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17 Oct

Monday October 17, 2016

by

Good morning,

Oil was the big winner again this week with another 1.89% run higher, as stocks continue to range-trade following the nice rally off the early-February lows in both assets.  

For the week, the DJIA, S&P500 and NASDAQ slid by 0.56%, 0.96% and 1.48%, respectively.  Since the lows of mid-February, the indexes have moved up 17.00%, 17.84% and 23.86%, respectively, while the price of West Texas Intermediate Crude (WTIC) oil has soared by 94.8% during the same time period.

The British pound was again the big loser this week, with another 2.09% drop in sterling against the U.S. dollar raised the price of a barrel of oil in Great Britain by another stiff 4.06%, taking the total rise in crude priced in sterling to 132% from the mid-February low.  Let’s remember, the U.K. became a net importer of oil in 2007.

The VIX moved sharply higher by 19.58% this week and back to a neutral reading of 16.12.  Although a 16.12 appears a bit high when taken within the context of the 11 and 12 handles regularly printed in August, a reading of 16 still ranks relatively low when compared with the 12-year average of 19.5.  

If you look at a chart of the VIX and superimpose a 600-week moving average (presently at 19.5) to the data, you’ll notice the spikes in the VIX at the 600-week moving average have many times been slapped back violently within a week of trading.  The exceptions to this action occurred in August 2015 and January 2016, when the most volatile of the three major indexes, NASDAQ, corrected nearly 20% before resuming the bull market.  So, for now, 19.5 serves as my upper limit to seek bargains in stocks.

Aside from the interesting developments in the oil market trade, where WTIC hasn’t closed a week successfully above $50 since July of 2015, the U.S. Treasury market again caught my attention this week.  The yield of the bellwether 10-year U.S. Treasury note rose for the second-straight week, closing the week at 1.80% and three basis points shy of its 52-week moving average, while the 10-year/two-year spread rose as well, this time by a sharp six basis points to close at 96 basis points.  The yield curve is steepening.

In the precious metals market, prices for gold and silver bullion traded within a tight range after the shellacking of the previous week’s BIS walloping of the metals with a $2 billion naked short trade while traders in China were on a week-long holiday.  Both metals remained priced above their respective 52-week averages at $1,255.50 and $17.44 per ounce.

Now we come to the last-minute market event of the week.  Fed Chair Janet Yellen’s comments at a conference central bankers and academics in Boston on Friday caught my attention.  And I’m surprised Zerohedge has not posted an article about the conference in Boston, because I believe Yellen’s suggestion of allowing consumer price inflation to gallop higher to support GDP is a significant development at the Fed.  

For as long as I can remember, no Fed chairman has ever implied that running consumer prices higher than the Holy Grail maximum annual target rate of 2% was ever a good idea, but Yellen has now introduced this trial balloon at a public conference.  I knew something along these lines was coming, because as consumer spending continues to show signs of weakness; employment gains are of low quality; capital spending is in decline; and trade out of China shows significant drops; a strong dollar U.S. is killing the global economy, sucking the life out of national budgets that service sovereign debt in the U.S. currency.

So, what does this all mean, you ask?  What Yellen is suggesting is simple: let the U.S. dollar decline.

Therefore, this implies commodities prices may be on the rise soon, as the oil price along with weakness in U.S. Treasuries (despite strong gains in the U.S. dollar in the currency market) and the recent unprecedentedly-high-volume vicious attack on the gold market might be the evidence of footprints of those front-running expectation of a weakening U.S. dollar in our future.

If you look at the effects of commodities prices in British pounds, the oil price, for example, has broken out, rising to an equivalent of a $73-per-barrel impact to the U.S, economy.  A higher dollar-denominated oil price will therefore lift energy and alternative-energy stocks domestically and abroad, mining, and bank stocks, in particular.  And who at the Fed doesn’t want to see a lift in the share price of DB, Deutsche Bank, the Lehman-like bank loaded up with low-grade, energy-related debt among its bloated $52 trillion derivatives book?

Folks, the oil price is the canary in the coal mine, as it serves as both an economic (or inflation) indicator as well as a geopolitical weapon.  Right now, Britain has become the latest casualty to the “good guys” in the currency and oil war waged against Russia and Iran.  

Europe, too, is on the brink of a similar collapse in the euro because of the strong dollar, with heroic efforts to stave off a Deutsche Bank implosion serving as the warning shot in Washington that the Fed must back off of a strong dollar monetary policy.

Has anyone noticed, too, the timing of the escalation of fighting in Syria and the U.S. Vice President’s follow-up with diplomatically outrageous comments about directing the CIA to begin targeting Russian computer servers?  

Washington is clearly showing signs of its hogtied position.  The Obama Administration must now allow the dollar to decline to relieve pressure from Europe, the result of which will most likely exact upward pressure to oil prices and other commodities prices to the benefit of Russia and the rest of the BRICS nations, the “bad guys.”  

I know I’m going out on a limb, here, with this tea-leaves reading of the Fed’s role in the U.S. war with Russia and Iran (Syria is the proxy), but that’s the sense I get for Fed policy during the post-election period.  In essence, I see higher everything (except bond prices) in the longer-term of a year out!  

A retreat by the Fed may reignite stocks once again as the sense among the big boys is, that the Fed can always directly purchase equities, a la Swiss National Bank (SNB) and Bank of Japan (BOJ).  Count on the overt implementation of this Fed “tool” during the next crunch.  Remember, it worked for the BOJ for more than two years!  

In short, as long as central banks remain in control, a 20% correction will remain as a reasonable expectation of an outside downside risk to stocks.  And as I stated in previous reports, I’m already with a list of favorite plays no matter which way stocks go.

Now let’s move on to my trading ideas and trades.   

This Week’s JBP Stock Ideas

LIQUIDMETALS (LQMT)

It was another week of very little activity in LQMT.  The stock was down a penny, and still trades in a backing-and-filling environment following the 35.9% move higher in August.  The chart still shows a bullish trend, with the 52-week moving average trending up nicely.

I still own 100,000 of LQMT at a price of $0.137 per share (up 2.2%), with a small profit of $300.

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)

Following Tuesday’s disappointing after-hours earnings report from Fortinet (FTNT), Wednesday trade ushered in a sea of sell orders across the cybersecurity space, including FEYE.  

Fortinet lowered Q3 revenue guidance to $311 million to $316 million, down more than 2% from previous guidance of $319 million to $324 million.  FEYE closed down 1.4% on Wednesday, following a 3.3% drop on Tuesday.  For the week, FEYE fell $0.94, or 6.87%, to $12.75.

Fortinet cited “the lengthening of deal cycles as enterprises are becoming more strategic with their purchasing decisions and buying with less urgency than last year,” as the reason for the drop in guidance.

Although Fortinet’s downward revision to guidance isn’t good news for the space, and was a bit of a surprise to me, I found that Piper Jaffray had been reported as saying that Fortinet’s guidance was the result of company-specific issues.  To me, that makes more sense.

We must remember that, in this space, several means of providing cybersecurity are available and by a multitude of companies.  In the case of FireEye, the company went to market first with the concept of “sandboxing,” a term used to describe a process of capturing suspicious code, isolating and running the code to test it for malware before releasing it back to the live server.  

Analysts from Citigroup have said that sandboxing is effective, easier to implement than many other techniques, and offers a relatively inexpensive solution to integrate.  Since I believe FireEye is the industry leader of sandboxing technologies, the potential for the company as a buyout target is enhanced.

The share price of FEYE has fallen to $12.75, below my objective of $13.  I’ll be watching the stock more intently for signs of a bottom.  Right now, momentum is still down, with $11.35 as the rock-bottom price objective I see for the stock. I’ll let you know.

feye

Before I move on to the LIVE, I found a great article published on Monday about the cybersecurity industry from Investor’s Business Daily.  Some nice commentary on FireEye’s strategic position within the cybersecurity industry is included.

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.

Source: Finviz.com

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.

Friday’s $0.05 (2.69%) rally wasn’t enough to erase earlier declines in the share price of LIVE.  For the week, LIVE fell $0.04 (2.05%) to close at $1.91 per share.

live

In three weeks, the market value of my 10,000 shares in LIVE is worth $1,500 more than my purchase price.  So far, I’m happy and comfortable with my trade.

There was no company-specific news about the stock.  

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 more complete analysis of the company.  It’s worth the read.

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.  

From an initial scare on Monday during the stock’s battering to as low as $0.36, I managed to get out on a strong rebound at $0.479 with a small percentage loss.  On this trade, I had to exhibit some mighty strong patience—no question about that.  

I knew strong buying would come in after traders panicked after the stock price breached $0.40; and the buyers did come in.  In fact, if I didn’t already have my position, I would have been one of those buyers.  Ah, it’s all in the timing, and I was off by a measly two days from making a huge score.  I immediately ditched the “what could have been” self-loathing feeling and moved on!

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 on October 7 that I bought 10,000 shares of BLDP at $2.39.

Although this week’s stock action was a beautiful example of a stock in a bullish trend, by Friday, BLDP was down $0.06, down 2.52% for the week.  If you view the chart of BLDP, you’ll see the stock bounce off its trend line and 50-day moving average (not shown).  That, there, is a good sign.

bldp

Firstly, as I mention earlier in this report, I like oil here as speculation on the Fed’s desire (in my opinion) to concern itself with the rising value of the U.S. dollar.  Higher oil prices may provide a lift to BLDP in addition to the impact on the stock from the strong possibility of an announcement of a deal with Nikola Motor Company to begin supplying fuel cell technologies and products for Nikola’s new zero-emission truck scheduled for a prototype unveiling on December 1.

Secondly, I also anticipate a bump in the stock from an announcement of more details to the signed joint-venture Memorandum of Understanding (MOU) with Guangdong Nation Synergy Hydrogen Power Technology, wherein the two companies tentatively agreed to produce fuel cell stacks in China.  

And thirdly, Ballard is scheduled to release Q3 earnings on October 26.  The company’s method of operation, its MO, if I may, is to also schedule a “good news” announcement leading up to the earnings report.  News concerning additional details about the agreement with Guangdong is indeed possible by the 26th, a week from this Wednesday.

With earnings expected soon; an announcement regarding the fuel stack MOU anticipated; and, of course, the potential of a big announcement regarding a Nikola/Ballard deal speculated, I’ve got a few chances for a nice rally in the stock this month.

Keep an eye on this play.  I’ll keep you posted.  

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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