understanding the psychology of behavior

Just got done listening to the ERII cc, and I really liked it.  The most important thing I took out of the CC is that the growth in the sector is hindered by a shortage in membrane, high pressure pumps and man power. Relatively good problems to have, considering they are only hindered by the constraints toward the growth of the industry that wants to grow. (The industry will continue to grow rapidly. North and South Carolina, California, Florida are only a few States in serious droughts. India, China and the Middle East need more water.  Islands like Australia, Cypress are transporting fresh water. I urge homework to be done on the severity of the fresh water demand around the world.)

They do have to work out a way to smooth out the ‘lumpiness’, but they seem to be looking at very selective acquisitions.  Especially seeing how investors killed this thing because of lumpiness.  Management seems smart enough to acquire carefully and beneficially.

Overall I really liked what I heard.

Purchased common stock in JPM.  IMO, its oversold, sitting on support and I view it as a fundamentally stronger bank.

(The price is delayed on the chart, but the support line is straight forward.)

Just got done listening to the WWAT earnings call (still have to listen to ERII), and I was not impressed.

My previous assumptions still hold…

1. MobileMax is completely discounted.

2. They still don’t know what they are doing with respect to installations.

3. This company is all dependent on the Entech panels, and that is why I am in the stock.

If I do not like what I see w/respect to the panels, I will not hesitate to sell, considering that is all the prospects the company has.

I am following erii via my iPhone and holy cow the (not so smart) retail investors are selling. Do NOT sell because it’s going down! The report was a good one and investors should already be aware of the lumpiness in it’s quarterly results.

Let the weak hands sell. If I were near a secure computer to buy more I would. The selling is simply retailers over reacting. At 10 with an eps of .14-.15 leaves erii with a PE of 65-70. If that is too rich for anyone’s taste, sell it. But a history of fast early stage growers suggests a PE of 65 is not pricey at all.

Posted via my iPhone

I’ll be way from a computer to make active trades and Blog posts until next Tuesday. I placed some limit orders as per the posts below.

Should be an interesting week while I am away. My company is going through a round of serious layoffs, and the rumor is that they will be announced on Friday. The goal is to cut the middle management, and since I was recently promoted to a manager I may get layed off. Sweet. Its an interesting state of mind… I get promoted within an environment of industry consolidation, which is obviously a sense of pride. But I knew full well I could get layed off from this move.

See… I am too much of a coward to quit my job, cause the money and momentum are good, to just focus on trading and other interests. My company has treated me well for the almost 6years I have been there, but I have been itching to trade full time for a while now. I figure accepting the promotion would give me a sense of pride, and force the company to pull the trigger. (Suicide by cop… and the severance package would not hurt either.) I would rather get layed off from a job I do not feel strongly (when compared to trading and my other interests), versus my friends with children to feed and a mortgage. I can cover my expenses through trading. (The only thing prevent me from making more money trading is the ‘pot’ I am trading with.)

Happy Trading…

There are few Clean Tech companies I am very interested in. Energy Resources (ERII) and PWR are obviously some of these companies, but the rest are private. For instance, there is Gridpoint (that will be key for Smartgrid deployment) and A123 Systems (that has some really interesting battery technology). One of these have now filed to go public under ‘AONE’… (i just keep thinking of the steak sauce ).

I follow this company closey because I truly believe America will be shifting from a carbon base economy to an electric base society. While closely following them, I was itching to take a look at their financials and now we are all able to. After taking a look, I have to say, I was disappointed.

IMO, their financials suck. Their ‘cost of product revenue’ is higher then their ‘product revenue’, but what concerns me the most is that the rate of cost growth is higher than revenue from 2006 to 2007. Then the Percent of costs (in relation to revenue) in the 1st 3 months of the year is way too high.

The company explains this in their registration by the statement below:

“We incur costs associated with unabsorbed manufacturing expenses prior to a factory being qualified for commercial production. We expect these unabsorbed manufacturing costs, which include certain personnel, rent, utilities, materials, testing and depreciation costs, to increase in absolute dollars and as a percentage of revenue in the near term, and we expect these costs to decrease as a percentage of revenue as a result of higher revenue.”

A123 will see much higher revenue growth. They will start mass producing for car companies (Chevy Volt, Think), and has seen HUGE general demand. IMO, they will also play a big role in storage capacity for Wind and Solar farms. Not to mention the conventional uses of their batteries. So for A123 to really succeed they will need to keep ‘cost of product revenue’ fairly constant (or grow much slower) while revenue grows quickly.

The question now becomes, ‘at what price are we willing to pay for this Revenue growth?’ The stock does not only have to perform well selling products, but also control costs and become profitable. The cost of revenue figure is simply not encouraging at all. There is no sense of margin expectation. A123 System’s technology is really interesting that should command higher margins, so where are these margins?

Another negative is that this company is seeing a lot of press. More so then I thought it would see. I fear its IPO will be distrubingly high, causing the stock price to be too high.

Some of the figures they toute in the regristration with respect to macro-economic environment seem way too conserative. To give a sense of the potential in energy storage see this article.

I can go on and on, and if I were paid to do this type of analysis I would be more specific comparing management’s figures with estimates that I have seen over the past few months, but I have to start packing to go on holiday.

I like the long-term story with A123 a lot, but not a fan of the near-term financials. So I have to wait and see how it trades, and expect to purchase the stock on a premium only because of the macro economic wind pushing on its back.

If the markets continue to move up, AAPL should see the 172 area, and if the market really pushes upward as Kudlow would suggest 180-185.

I will have a limit order to sell my core position at 175.

PWR - The stock is up around 16% in 4 days. Its overbought, and will consolidate from moving up too fast too quickly. It may consolidate to 32-33, if looking for an entry.

So I’m watching Kudlow and Company tonight, and Mr Kudlow is pounding the table on the thesis that we will be in a continued bull run thanks to the falling price of Oil. I agree with the idea, but where I do not agree is that he uses the decline of oil as a catalyst for gas prices to go down, which will allow money to go to mortgage payments… and ‘bam’… no more credit crunch.

I just disagree so much. More layoffs are still coming, mid/high $3 gas is still too high and the high quality mortgage paper is being hurt by people who can afford to pay them but choose not to. (Why would anyone pay a $500K mortgage when the value of the house is now $300K? They don’t, and default. Granted that rate of default is decreasing, which benefits the financials, but we are still in a ‘consumer washout’.)

The market looks interesting. It is overbought, but has for the moment held support via the SMAs.

The market can move to the 1300 level, but I do not seeing it surpass it as the MACD will also act as resistance.  However, being that it is overbought, the reward is to the down side.
Ultimately I still believe in the thesis that the Vix will rise to the mid 40s before a bottom can be achieved.

Stocks are ultimately going lower. SP500 will probably re-test their lows.  The economic data is now showing the consumer is in some really bad places.  This negativity will spread, ultimately to corporate profits causing market weakness.  We are already seeing it, and we are probably going to see more of it.  The 1300 target bear market rally still may happen, but ultimately the reward is to the downside. (To me that means to keep a short position on until the VIX hits around mid 40s.)

No need to stress, just prepare. A lot of great stocks selling for a discount, below their enterprise value.  When I notice a market bottom (I will indicate when I do as I feel we have started the final leg of the bear market… ‘the consumer washout’) I will heavily purchase Call options in MA, GOOG, AAPL and other quality names experiencing severe multiple contraction due to nothing more than macro economic negativity.