MY MAIN SQUEEZE

As I mentioned in After Hours with Option Addict last week, I am a Shanghai bull here in the near term. I think there is about 400 points of upside remaining this year. Suffice it to say, I’ve got some exposure here.

Lately, we’ve been talking about high short interest names, “dash for trash,” etc. While we are clearly seeing a risk rotation in the market today, you must look at the high short interest stocks as a place to get the biggest bang for the buck.

So many of these heavily shorted stocks have not moved during the first phase of the rally. But then again, the higher this thing goes, the easier it becomes to shake these stocks down, simply for the reaction.

I’m looking at $QUNR. Last week the stock got a downgrade and spiked on heavy volume. Today its down about 10%, on a small fraction of that same volume. This is one of the most heavily shorted China names on my list, and its trying hard to consolidate some pretty fast moves from last week.

This is purely a spec play, but it has the potential to see some pretty fast upside.

Trying some Nov calls, fwiw. Any additional downside from here, I like it a lot less.

What are some of your top squeeze candidates?

CASH IS KING?

You do realize the extent of this rally falls not totally on the macro or fundamental argument, but mostly on exposure, sentiment, and positioning, right?

Do you understand why the correlation to 1998 (which has the highest correlation coefficient I’ve seen) was not hinged so much on what went on in the world at the time, but how people felt about the world, and what they did with their money in response?

The best indicator I’ve used during the whole process here? Cash.

We spoke of this a few months back, but the Global FMS Cash Indicator hit an EXTREME this year. That means that there was more cash available to be deployed if the opportunity presented itself.

BAML cash

pic91bb1408736476ab28062ae5f2fc9426

What if high cash levels were waiting for a market dislocation to present an opportunity, rather than to predict a crash?

I’ve posted my arguments on many occasions that this is simply what is happening. This is why you are seeing late 90’s price action in some big name stocks too.

The higher this market goes, the greater the need to deploy that cash, a la 1998.

The reason the charts have such a high correlation? Price is a reflection of behavior.

Forget the similar headlines. Pay attention to the behavior.

I gotta tell you, today’s action is the most constructive part of the last 6 weeks of analysis. The arguments are about to grow very quiet around here.

OA

LOOKS LIKE ROTATION

Stocks have a pretty good trend here off the open, but notice that the non-stop trending stocks over the last few weeks are not the stocks hitting days highs here. In other words, there are new names trending with the market here today.

As I mentioned a few times last week, I don’t care much about what the market does this week, I’m mostly concerned with which stocks get bid up this week.

I started up some $CRM and $JOY right at the open off this weeks watchlist. Will be paying attention to top dollar movers today to notice any themes.

More later,

OA

ALL I WANT FOR CHRISTMAS IS A DRONE

I was at my sons 3rd grade football game last month and heard this noise I couldn’t locate. Finally, I looked up, and sitting still in the sky was a drone, taking video footage of the football game.

Immediately after seeing that, I wanted one. I can scout hunting spots this winter, spy on my neighbors, check on traffic, etc. Anyway, its the number one item on my list this year.

I’ve also been a long time fan of Shark Tank. This show got very little play when it first debuted in 2009. I fell in love with it, because it helped to illustrate entrepreneuralism and the American dream at a time when most people were down. It’s the only series I watch on prime time, and I’ve watched every episode.

If you missed it, there was an episode recently on a couple of guys with a drone company, looking to raise some money. Business Insider did a write up here. Also, here’s the video.

It was the most memorable episode I’ve watched. This company makes drones, one in particular that takes your phone with it as it flies. The sharks got into a bidding war, which ultimately doubled the valuation these guys were looking for, and each shark got in on the deal.

A few names that I follow as drone or drone derivative plays are $INVN, $IXYS, $AVAV and $AMBA. 3 of these 4 have been trading very well lately, and I wanted to start piecing together a position in $AMBA here around $50.

Overall these stocks were high flyers in late 2013 to early 2014. $AMBA traded on their own path to a degree.

Anyway, this is what prompted me to start nibbling into a falling knife. $AMBA has already seen some fear and panic priced in this year, but I’m a buyer down to $45. I would have gone with $INVN, but I can’t get it under $10 anymore. I plan to hold for some time.

Have a good weekend,

OA

TIME FOR RISK ROTATION

Part of my presentation in NY was a comparison of last year and this year in terms of environment, sentiment, and overall market health.

I’m going to give you a brief look at one item we discussed, and that is the overall rotation of risk from the 2014 October lows.

One comment I heard a lot back then was that most stocks weren’t participating in Stocktober. It was initially a fairly narrow rally like we’re seeing here. BTW- if you are an After Hours with Option Addict member, we went through this in some pretty decent detail last night. Worth a sub just for that piece.

Anyway, look at the following chart. In my mind, I give stocks a risk rating: 1-5. You can do this A-F as well.

MSFT – 1, AMZN – 2, FEYE – 3, YOKU – 4, etc.

You can look at a few 1’s as INTC, GS, DE…whatever.

A few 2’s – NFLX, GOOGL, PCLN, etc

So on and so forth.

Picture1

Take a look at this graph. The quality names rallied first, then most flattened out, even pulled back into year end/early 2015.

Take a look at AMZN, NFLX, GOOGL, etc. Stocks I would consider to be 2’s. They continued lower after October. Their bottom was in Nov/Dec/Jan after the rally matured.

Stocks like FEYE, YOKU, etc? Many didn’t bottom til 2015, and rallied in Feb-Apr while quality stocks underperformed.

The key now is finding out when the leaders of this rally start to slow down. We looked back into last year’s rally and found that the signal that helped find the top for these early leaders happened to be my overbought/oversold extreme.

Speaking of which, all the early leaders of this rally….they are reaching overbought extreme this week.

We are near the point where if this trend is to continue, a rotation needs to take place. This is why it is the most important element to watch for next week as the market flattens out.

OA

EXCITEMENT IN SOFTWARE

I have blogged a few times about the software space. This is one of my favorite intermediate to long term groups.

A few upbeat earnings has many names in this space ripping today.

To name a few: $IMMR, $IMPV, $SAAS, $TYPE, $BCOV, $PFPT, $RUBI, $HUBS etc.

If you can, look at a few of those names on monthly/weekly time frames. The charts look amazing.

More later,

OA

OFF WITH YOUR BALLS

Poof!

There went a perfectly good set of calls in $SCTY, as the stock gracefully descends into a field of lower prices.

On the solar theme, $FSLR reported a pretty good beat here, and the stock just resumed trading.

$FSLR is my largest equity holding for some reason.

Here’s the deets…

Total current assets                       3,251,329       3,169,219
Property, plant and equipment, net             1,330,054       1,419,988
PV solar power systems, net                       93,420          46,393
Project assets and deferred project
 costs                                         1,030,436         810,348
Deferred tax assets, net                         264,200         222,326
Restricted cash and investments                  403,160         407,053
Investments in unconsolidated
 affiliates and joint ventures                   299,103         255,029
Goodwill                                          84,985          84,985
Other intangibles, net                           112,470         119,236
Inventories                                      108,558         115,617
Notes receivable, affiliates                      17,754           9,127
Other assets                                      65,173          61,670
                                         ---------------  --------------
    Total assets                         $     7,060,642  $    6,720,991
                                             ===========      ==========
 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                       $       303,593  $      214,656
  Income taxes payable                             2,028           1,727
  Accrued expenses                               412,167         388,156
  Current portion of long-term debt               34,082          51,399
  Billings in excess of costs and
   estimated earnings                             74,102         195,346
  Payments and billings for deferred
   project costs                                  22,699          60,591
  Other current liabilities                       43,035          88,702
                                         ---------------  --------------
    Total current liabilities                    891,706       1,000,577
Accrued solar module collection and
 recycling liability                             164,304         246,307
Long-term debt                                   251,395         162,074
Other liabilities                                332,392         284,546
                                         ---------------  --------------
Total liabilities                              1,639,797       1,693,504
                                         ---------------  --------------
Commitments and contingencies
Stockholders' equity:
  Common stock, $0.001 par value per
   share; 500,000,000 shares
   authorized; 100,919,021 and
   100,288,942 shares issued and
   outstanding at September 30, 2015
   and December 31, 2014, respectively               101             100
  Additional paid-in capital                   2,734,161       2,697,558
  Accumulated earnings                         2,658,092       2,279,689
  Accumulated other comprehensive
   income                                         28,491          50,140
                                         ---------------  --------------
    Total stockholders' equity                 5,420,845       5,027,487
                                         ---------------  --------------
    Total liabilities and stockholders'
     equity                              $     7,060,642  $    6,720,991
                                             ===========      ==========




                  FIRST SOLAR, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except per share amounts)
                             (Unaudited)

                      Three Months Ended        Nine Months Ended
PRELIMINARY              September 30,             September 30,
                    ----------------------  --------------------------
                       2015        2014        2015          2014
                    -----------  ---------  -----------  -------------
Net sales           $1,271,245   $889,310   $2,636,671   $2,383,821
Cost of sales          786,880    700,023    1,948,842    1,865,098
                    ----------   --------   ----------   ----------
Gross profit           484,365    189,287      687,829      518,723
Operating
 expenses:
  Research and
   development          29,630     37,593       93,865      109,025
  Selling, general
   and
   administrative       53,716     66,528      192,305      182,859
  Production
   start-up              3,198      1,406       16,818        1,897
                    ----------   --------   ----------   ----------
Total operating
 expenses               86,544    105,527      302,988      293,781
                    ----------   --------   ----------   ----------
Operating income       397,821     83,760      384,841      224,942
Foreign currency
 (loss) gain, net       (3,726)       169       (7,674)       (389)
Interest income          5,322      4,297       16,444       13,151
Interest expense,
 net                    (1,775)       (89)      (2,795)      (1,429)
Other expense, net      (1,678)    (2,476)      (3,729)      (5,416)
                    ----------   --------   ----------   ----------
Income before
 taxes and equity
 in earnings of
 unconsolidated
 affiliates            395,964     85,661      387,087      230,859
Income tax
 (expense)
 benefit               (49,644)     7,108      (10,324)     (19,579)
Equity in earnings
 of unconsolidated
 affiliates, net
 of tax                   (115)    (4,345)       1,640       (6,321)
                    ----------   --------   ----------   ----------
Net income          $  346,205   $ 88,424   $  378,403   $  204,959
                     =========    =======    =========    =========
Net income per
 share:
  Basic             $     3.43   $   0.88   $     3.76   $     2.05
                     =========    =======    =========    =========
  Diluted           $     3.38   $   0.87   $     3.72   $     2.02
                     =========    =======    =========    =========
Weighted-average
 number of shares
 used in per share
 calculations:
  Basic                100,906    100,197      100,713       99,981
                    ==========   ========   ==========   ==========
  Diluted              102,299    101,415      101,845      101,686
                    ==========   ========   ==========   ==========

 

TRASH PLAY SO $SUNE?

Rumors hit the wire that David Tepper is about to announce an investment in the beaten down SunEdison $SUNE.

Dash for trash?

Give this strategy some thought into year end.

OA

DASH FOR TRASH LIST

The best way to get the biggest bang for your buck in an extended market move is to go after the stocks that have the highest short positions.

Why?

Quality has been bid up and chased already. Naturally, laggards become a little more attractive in this stance because you aren’t forced to buy them up 10 or more percent.

So why not goose some shorts here? They’re already a little anxious and hot tempered (extra lol).

Here’s a basic High Short Interest scan. These are liquid stocks (more than 500k traded on average) and where the float is 20% short or greater.

Of that list, the following caught my eye…

$AMBA, $CYBR, $FIT, $JMEI, $KING, $PPC, SHAK, $TSLA, $TRUE, $VDSI

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