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10 Oct

Monday October 10, 2016

by

Good morning,

This week was a week dominated by the rising value of the U.S. dollar.  Although stocks closed the week slightly down, stocks actually provided a modest safe haven for holders of British pounds, as the swap for a share of SPY at the open on Monday yielded a 2.97% return in British pounds by the close of Friday’s trade.  

Congratulations to my English subscribers who managed to avoid a whopping 4.17% drop in the pound/dollar cross this week.

In terms of gold, the S&P500 soared 4.5% this week.  In yen, the S&P500 rose 1.55%.  So, one of this week’s safe-haven plays was clearly U.S. equities.

In the bond market, however, the yield on the U.S. 10-year Treasury soared 13 basis points, while the U.S. Treasury 10-year and two-year spread soared, as well, to close at 90 basis points, leaving me dumbfounded for an explanation for this massive divergence between the dumping of the U.S. dollar in debt markets and buying of the dollar in the currency market.

But a look into what happened in the gold market this week may provide an explanation for another week of bizarre divergences.  At the close of European trading on Tuesday, apparently someone thought it was a good idea to sell approximately $2 billion notional value of gold contracts—all at once—after the market close.  Just as support at $1,300 was nearing, a ‘fat finger’ tapped to sell $2 billion of gold contracts, which then triggered scores of stop-loss orders down to the $1,250 level, resulting in weekly loss of nearly 5% in the dollar-gold price.  

In essence, investors of stocks made no money this week in U.S. dollars, but made out like train robbers in purchasing power if/when they decide to buy some bonds, gold, silver, foreign stocks or commodities.  In that sense, this week for stocks was a huge win for international-minded traders of dollar-denominated assets.

The exception to the “king dollar” trade this week was oil, which moved strongly higher for the third-straight week.  At the close of Friday’s trade on the NYMEX, a barrel of West Texas Intermediate Crude (WTIC) rose $1.57 to close at $49.81, a 3.25% move higher for the week.  

And if you think as I do, you’ll immediately wonder how much a barrel of oil now costs citizens of Britain.  The answer is, a whopping 7.75% price hike in the cost of energy there!  Wow.  

The Brits certainly have gotten punished for the Brexit vote.  Haven’t they?  And maybe that’s exactly the message the European Union (EU) wants to send to other nations thinking of exiting the EU, with a helping hand, of course, from the U.S., who most likely orchestrated both the gold market and pound “pounding” this week.  

So, the rich American traveling to London is back in vogue.

The takeaway from this week’s volatile moves in currencies, bonds and gold points to opportunistic central banks taking advantage of the week-long holiday in China.  With the Chinese out of the picture, no one was around to prevent a disorderly gold price plunge and a bond market slam.  

Look at it this way: China just got whacked twice this week while their trade stations were idle during the holidays there.  Both of Beijing’s core central bank assets were slammed by approximately 5% in the gold market and 8% in the U.S. Treasury market.  

Because Beijing has been unwinding its U.S. bond portfolio to buy gold, even the buying opportunity presented in the gold market still results in a net loss of approximately 3% in purchasing power for that trade.

In any event, I expect a rebound in the gold price this week, as the Commitment of Traders (COT) report will most likely reveal an avalanche of commercial traders unwinding their short positions.  So, you gold stock traders may want to watch the gold market on Sunday night for evidence of a coming sharp rebound in your gold stocks this week.

Aside from my trades and Watch List, I’ll be focusing on the oil market this coming week for signs that an escalation to the conflict between Russia and U.S.-backed militants in Aleppo may have moved up a notch.  Although the U.S. media has reserved top billing to the U.S. presidential contest, the intense fighting in Aleppo may spread to a regional war.  Watch out you oil short sellers!

If the oil price breaks out of the $40 and $50 range in a convincing manner in the coming days and weeks, new trading opportunities might arise for us, as a significant move above $50 may mean the risk of a regional war to include Iran and Turkey (NATO member) may skyrocket oil prices.  But have no fear (in the sense of your stock portfolio); I have trades in mind that may do just find under that scenario.

Okay, shifting gears to another important that I have.

Here’s something to think about regarding the probability of a rate hike possibly ruining the bull market in stocks: if oil prices rise back to the $60 or $70 level due to Syria while the U.S. dollar trades stronger due to the ‘fear’ trade, the EU, Britain and Japan will be hurt the most by these geopolitical and market events, as these allied countries of the U.S. import more crude oil per GDP dollar than the U.S. imports.  In fact, Japan imports nearly 100% of its oil.

The question, therefore, is: why would the Fed strengthen the U.S. dollar further by way of a rate hike and exacerbate the problems the ECB, BOJ and BOE already have in form of a nice dose of consumer price inflation added to an already-inflated bond market in these countries?  Wouldn’t that create a knock-on effect on the U.S. Treasury market?  Of course it would.  

Maybe that’s why one of the mouthpieces for the Fed, Goldman Sachs, just lowered its probability of December fed funds rate hike.  And stocks like that.  

And did anyone notice how the VIX reacted with a big yawn this week during the sell-off in bonds and escalating tensions in Syria?

Okay, let’s talk stocks.  I made two purchases this week, so we’ll certainly talk about these two trade ideas along with my earlier trades in LQMT and LIVE.

This Week’s JBP Stock Ideas

LIQUIDMETALS (LQMT)

Again this week, there was very little activity in LQMT.   The stock was down a hair, but still trades above its 200-week moving average.  

Just as I said last week, traders are backing and filling trades from the 35.9% move higher in August.  And from the December low of $0.06, the chart shows a nice bullish trend, with the 52-week moving average trending up nicely, as well.

I still own 100,000 of LQMT at a price of $0.137 per share (up 9.5%), with a profit of $1,300 in only six weeks.

ABOUT LIQUIDMETALS (LQMT)

Liquidmetal® Technologies researches, developments and commercializes amorphous metals. The company’s revolutionary class of patented alloys and processes form the basis of high performance materials in a broad range of medical, military, consumer, industrial, and sporting goods products.  Discovered by researchers at the California Institute of Technology, Liquidmetal alloys’ unique atomic structure enables applications to achieve performance and accuracy levels that have not been possible before.  As the company controls the intellectual property rights with more than 70 U.S. patents, these high performance materials are dramatically changing the way companies develop new products.

Source: Liquidmetals Technologies

FIREEYE (FEYE)

The two-week rally that followed the Yahoo admission of falling victim to a cybersecurity breach is over.  As I watched FEYE fall more than $1 this week to close Friday’s trade at $13.69, my goal of evaluating the stock’s action at $13 for a possible purchase nears.

No particular news about FireEye accounted for the stock’s 7.06% move down this week, although commentary about the FireEye occasionally reaches Google News that may affect the stock.  

For the most part, the articles read the same way, with either one of two conclusions drawn from the authors’ analyses.  It’s a good stock, or it’s a bad stock.  Some authors state the stock is not worthy of your capital, but won’t delve into whether the depressed price is attractive after factoring in the company’s past performance and where the company may be headed.  In other words, looking into the rear-view mirror tells us nothing about the stock’s underlying value in relation to the potential of something positive changing at the company.  

Everyone knows the issues confronting FireEye.  However, traders need analysis and constructive dialogue regarding the possibility of a turnaround at the company, thereby transforming a known depressed stock into a speculative play on what may turn out to be an uncovered discounted stock.  Right?  That’s what my mission is: finding depressed stocks that may really be discounted stocks.  I believe FEYE is one of those discounted stocks.

I’m still waiting for $13 per share for FEYE, or lower, because I’m looking for $17 as an exit price.  If executed, that calculates to a 30% profit, which is my bottom-line profit goal for FEYE.

I’ll alert subscribers if/when I pick up some shares of FEYE.

ABOUT FIREEYE (FEYE)

FireEye, Inc. provides cybersecurity solutions for detecting, preventing, analyzing, and resolving cyber-attacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information.

LIVE VENTURES (LIVE)

As I alerted on Tuesday, September 28, I bought 10,000 of LIVE at $1.76.  My exit price target is $2.20, a 25% move higher from my purchase price.

This was a good week for LIVE, as the stock rose as high as $2.13, or 11.5%, before settling up $0.04, or 2.09%, to close at $1.95 per share.

So far, my trade in LIVE has yielded a paper profit of $1,900 in less than two weeks.  Not too bad.

As I stated in my September 28 alert, I’ll be looking at $2.20 to get out of LIVE.

For new subscribers, if you don’t already have a copy of my analysis of LIVE, email me and request the LT Report dated October 3, 2016 for my analysis of the company.  It’s worth the read.  I just have too much to cover in this week’s report to recap the stock adequately in this week’s LT Weekly report.

ABOUT LIVE VENTURES (LIVE)

Live Ventures Incorporated is a diversified holding company with several wholly-owned subsidiaries and provides, among other businesses, marketing solutions that boost customer awareness and merchant visibility on the Internet. They operate a deal engine LiveDeal.com, which is a service that connects merchants and consumers via an innovative platform that uses geo-location, enabling businesses to communicate real-time and instant offers to nearby consumers. In addition, they maintain, through their subsidiary, ModernEveryday, an online consumer products retailer and, through their subsidiary, Marquis Industries, a specialty, high-performance yarns manufacturer, hard-surfaces re-seller, which is a top-10 high-end residential carpet manufacturer in the United States.

GEVO (GEVO)

As I alerted on Thursday, October 6, I bought 100k shares of GEVO at $0.49.  Yes, this is a big trade, $49k worth.

Why I have plunked down 49 G’s on GEVO wasn’t much of a strain to my brain, because during rallies in the oil price, the airline industry prepares to seek partners for the biofuels dance floor as a public relations effort to gain publicity and more environmentally-conscious passengers in a fiercely competitive industry.  Okay, that’s the cynical side of me coming out, but my analysis of what I just stated reconciles with the data.

The facts are crystal clear.  The airline industry consumed 83.22 billion gallons of jet fuel last year, but the biofuels industry only produced 99.87 million gallons in 2015.  That calculates to 0.12% of available biofuel production to service the global airline industry, with mandates not biting airlines to demand more biofuel at any significant level (50% reduction in emissions) until the year 2050.

As it stands now, the U.N. accord on environmental goals has set a target of a cut of 1.5% in emissions per year until emissions are cut in half by 2050.  Since 2005—the starting date that the U.N. set to begin calculating efficiency statistics—airlines have been heralding emission successes through the purchase of new and more efficient airliners—airliners the industry needs to update anyway.  So, essentially, airliner makers, such as a Boeing, are doing all the work here, not the airlines.  

My point is, progress made in fuel efficiency in the airline industry certainly hasn’t come from the use of biofuels, either, not with statistics showing biofuels representing only 0.12% of the total amount of fuel consumed by the airline industry each year.

The problem is, biofuel makers need demand and the airline industry needs quantity, a Catch-22.  Right?  No one will fund a full-scale biofuels operation without some assurances made by blue-chip customers.

Okay, so why, then, am I taking a calculated shot in GEVO at this time?

First, the company has already announced a stock offering last month.  Those announcements usually tanks the stock.  So, that’s out of the way.

Second, the short interest is tiny, which in the case of GEVO is a good sign.  It means any news the company has in the hopper that may put pressure on the stock is probably out.

And third, and the most important, is the price level of West Texas Intermediate Crude (WTIC), which traded strong this week, even at the $50 level, the level at which I see as severe resistance.

As I stated in the second paragraph, anytime the oil price breaks out to the upside, preliminary deals between airlines and a biofuels makers move from the back burner to the front burner.  In the case of GEVO, Alaska Airlines and Lufthansa have already paired-up with GEVO.  Other airlines have paired-up with other biofuels makers in the past, especially during the oil bull market recently past.

So, GEVO is a significant player and is certainly on the list of biofuels suppliers held by the airline industry.  All it takes is a significant break in WTIC above $50 to begin the process of more pair-ups on the dance floor.  I strongly suspect GEVO may have another partner in the airline industry in the wings.  

And if an announcement is released, the stock’s float is too small to accommodate the rush of traders.  The last time an announcement of a deal between Lufthansa and GEVO hit the wires, the stock soared 60%.  With an announcement involving a new airline, the stock may reach a double without a problem, because that would indeed be a surprise.  The Lufthansa deal was somewhat expected to be announced at some point; it was not as big of a surprise to traders.  

I certainly like the risk/reward of GEVO at this time of rallying oil prices and the troubling geopolitics in Syria.

ABOUT GEVO (GEVO)

Gevo, Inc., a renewable chemicals and biofuels company, focuses on the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. It operates in two segments, Gevo, Inc. and Gevo Development/Agri-Energy. The company engages in the research and development, and production of isobutanol; development of its proprietary biocatalysts; production and sale of biojet fuel; and retrofit process of chemicals and biofuels. It is also involved in the production of ethanol, isobutanol, and related products. Gevo, Inc. produces and separates its renewable isobutanol through the Gevo Integrated Fermentation Technology platform.  Source: Finviz.com

BALLARD POWER SYSTEMS (BLDP)

I alerted Friday that I bought 10,000 shares of BLDP at $2.39.

BLDP is another play I like during a rally in the oil price and, in the case of Ballard Power, specifically, a second factor impels me to own the stock above my other choices in this space.

Allow me to explain.

Rival and competitor of Tesla Motors, Nikola Motor Company, recently announced it will reveal a prototype of its new first zero-emissions truck on December 1.  In June, Nikola said it already had received orders for 7,000 trucks, totaling $2.3 billion in revenue.

On August 30, Nikola issued a news release detailing some of the germane components of the new zero-emission truck.  But leading into the body of the news release, Nikola begins with:

Nikola Motor Company recently announced that it achieved zero emissions with its electric-powered drivetrain.  At that time, details about how Nikola achieved zero emissions were kept confidential pending finalization of key supplier agreements.

The mention of “key supplier agreements” indicates to me that, among many suppliers the company needs, Nikola will need a supplier of fuel cell technologies and products.  The only makers of this technology in the U.S. are Ballard Power System (BLDP), Fuel Cell Energy (FCEL) and Plug Power (PLUG).

I, first, eliminate PLUG as the likely choice of Nikola, as PLUG Power is just not in that league, in my opinion.  Keeping with supplying fuel cell packs for forklifts is about as far as that company may go.  I cannot see Nikola working with a character such as Andy Marsh, any how.  Can you?

I eliminate Fuel Cell Energy as the likely choice because of the company’s lack of depth and breadth in the fuel cell industry.  Fuel Cell Energy is a good company, but Ballard is the leader in the industry, in my opinion, as the latter holds the most patents and references made by those interested writers in the industry, including, of course, hands-on professionals working in the industry.  In my gut, I feel Ballard is the top U.S. company to supply such a discriminating buyer such as a Nikola must be.

An announced deal with Nikola is, of course, a highly speculative reason to hold BLDP, but an announcement of this kind may easily triple the stock.  BLDP is a mini-jackpot play on a deal with Nikola.  But fundamentally, I have back-up reasons for holding so many BLDP shares.

For instance, Ballard is expected to close a large production contract before the end of the year.  On July 18th, Ballard signed an agreement with Guangdong Nation Synergy Hydrogen Power Technology for a fuel cell stack production operation, located in Yunfu, China, where stack manufacturing will commence through a joint venture between the two companies.  Under the terms of the joint venture, Synergy will own 90% of the operation, and Ballard will own the remaining 10%.  

In addition, Ballard will receive $18.4 million in revenue for technology transfer services and commissioning support from Guangdong along with another $150 million in sales of products based on a “take or pay” contract, which ends in 2021.  I anticipate a positive price move on the release of this news.

Ballard expects to release Q3 earnings on October 26, as we expect a preliminary announcement confirming this date at any time.  In the past, Ballard has used the hiatus between the announcement of the date of its earnings release and the earnings release date to issue a bit of good news.  This technique helps drive the stock and attention to the company leading up to the earnings release.  

I expect Ballard to issue a favorable earnings report, which may include details of a new contract in China and a signing of a Memorandum of Understanding regarding a strategic partnership.

THE PLAY:

On Monday, the price of BLDP rallied following the news of 12 fuel-cell-powered buses debuting on the streets in Guangdong, China.  The stock has since begun to form a nice base of support at/around $2.40, with a big bidder recently entering the market for the stock at $2.36.  

With earnings expected soon; an announcement regarding the fuel stack production agreement anticipated; additional buses commissioned on the streets of China most likely forthcoming; and, of course, the potential big announcement of a Nikola/Ballard deal speculated, I have to have several shots at nice pop in the stock.

Let’s see what pans out of BLDP.

ABOUT BALLARD POWER SYSTEMS (BLDP)

Ballard Power Systems Inc. engages in the development and commercialization of proton exchange membrane fuel cells worldwide. It is primarily involved in the design, development, manufacture, sale, and service of fuel cell stacks, modules, and systems for various applications. The company also develops methanol clean energy backup power systems, as well as provides engineering services for various fuel cell applications. Ballard Power Systems Inc. offers its fuel cell products for various applications, including portable power, material handling, and telecom backup power, as well as power product markets of bus and tram applications.  Source: Finviz.com

Trade Green!

Jason Bond

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4 Comments

  1. Russ Allen

    JB, i thought Jeff was going to start adding some long ETF, and stock picks to the Long term trading WL. When will that start or did I misunderstand?
    Russ Allen

    Reply
    • Jason Bond

      He is, we’re just a few days behind. Busy schedule with Dallas next week.

      Reply
  2. Mario

    hey Jason, do you recommend adding stop losses on your long term picks?

    Reply
    • Jason Bond

      I personally don’t have any physical stops in place.

      Reply

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