. WPRT broke below 15 support on heavy volume following earnings after the close yesterday. This chart looks really ugly. The 2-year uptrend has been broken and this won't end pretty. I am looking to lighten up my short a little toward 13.50 and then target 12.



For tomorrow I will be keeping a close eye on gold and gold mining shares. Gold looks like it may be ready to try higher. I will be looking for the 100dma to hold tomorrow in GLD. If it does I will look to add to my long gold position via HBU.TO. I will also be watching ABX. ABX continues to (barely) hold above some key technical levels, but gold mining shares as a group are underperforming vs. the commodity. Further weakness in ABX tomorrow would likely cause me to cover my long. See Time To Buy Gold Again?.

As well, I am short JASO from 7.28. Not the smartest play with earnings coming out before the open tomorrow (I had actually thought earnings were due Feb 15 when I initiated the trade - but didn't cover the position when I found out my mistake). Technically it looks to be forming a descending triangle that should eventually break lower, and it has been a clear underperformer vs. the rest of the solar sector year-to-date. BUT it has also found good support above its 50dma since announcing a large supply deal last week. This is now a coin flip, which is NOT good trading. I'm a little disappointed in myself on this one - no matter what the end result. (Feb 10 8:15am - Update: JASO announces will release earnings Feb 22) 

Time To Go Long Gold Again?

While gold has been selling off since the beginning of the year, it is still in the midst of a long-term uptrend (as evidenced by the 2-year weekly up channel in the GLD chart below).



The fundamental case for buying gold is already well known (increasing debt, weakening currencies, inflation concerns, etc) so I won't rehash the bull-case here. I don't consider myself a "gold bug", but I do believe the bull-case has sufficient merit to propel gold prices to new highs at some point this year.

So the fundamentals point to higher prices, but what about the chart? No matter what the fundamentals say, there's no point putting good money into a trade like this until the fundamentals and the chart are in agreement. My analysis suggests that time may be now.

Most importantly, GLD has regained its 100 day moving average (100dma) and has closed above this level for two consecutive days now. The last time GLD dipped under its 100dma was last summer. Once it rose back above its 100dma it went on to rally 16% in less than 3-months. In addition the MACD indicator has recently crossed over and is now headed back up again from oversold levels.



Why is the move back above the 100dma important? The 100dma, along with other indicators like the 200dma, represent longer term trends in the underlying stock or commodity. When the price of the underlying dips under one of these averages it serves as a warning that the long-term trend may be starting to turn down.

However, sometimes this move under the moving average is nothing more than a shake-out of weak longs. Those traders that got long near the highs are pressured to sell once the price falls below its moving average. Other traders may look at this apparent weakness as an opportunity to go short.

In cases like this I will often watch the price action in anticipation of a move back above the moving average. A move back above the moving average can be a great signal to go long. I like to think of it as a "slingshot-wrap-around-reversal". The price has a tendency to snap higher, like a stretched elastic band, as previous longs and existing shorts scramble to buy. The probability of this being a winning trade is increased if the moving average itself is in an uptrend (as it is with GLD).

GLD looks like a great risk/reward trade here at 133 with a stop under the 20dma (currently at 131.71). The initial upside target would be a test of last year's highs between 138-140.

Other ways to play a bounce in gold would be to go long gold miners like Barrick (ABX) or the gold miners ETF (GDX).

I am long HBU.TO (2x gold ETF) and ABX.

Tuesday, February 8, 2011

End-Of-Day Recap - Tuesday 2/8

Trading accounts were on fire today with every position working (both long and short positions). Long-term accounts were dragged down by a 2.6% decline in SIO.V.

I didn't feel the need to trade a lot today. Took profit on 1/2 AAPL long @ 354.74 (+3.24) and 1/2 of remaining natgas short, HND.TO @ 9.39 (+1.55). I will try and update Why Natgas Is A Short later tonight with updated targets. My only purchases were a few shares in gold miner PKL.TO @ 0.82, and I added a little to my SIO.V long @ 1.14.

Gold and gold shares posted nice gains as well. I am long ABX and HBU.TO as per yesterday's update. TBT also continued its move higher after breaking out of the 39.50 area last week, closing up .74 @ 41.24.

Highlights:
  • ENS broke out today, clearing 34 and closing @ 34.91. I am long from 32.92.

  • AIXG tried to break above 44 on decent volume, but closed just under @ 43.88. Still up .92 on the day. Look for further increases in this name. I am long from 39.50.

  • One name to keep an eye on tomorrow will be WPRT. WPRT reported earnings after the close today. The initial reaction was to push it lower. It is currently trading around 15.10. I am still short form 15.73. If the move under 15.50 sticks tomorrow, it will open up the door for a move all the way down to 12 bucks.


$AIXG: Breakout Alert!

AIXG is breaking above 44.00 on decent volume. Target 49-50. I am still long form 39.50.

Monday, February 7, 2011

End-Of-Day Recap - Monday

Nobody would ever mistake me for being a closet index fund. More and more it seems that my daily P&L has almost nothing to do with the daily swings in the S&P500 or the Dow.

While my trading accounts were up marginally (+.01%), my LT accounts were down around 1%. That's actually not too bad (or even unexpected) given the nice run some of the LT positions had last week. On a month-to-date basis the accounts are still up 3%, and I am happy with that.

I took profit in the following positions today:
  • Great West Life (GWO.TO) @ 27.29 and 27.65 for an average gain of +1.31
  • Sold remaining GLW shares @ 22.71 (+1.34)
  • Sold 1/3 HND.TO @ 9.12 (+1.34)
  • Sold 1/2 ENS @ 33.98 (+1.06)
New trades initiated today:
  • Sold short COT @ 8.24. COT gapped under 8.50 support a couple weeks ago and is now testing resistance at the 20 day ma @ 8.30. 50 day ma is currently flattening out around 8.42. Initially looking for a re-test of the bottom of range around 7.50-7.75. A break below 7.50 would open up the downside for a move all the way back to 5.50.
  • Bought PVG @ 27.21 on anticipation of a break out higher. Traded as high as 27.44 today (new 52-wk high) but failed on the b/o attempt and then tested support in the 26.50 area before closing at 26.73. 50 day ma comes in next around 26.25, but really want to see 26.50 hold to maintain confidence in this trade.
  • Bought AAPL @ 351.50 on breakout above 350. Any of the uncertainty of January seems to be forgotten, and with AAPL it continues to be up, up, up. Well, it least until it doesn't. The break above 350 should open up a new trading range between 350-375.
  • Long HBU.TO @ 30.96 (2x Gold Bullion ETF). Gold looks to me like its put in a floor. GLD is consolidating Thursday's move higher on low volume. Need to see confirmation of the next leg higher by mid-week. A close above the 20 day ma and I may look to add to the position.
My main focus tomorrow morning will likely by on gold and AAPL as I look for confirmation on each of these trades.

Cheers

Friday, February 4, 2011

End-Of-Day Recap - Friday

Another very good day. Portfolio was up 1.5% today, and 4.3% over the past 2 days.

Once again, Sensio 3D (SIO.V) helped, as it gained 4.3%. SIO.V is one of my largest holdings, and has bounced from a low of 1.05 two days ago to a high of 1.23 today. I have no intention of selling any shares here as I see this stock going substantially higher throughout the year.

My short US Treasuries and short US natgas positions that I put on yesterday both performed very well today. I am holding each of these positions over the weekend. The treasuries position is intended to be a longer term hold. I have a technical target I am looking for in natgas (Why Natural Gas Is a Short) but no matter what I will cover that position prior to the release of next Thursday's storage report.

Overall I am looking for equities to continue to rally next week, but the closer we get to 1350 S&P the more I will be looking to cover longs and reduce risk. I'm starting to see some warning signs. A number of long term bears are suddenly turning bullish, and technically 1350 S&P suggests a possible top. It's not time to sell yet, but need to be careful.

Today's trading activity...

Closed Positions:
  • Sold 40% of GLW @ 23.26 (+3.58) - still like it higher, but as it goes up I will continue to take profits
  • Sold 1/2 AIXG @ 41.92 (+1.06) - still like this one higher as well
  • Sold COHR @ 54.10 (+.46) - felt like the move up was starting to lose momentum
  • Sold ENOC @ 24.44 (-1.02) - traded back below its 50 day moving average, so I'm out
  • Sold PC @ 13.18 (-.14) - just not feeling it
Day Trades:
  • Shorted COT @ 8.18 and covered @ 8.22 (-.04) - didn't go anywhere all day
  • Shorted MSCI @ 34.19 covered @ 34.74 (-.55) - basically went against me from the minute I put it on. 34 is a strong support level, I will wait to see if it fails before considering a short again. As well, there has been a decent amount of insider buying recently which should have tipped me off that maybe the timing was wrong. Luckily it was not a very large position.
New Trades:
  • Shorted WPRT @ 15.73 - looking vulnerable on a break below 15.50. Closed @ 15.52 today.
  • Bought ABX @ 48.15 - keeping a tight stop, but good risk/reward here
  • Bought SNE @ 35.57 - bought the pullback to the 20 & 50 day moving averages after yesterday's stong day. Talked about this as a potential trade in yersterday's watch list (Stock Charts For Friday). Bought EPS.TO @ 3.51 (partial fill) - sold these the other day @ 3.68. 3.50 was the breakout level and should now be support.

Stock Charts For Friday

I only had a few minutes to scan charts tonight, but I seem to be finding more short setups than long ones. Here are a few I will be watching on Friday...

Long Ideas
  • SNE - Nice solid up day on strong volume. I like Sony as a play on 3D in the home. Would consider a long on a break above 37, but would prefer to look for a pullback to 35.50-35.75 if we get it.


Short Ideas
  • COT - Price gapped lower back on Jan 19, falling back below the 8.50 breakout level. After falling to as low as 7.68, it has since rallied but is coming up to solid resistance between 8.35 and 8.50. Good risk/reward short here with a stop above 8.50. Support @ 7.50. A break back below 7.50 would setup a significant move lower.
  • MSCI - Price has been weak since the beginning of the year, and has since found some support here around 34. Decent short setup on a break below 33.75. Target 29.


The Long And Short Of It - Thursday

Today was my best P&L day in over 4 months. My entire portfolio was up 2.8%, which I am quite happy with given that the markets were only up about 0.2% today. The majority of the performance was due to a small number of large positions in my LT accounts which finally woke up and posted strong gains.

Some of day's biggest contributors:
  • Sensio 3D - SIO.V (+7.3%)
  • Neo Material Tech - NEM.TO (+6.2%)
Sensio 3D is one of my favorite LT plays that I've recently blogged about. You can read more about the company here if you missed it http://johnnystocks.blogspot.com/2011/02/3d-tv-contrarian-play.html. After falling for most of the year, buyers suddenly came back in volume driving the share price up by as much as 13% at one point. Hopefully this was a sign that the bottom has been seen. I will be watching the price action tomorrow for confirmation. 1.10 should be a very strong support level now.


Neo Material Tech is a processor of rare earths. From what I understand about rare earths (which is not a lot), once the metals are mined they require a lot of processing to make them useable. NEM.TO stands to benefit from the sudden increase in the number of mining plans that have recently been announced.


Today's Trades:
  • Bought HGD.TO @ 11.05, then sold it @ 11.74 for a 2.8% loss. Gold shares looked like they were poised to break lower and provided good risk/reward. Little did I know that gold would turn around and rally like a mofo. By the end of the day HGD.TO closed at 10.43, so here's a good example of why stops make sense.
  • Bought HND.TO @ 7.78 as a short natgas play. It closed @ 8.22 (+5.7%). You can read my blog post here at http://johnnystocks.blogspot.com/2011/02/why-natural-gas-is-short.html if you are interested in the rationale behind the trade.
  • Added 50% to ENOC exisitng position @ 24.76. I was already long @ 25.81. If price falls again tomorrow I will probably sell this position for a loss.
  • Bought PC @ 13.32.
  • Bought TBT @ 39.53. I issued a trade alert on this one earlier today when I went long.
Good Night

Thursday, February 3, 2011

Why Natural Gas Is A Short

Update (Feb 9)

The natgas short couldn't have played out any better. UNG gapped lower on Monday and continues to bleed as of mid-day today. (See initial Feb 3 report below)


I took profits on my HND.TO position earlier this week @ 9.12 (+1.34) and 9.33 (+1.34). After UNG hit a low of 5.43 and bounced I took profit on the balance of my HND.TO @ 9.38 (+1.39). The trade averaged gains of almost 20% in less than one week.

With the extreme cold much of the Northeast is getting right now, plus another EIA report to be released tomorrow morning, we could definitely see natural gas prices bounce from here on short covering. But I am not convinced we have seen the lows yet.

Risk/reward does not warrant initiating new swing trades here. I went long a few UNG this morning @ 5.49 looking for a bounce, but will be out of that trade win or lose by tomorrow morning at the latest.




                                                                           

Short-Term UNG Target: 5.35-5.50 (Feb 3)

Natural gas had been looking pretty strong since breaking out of a downward channel in November. However, in late January the US Natural Gas ETF (UNG) staged a failed breakout above 6.40. And ever since it has been on the defensive.

This morning it had bounced and was testing its 20 day moving average before the release of the EIA's weekly storage data at 10:30am. I used this level as an opportunity to short natural gas by going long HND.TO @ 7.78, and tweeted the trade at the time.

The rationale?
  1. The chart was already looking weak. I had been watching natural gas and waiting for a bounce to sell into. The 20 day moving average was a natural resistance level.
  2. Weather has been cold. That's bullish, right? Yes, but the problem is that EVERYONE already knew that it was cold. Therefore, in my view, there were likely a lot of weak longs still hanging on. And weak longs always make for a vulnerable stock (or commodity). Selling natgas once the cold hits is analogous to "selling the news".
  3. The market was looking for a steep storage draw at 10:30am. Reuters was calling for 190 and some forecasters were looking for as much as 217. My analysis said that while it was cold, it was unlikely to result in a draw near 200. A weaker than expected draw should see a bearish reaction.
  4. No matter what the draw, there is still an awful lot of gas in storage against virtually any metric.
So far, so good. The actual # was 189. A large draw, but not nearly enough to bring new buyers into the market. As a result the market sold off for most of the day post-EIA #. As I write this UNG is trading @ 5.90.

Technically, UNG put in a bearish reversal candle today, and looks set to close beneath its 20, 50, 100 and 200 day moving averages. To me this points to a technical target of 5.35-5.50 over the next several days. Only a move back above 6.10 would reverse this bearish view in my opinion.


Longer term I like natural gas, but it's not time to go long yet...


Trading Alert - $TBT

TBT is trying to break out today. I posted in a previous blog that TBT could be a buy on a break above 39.50. It gapped up on the open today, opening at 39.91, but has since pulled back a little. I just went long @ 39.53. It needs to close above 39.50 for me to stay long overnight.