If only...

"If 'ifs and buts' were candy and nuts we'd all have a merry Christmas." -- Don Meredith


I frequently see people on stocktwits and other message boards making comments along the lines if only I would have bought XYZ stock, or sold ABC stock at such and such price. I too was guilty of such thinking, I can't count the number of times I would think to myself "if only .."

Big Gain Hunting: PIP

PIP has the possibility for making a huge move within the next few weeks. It already had an initial EP August 8, 2014 when the Chancery court of Delaware issued a decision finding that PIP was entitled to damages from SIGA:

 "I conclude that PharmAthene has proven adequately that it is entitled to an award of a lump sum as expectation damages for SIGA‟s breach of contract."

Per the decision, the damges will be submitted by PIP's expert and SIGA is only permitted to challege computational errors and not the availability of such damages. 

The interesting thing is that the Court did not actually specify a damage itemization. PIP's attorneys have to supply that.  Undoubtedly there will be a short briefing schedule which could extend the date into next month.  That being said, PIP is likely to obtain a court decision (and investors will get a press release announcing that PIP has been awarded something in excess of $200,000,000.

That is a tremendous amount of money for PIP, which currently has a market cap of only 127 Million and 14 Million in sales.

Will they collect?  First, in hunting this big gain candidate, I'm not sure that it matters, the announcement should spark the move in itself as the initial decision on the merits of the suit did.

Appeal?  Probably.   Issues of credibility are nearly impossible to overturn, so I would say that SIGA would have an uphill battle unless they can overturn the legal theory of the expectation damages.  I don't think that will be the case since it already came down from the Delaware Supreme Court, which agreed that it was a proper measure of damages.

In addition SIGA should have to put up a supersedas bond to avoid collection.

Collectibility? A concern, but as if SIGA attempts a BK, PIP will be the largest creditor it would likely obtain an exclusive license on the drug and the government contracts that go with it. Notably, in the court decision, the court observed:

"SIGA valued ST-246 conservatively at approximately $1 billion. In mid-to-late 2006, as ST-246 began to look “more and more like a multi-billion dollar drug,” SIGA began experiencing “seller‟s remorse,” which was the primary impetus for its bad faith conduct later."

So the question is what effect does $200 + million  award have on a company with a market cap of 127 Million?  I don't see how its a negative.

Big Gain Hunting: JRJC

Despite my intended vigilance on stocks that make mega moves, I missed JRJC's move this week. JRJC enjoyed a relative period of quiet  activity before exploding this past week;

Weekly

So what happened?


News:  partnering with CITIC to launch a Chinese online trading platform.

Ingredient List
Small Float: 21.79 Million shares.
many China stocks making good moves
Growth: First qtr Earnings from june

2014 First Quarter Financial Summary

• Net revenues were $23.2 million, representing a year-over-year increase of 321% from $5.5 million in the first quarter of 2013;
• Gross profit was $17.8 million, representing a year-over-year increase of 389% from $3.6 million in the first quarter of 2013;
• Net loss attributable to China Finance Online was $2.0 million, compared with a net loss of $4.3 million in the first quarter of 2013.

Current market cap 228 Million.

Analysis

JRJC seemed to have the right news at the right time.  This move was not earnings related.  Interestingly,  the market faded  its earnings as the gap was faded:

Everyone would obviously love to capture moves such as this.  I'm not sure that it was justified however, on the news that sparked the run.  I suspect that JRJC will sell off.  If the news of the trading platform is really the game changer that the market's first reaction seemed to think it is, there will be another opportunity to purcahse JRJC when it's earnings start to realize the potential.  This type of event news driven move presents the toughest type of move to capture.  I would be a seller here.

Book Review: Superstocks by Jesse Stine

Every year, there are stocks that will have epic runs and return 500-1000% or more within a few short months. This book explores how to find these Superstocks and how trade them.   I've been trading for over 14 years. During that period, I have probably read over 100 books on investing/ trading and very few of them are worth a damn.  This book is not is the usual B.S. trading books that show some swing trading setup based on cherry picked charts. This one was different.  This is Jesse's story about his actual trades.  Jesse did it.  This is his book, his story, and our opportunity to share in it.    Superstocks is hands on as it takes you through his trades.  Showing the entries, exits.

If you want the entertaining story about how he did it its in there as is the psychology.  If you want the hands on detail thats there for the taking as well.  This style fits my philosophy in that it is part momentum, part fundamentals, and part trend following. These stocks are set in motion by a major event. Usually earnings.  (Stockbee a site, which I subscribe calls these type of events, episodic pivots or "EPs")  Jesse demonstrates how to get into these stocks, what to look for in the 8ks, the charts and how to get out before they collapse... they always do.

There is also  healthy dose of trading psychology and contrarian advice... turn off the noise, look at weekly charts because everyone looks at daily charts, don't use indicators because everyone uses them.  Think differently, get different results.

The only area where I felt Superstocks does not go far enough is in risk control.  There is not enough much discussion in the way of stops or position sizing. This would have been helpful. However, I get the feeling that Jesse's own trading during his 14,972% run would have violated many traditional notions of risk management due to the leverage he put on his trades.  Indeed, he does not hide the fact that he had some massive drawdowns. 

I love that this book was self-published because it contained many more examples than most publishers would have allowed. In an area where there are so many phonies, it is refreshing to see someone who is genuine as a trader.  After reading Superstocks, I immediately read it again. I'm now on my 3rd round.

Psychology before earnings: PLUG

This post is to assuage my own psychology and record my thoughts right as uncertainty is the highest 

 I've done my homework on PLUG. After doing so, I took a position on the hypothesis that company is early in its growth cycle. Tomorrow that hypothesis will be tested. Very rarely do I have complete confidence in a position and PLUG is no exception.  

We've all seen stocks take off in light of an earnings report. 50% - 70% or even 100%.  Of course, there there are many that go the other way.  Plug has many positive signs:

• Strong Guidance forecast from 1st quarter (top end above consensus 16.7
• BLDP reported heavy sales from PLUG
• CEO's "breakout year" remarks.

Still, after more reflection, I find my way shying away from my Big Gain hypothesis. .

• Number of shares outstanding-- 161  shares  (added 22.6 Million in April's secondary offering)  That's a lot of weight to carry.  

• Excessive Bullishness  --
• 97% BULLISH 
• 3% BEARISH   
Stock-twits unscientific measure.  Could cause sell off even if earnings are great due to expectations. 

• M.O.U. with Hyundai was supposed to be formalized into a J.V. by July 31. 

I'm still bullish, the chart looks fantastic.    I've managed my risk, I've gone through my trade plan.  May I have the discipline to follow it as volatility gets crazy.  Game on.

Waiting is the hardest part.

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine, that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”

Jesse Livermore  

BIG Gain Hunting: CDXS

As pat of my Big Gain Hunting trading plan, I am working on predicting moves based on information currently available.  As I've had a lot of views on my PLUG writeup, I need to disclose that my The S.O.S. Education blog is for theories, analysis, etc. and S.O.S. is  my trading Journal, which documents my actual trades.

I anticipate that there will be some overlap in positions.  In that if I feature a stock here, I may or may not take a position in it.   I have taken a position in CDXS and for that reason my write-up is here on the S.O.S section :

Big Gain Hunting: PLUG review

1000% moves. They happen. Traders catch them. How can I  catch these type of moves? Here's my training plan.

Training Regime 

• Study the past movers
• Place the earnings on the chart. What did monthly, weekly, and daily charts look like. 
• What was the volume the day before, after , the next day.
• What caused the move?  If earnings read the 10Qs 8ks, Conference calls 
• Compare to the past.
• Identify entry cues
• How do the moves start?
• Where are the best entry points.
• Stops
• Predict Next movers
• Write up case for the big moves
• Identify entries exits and plan to handle if rises
• Trading plan to sell if it doesn't work out 
• Start Hunting 
• Start with smaller positions
• I'm assuming I'll have many false positives and will fall prey to my emotions when a trade goes wildly in my favor 
• Assess trade
• Build confidence
• Trade with confidence
• Capture monster move.

Monthly Chart Observation:

• Very long neglect period of small weekly moves with low volume.
• First week of December sticks out like a sore thumb in range.  (December 5-6)

Prior to that time $6 million shares would be a huge day.  But within two days 37Million and they 69 Million shares traded on back-back-back days.

Why?

Plug rose 61 percent to $1.27 at the close in New York, the most since October 2008.

The bloomberg story reported that "The fuel-cell maker that hasn’t had net income since its 1999 initial public offering, rose the most in more than five years after saying it expects to be profitable next year.

What is curious is that there was a lag. November 14, 8k. PLUG noted  

The Company continues to experience a significant increase in its bookings since it announced a $6.5 million strategic funding round from partner Air Liquide in May 2013. Orders have been fueled by the investment news, coupled with an investor update on October 8 ^th . On this call, CEO, Andy Marsh, discussed the Company's plans to expand into providing hydrogen, its growth in European markets, and several multi-site customer deals that were in negotiation.

***

I'm expecting a 'blowout' number of orders in the fourth quarter as we start to close some of these multi-site deals and gain new customer wins. I believe that this momentum will result in the 2014 revenue we need to achieve our EBITDAS break even goal."

Yet on an YOY the earnings were not spectacular.   $4.6 million v 4.8 Million.  down 200k from the prior year and they had shipped fewer units.

So why was the CEO expecting "blowout numbers" and why did YOD eventually shoot up over 100%?

On December 4, 2013 The company issued a PR:

The Company has seen an additional 17.8M USD in bookings. Plug Power is currently in negotiations with large customers on sales agreements to deploy turn-key GenDrive solutions at multiple distribution centers. The Company believes this will significantly impact the fourth quarter bookings, as well as provide a recurring revenue stream from product, service and hydrogen contracts. Plug Power expects orders to range between 30M and 40M USD for the fourth quarter of 2013.

Again, the CEO used the phrase "blowout quarter."  This PR started the frenzy.  

Observation:  The initial move was signaled and you can see in hindsight why this happened.  But if you weren't watching PLUG and reading the 8Ks would have it shown up.  I doubt it.  It went from .55 to 67 cents on double volume.  Which would not have been enough to show up on any scans I currently use. 

On December 4, the Company put some meat behind the numbers 10x the revs from the prior quarter.  PLUG Spiked to a high of $2.24  but then slowly retreated on ever decreasing volume.  A low of 2.2Million shares traded  2 days before the next breakout.  By that time, PLUG had given back 1/2 its move as it settled in at $1.60s

• Observation: Unless traders bought right away on December 4,  most of the breakout buyers were probably sitting on losses or at best had scalped small moves.  

• *Entry: This quiet period would have presented the second entry if the Press Release trade was missed. On a weekly chart this was 2 weeks after initial move.

The next catalyst was Plug issuing a PR stating that they had made their "order target":

"Plug Power has seen significant traction closing out 2013, and we expect the first quarter of 2014 bookings to meet or exceed the fourth quarter of 2013," 

This announcement was good for a move from $1.60s to $4.90 within a week. But by January 27, 2014 plug had traded back down to $2.20.

Then it was revealed that the order came from wal-mart.  Analyst then came out of the woodwork saying they anticipated more orders from other big-box retailers and supermarkets. A frenzy ensued pumping PLUG within just a few days to over $10.00.  But faded quickly on news of a secondary offering

Q1 Earnings The next highlight is  First Quarter earnings in May.  

By this point PLUG had sold off to a low of $3.62 

Highlights of CC 
But again the announcement was very positive:

"Already to date in 2014, Plug Power has over $80M in bookings – double the bookings from 2013. Plug Power attributes this increased growth to the successful launch of its GenKey business. The company expects to ship over 650 GenDrive units in the second quarter."  

Plug has now settled in at $5.65 and gone quiet.

• "Year-to-date, the backlog has increased from 1,439 units to 3,719 units as of mid-April. "

• Plug Power’s full year 2014 booking target is $150 million. This year we have already almost tripled our backlog from 2013 and are more than halfway to our bookings goal for the year. 

• the factory has never been this active.
• Q1 was 165 Units so Q2 should have exponential growth.

Potential downsides:

• Dilution via  secondary offerings.  
• Margins on service business were down. Plug explained that this was to help facilitate the Walmart deal but would be positive by Q4.

 Is there another Run?

I had began this analysis as a mental exercise wanting to simply document a monster move that had run its course.  After spending  4 hours of this process, I'm actually believing that there is another big move still to come.  

Plug was somewhat neglected after the first run and perhaps Q2 earnings would take some by surprise. If there is a good entry point, PLUG might be worth a buy.  The downside risk is that with the expected earnings numbers already thrown out it might not cause the buying panic that leads to a monster move.  That being said, I believe a significant move to the down side is also limited.  

I'm very tempted to pick up some shared in advance.  I know, I know,  false positives. ...

Trend following by Michael Covel review

I Just finished Michael Covel's Trend following. The book reads like a Rah Rah piece making the argument for trend following.  It argues that it is the best method, taking on victor Neiderhoff and even Warren Buffett in the process.

I get that it works for those who can do it well as the book notes that  John Henry started with 16k. and now owns Boston Red Sox.

The Trend Following has heavy doses of Trader profiles, such as the Turtle traders, who imparting their wisdom in Twitter size quotes.  For example,

Ed Seykota: "Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."
Ed Seykota: "To avoid  whipsaws and losses, stop trading."

Ed Seykota: "Risk no more than you can afford to lose, and also risk enough so that a win is meaningful."
Ed Seykcota: "Trend Following is an exercise in observing and responding to the ever-present moment of now."

Ed Seykcota:"Fundamentalists and anticipators may have difficulties with risk control since a trade keeps looking 'better' the more it goes against them."
Ed Seykota: "Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarkett

Unfortunately,  There was very little "meat" regarding how to do it. Position size, risk control, profit taking.  In that regard the book was disappointing.  It took over 200 pages before systems were discussed.

1. How does the system determine what market to buy or sell at any time?

2. How does the system determine how much of a market to buy or sell at any time?

3. How does the system determine when you buy or sell a market?

4.How does the system determine when you get out of a losing position?

5. How does the system determine when you get out of a winning position? 

I would have like to see what the trading wizards responses would be to these questions.  

 The book does very little in attempting to answer these questions.  There is the basic don't take a loss of more than 2% of your portfolio on a trade.  I have that rule as well but that hasn't given me the 18,000% return that some of the traders profiled have earned.   I wanted to know when, how do we get into a trend?   How do you get out,   How do you trail your stop? Seykota mentions  he uses Donchian Channels but they are not explained by the book.  This will be a topic of more research.

In short this book is not particularly helpful.  Undoubtedly, it discusses a great strategy but it doesn't do it well.  Save your money.