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Financial planner and options trader for 20 years. During the dot.com era, gained 10,000% in a 12 month period from March 1999 to March 2000 with about 1,100 trades. Lost 100% of that amount in the dot.com crash and failure of the market to open for a week after 9/11, causing option positions to... More
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  • Mark Twain: "A mine is a hole in the ground with a liar standing next to it."
    As Mark Twain said, the definition of a mine is "a hole in the ground with a liar standing next to it." 

    I'm not accusing anyone of lying here, but in the financial markets, perception and reality are often two different things.

    Take for instance the recent mercurial rise in the "rare earth" stocks.  These companies mine the precious minerals that are used in batteries to power smartphones, netbooks, laptops and hybrid autos like the Toyota Prius.

    At the end of 2010, China was chestbeating about how it was going to put quotas on exports of its rare earth elements and China holds the bulk of the world's deposits.

    There was a subsequent flurry of activity in US-based "rare earth elements" stocks such as "Rare Earth Resources" (Nasdaq: REE) and Molycorp (Nasdaq: MCP).

    Here is the REE chart showing how REE had run up essentially 800% since July as of the end of the years.  The froth was palpable...



    And here's MCP (Molycorp) chart showing a similar rise, although not as parabolic:



    Note these stocks are either consolidating or are coming back to earth.

    There is a fantastic SeekingAlpha article on REE that got me started on the bearish case for REE.  I highly recommend reading it.

    From there, I did some research and realized the following:

    I went to GOOGLE MAPS:

    http://maps.google.com/

    Then entered their company address as listed in Yahoo Finance:

    325 Howe Street, Vancouver, British Columbia, Canada

    Then drop down to "Street View" and navigate along the street until you see a building on Howe Street with an address of 325.

    You'll see a building with several boutique stores on the first level, including "Rendezvous Art Gallery" and "Crest Jewelers."

    REE is in "Suite 410" which means they have offices on the 4th floor.

    Then scan up the building and you'll see there's only 7 office windows on the HOWE street side and 3 office windows on the Cordova side. Assuming a hallway in the middle, that's only 16 offices on the 4th floor.

    Ask yourself, isn't there something odd about a nearly half-billion dollar market cap company with:

    1) Just a handful of employees inhabiting the 4th floor of a building in Vancouver (the 4th floor has a maximum of 21 offices and we don't know if REE even occupies all of them, so do the math)

    2) NO Earnings for several years until 2015 if/when their mine starts yielding.

    3)  An unaudited financial report (Canada)

    Here it is from their SEC FILING:

    ONLY TWO FULL TIME EMPLOYEES as of a year ago!! (and this company has a market cap of over $526,000,000 - a HALF OF A BILLION DOLLARS!)

    Go to PAGE 54 and you'll see it in print.

    ---"6.D. Employees

    At 10/31/2009, the Company had two full-time employees/consultants and five part-time employees/consultants, including the three Senior Management; five of these employees/consultants are directly engaged in exploration activities. As of 6/30/2009 and 6/30/2008, the Company had six and three full-time and part-time employees/consultants, respectively, including the Senior Management. Donald Ranta, President/CEO of the Company is involved in both administration and exploration. He is based in Golden, Colorado, USA. None of the Company's employees are covered by collective bargaining agreements."

    I would be skeptical going long in such a speculative stock as REE and am confounded that there are enough investors who bought into the rare earth element shortage scare enough to buy shares in such thin companies.


    Disclaimer: The author makes no warrant for the accuracy of the content herein other than the links provided to traditional online sources of information for verification purposes. Additionally, investors shall not take any comments stated herein as advice to buy or sell any equities and if investors do so, they acknowledge that they have done their own proper due diligence and proceed at their own risk.  Currently no position in REE or MCP, having had puts in REE.   Waiting for the next irrational bubble.

    Feb 28 3:25 PM | Link | 1 Comment
  • CIENA - to trade earnings or not?
    Next Monday March 7th presents a quandry for CIENA (Nasdaq: CIEN) followers because there are strong bull and bear arguments in either direction.

    The market for telecom optical networking is booming and CIEN's strong share price uptrend certainly hints at strength in their core business.  Moreover, the booming need for data transfer (movies, images, PDF's) all bode well for CIEN. 

    And from a technical analysis perspective, even when the market goes down, CIEN often hold its own, thus showing good relative strength:




    BULLISH ARGUMENT:  JDSU reported earnings before CIEN and enjoyed a huge 25% spike the next day and CIEN may be peripherally benefitting from JDSU's good business.

    BEARISH ARGUMENT:  CIEN's is not even profitable and the consensus estimate for earnings this quarter (announced March 7 after the close) is -16c on revenues of $421M.  This might give traders enough of a pause when thinking of running up share prices JDSU-style after earnings.

    The best options bet might be to play a straddle or strangle in which the options holder profits on a large move in either direction.


    Disclaimer: The author makes no warrant for the accuracy of the content herein other than the links provided to traditional online sources of information for verification purposes. Additionally, investors shall not take any comments stated herein as advice to buy or sell any equities and if investors do so, they acknowledge that they have done their own proper due diligence and proceed at their own risk.  Currently no position in CIEN, having had puts in it in the past and learned how strong the stock is recently. The position was negative for several days when the recent drop in the Nasdaq allowed a 5% profit just to get out, thankfully!



    Tags: Ciena Corp.
    Feb 28 3:05 PM | Link | Comment!
  • Omnivision poised to move higher after a pullback.
    Omnivision (Nasdaq: OVTI) posted spectacular earnings last week on remarkably strong growth in demand for its image sensors used in smartphones and digital still cameras.
     
    Speculation of poor yield at TSMC on Omnivision's chips had sent shares tumbling on February 23 when Baird analyst Tristan Gerra claimed the company was having difficulties manufacturing its Backside Illumination Sensors that were rumored to go into the new iPhone5.

    When the earnings report came out, the Baird analyst may have been looking for a place to hide because Omnivision clearly hit the ball out of the park. 
     
     
    OVTI essentially had a 44% beat on EPS & 43% UPSIDE on guidance.

    Let's review the numbers: 
     
    Last Quarter’s EPS: (84c actual EPS/58c estimate) = 44% beat
     
    GUIDANCE: Take 63c as the midpoint of their $0.57-0.70 range, so:
     
    (63c EPS Guidance/44c estimate) = 44% upside on GUIDANCE.
     
    Theoretically, the stock should rise 44% on that earnings report because the earnings picture has now completely changed from expectations by 44%.  The first day rally was 30%.

    Over the subsequent few days, the stock was up over 30%, so the shares managed to mostly correct malperceptions about company prospects in a New York minute. 

    After the Baird analyst's negative report on OVTI (timed right before earnings to provide a discount for many OVTI followers who did enough due diligence to disbelieve him), Raymond James came out with in defense of OVTI as stated in a Barron's report.

    With a low PE and high short interest, OVTI has room to move, but as a trader having taken profits, it may be prudent to wait for OVTI to consolidate back around the $28 level and wait for any market decline before stepping boldly back in. 

    OVTI


    This stock has room to rise over the next year, with sales expected to triple owing to strong smartphone sales and the release of the iPad2 which may have Omnivision sensor chips on board (two cameras per iPad2 will double sensor sales per iPad sold).


    Disclaimer: The author makes no warrant for the accuracy of the content herein other than the links provided to traditional online sources of information for verification purposes. Additionally, investors shall not take any comments stated herein as advice to buy or sell any equities and if investors do so, they acknowledge that they have done their own proper due diligence and proceed at their own risk.  Currently no position in OVTI, but looking to be long calls on a good pullback.
     
    Feb 28 2:38 PM | Link | Comment!
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