Corn-utopia?

Since I used to live in the corn belt many years ago, and owned some crop land, I thought I would offer a few comments about corn and ethanol.

See, this ethanol shit does’t make sense. We are greedily stuffing corn into our automobiles via ethanol, while much of the world is facing starvation. What’s wrong with that picture?

When I was a little kid, my mom used to tell me to eat all my broccoli because children were starving in India. I often thought, “what the fuck do I care?” (even though I didn’t know what “fuck” meant.)

I have news. The same thing goes for U.S. consumers. Joey-Loves-His-SUV could give a shit. As long as he can get his gas cheaper with ethanol in it, the rest of the world can starve. (Disclosure: that is not my attitude). 

Corn = energy. Are corn prices going higher? As they say in Minnesota and Fargo, ND–“You betcha”. (btw, if you haven’t seen the movie “Fargo”, you ought to rent it. Fucking hilarious, in a morbid sort of way) 

Corn is both food and energy. The market values it on that basis.

With oil at $133 / bbl, the market is valuing oil at the equivalent of about $0.023 per thousand BTUs. On the other hand, when corn is converted into ethanol, and assuming a $0.023 per thousand BTUs equivalent, that puts the price of corn at $8.00 per bushel (factoring in the $0.51 per gallon subsidy for ethanol).

Another reason why ethanol doesn’t make sense: When you consider the average yield of corn per acre, the input costs for fertilizer, a conversion rate of 2.50 gals / bushel, and the amount of energy used in the conversion process, including energy usage embodied in farm machinery, there is a NET ENERGY LOSS. But hey, it’s good for Joe Farmboy!

In addition, companies like [[MRO]] have some incentives right now to blend corn-based ethanol with gasoline, whether or not there are subsidies or Federal mandates–when they feel like it. With ethanol around $2.50 / gal, it’s much cheaper than wholesale gasoline, currently over $3. Sorry, no more regular gas. It’s not profitable. 

In conclusion, I would not be buying ethanol stocks. What are some of the risks? Well for one thing, if our government had the balls to say, “fuck you Joe Farmboy, no ethanol subsidies”, we could see ethanol stocks go to zero, much to the chagrin of Junior Sample.

Of course, the farmers could retort with, “fuck you FDA, we’re spiking your hamburger with cowshit”. So, subsidies will not disappear anytime soon, due to all the fat-ass bureaucrats.

However, it appears that corn prices will remain fairly high. I expect corn to spike to over $8 this summer. It’s priced into the ethanol stocks right now.

Disclaimer: This information is not intended to be used as the primary basis of investment decisions.  Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author has no positions, long or short, in ethanol stocks. Trade at your own risk.

 

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Big Oil’s time has come. It is a trend that has been developing with the higher oil prices. I believe we will see a return of “Big Oil” long term, contrary to comments from others.

The market was down 200 pts yesterday, oil prices were up and Big Oil was up. What does that tell you?  Sounds like good relative strength to me. I don’t know about you, but I tend to want to buy stocks with good relative strength.

Most of the market has been focusing on oil services and E&P the past 2 years, rather than super major integrated oil, aka “Big Oil”.

Big Oil is still undervalued based on NAV of reserves. As long as oil prices remain high, and reach a new plateau for the trading range, which I think it has, Big Oil is a good way to play energy.

The challenge, as always, is how they will grow or even maintain reserves. I would expect they will be buying up leases, U.S. E&P companies, and second and third tier players each time oil trades in the lower end of its trading range, which I think is now $90.

Names: [[CVX]], [[COP]], [[BP]], [[XOM]], [[PBR]], [[STO]]

I also like these U.S. E&P companies: [[APC]], [[APA]], [[DNR]], [[FST]], [[OXY]], [[UPL]]

Hot area/ Bakken Shale (ND): [[EOG]] and [[BEXP]]

Disclaimer: This information is not intended to be used as the primary basis of investment decisions.  Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author may have a position in one or more stocks mentioned here. Trade at your own risk.

 

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Some of the large integrated, U.S.-based oil stocks like [[CVX]] are breaking out of a big base. As you know, a big basing pattern is a long period of consolidation whereby a stock trades in horizontal fashion. During this extended period of time, it develops an area of support below and an area of resistance overhead. The “breakout” occurs when there is a significant move in the stocks price through the area of resistance.

I like how the PnF charts illustrate this. For a long time, CVX traded in a range from the high-$70’s to the low-$90’s. It’s now broken out of that range. This is a powerful move. Money on the sidelines now has some reassurance to jump on board.

More often than not, when a stock breaks out of a big basing pattern, it is very significant. The move will tend to be strong and will carry. In effect, the market is telling us that the stock is moving to new levels, and old resistance becomes new support.

Here’s another one:

Finally, keep an eye on [[XOM]], because it’s looking like a potential big base breakout.

Chart patterns are like maps. They can give you directions on which way to go. But they are not the only factor to consider in the decision to buy or sell. One also needs to consider the overall market, sector, trend and relative strength.

 

Disclaimer: This information is not intended to be used as the primary basis of investment decisions.  Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author may have a position in one or more stocks mentioned here. Trade at your own risk.

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Consumer Staples [[XLP]] Neutral. It had been in a long term bullish uptrend, but since Mid-January, has been moving sideways with a slight bullish bias. From a recent low in March, it has reversed to the upside. A move above $30 would resume the bullish trend.

Consumer Discretionary [[XLY]]: Neutral. Consolidating. Resistance is at 34.

Energy [[XLE]]: Bullish. Double top breakout. Sector continues on fire as oil prices ramp up. Lots of long trade ideas in this sector. [[MXC]] certainly is indicative of the speculation in this group.

Financials [[XLF]]: Bearish pattern, consolidating. Strong resistance to the upside in this trading range up to 30.  A break above 31 would initiate a double top breakout pattern, but still a long ways off. Support at 25. Continue to look for short ideas in this sector, or stay away. Need I say more?

Health Care [[XLV]]: Bearish. Double bottom breakdown pattern. Support is at 30. A break below could eventually take it down to 23. Look for short ideas in this sector as well.

Industrials [[XLI]]: Neutral (bullish bias). Reversal to a Bullish PnF chart pattern developing.  A move to 42 would initiate a spread triple top breakout. 

Materials [[XLB]]: Bullish. Double top breakout. Has broken out to new highs after long period of consolidation from 39 – 42. Strong support at 40 – 41.

Tech [[XLK]]: Neutral. Consolidating. On the watch list. A move to 28 sets up a potential bullish breakout. This is a sector that continues to show good development toward the long side. Strong support at 20 – 21.

Utilities [[XLU]]: Bullish. Breaking out of a double top after period of consolidation. Strong support at 39.  

Telecom [[IYZ]]: Neutral (from Bearish last week). Starting to show improvement and has recently been forming a bullish Low Pole Reversal pattern. Developing…

Disclaimer: This information is not intended to be used as the primary basis of investment decisions.  Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author may have a position in one or more stocks mentioned here. Trade at your own risk.

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Though I’m not bearish at this point, I am getting less enthralled by the cavalcade of bulls parading around, talking up the market. Steel and solar are red hot. Energy stocks are up. All of a sudden, the world is flush with money and every sector is undervalued.

“There’s $13.5 trillion sitting in cash and alternatives. That’s 26% of the stock market’s value!”.

“The rest of the S&P is decoupling from the financials. Since mid-March the S&P is up 10%  vs the bank index being up 5%.”

“We are flush with indicators that the market will continue to go up!”

And my favorite, “the clouds will soon part and the market will do better. Sunny days ahead.”

All this kind of talk is getting me cautious again.

Know this: when Mr. Bear shows up, he’s not going to ask you or Boo-Boo where the pick-a-nick basket is. He’ll rip your heart out, ruthlessly—then shit on your account statement.

Overly bullish optimists have a tendency to get blindsided. They also see things through gay rose colored glasses. Remember: these are the same people that yell, “I won, I won!”, when the money comes out of the ATM—so don’t take them too seriously.  

 

 

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Although it is still way too early to be calling a top here, at some point this uptrend in the market will weaken, consolidate and probably reverse its trend. Or, it just may reverse back down sharply due to events or technical factors. Whatever the case, I behooves me to start taking a look at my stocks with that eventuality in mind.

I divide my holdings into three groups:

1. Stalwarts

These are the stocks that are exhibiting strong price action, relative strength, good demand and fundamentally, are sound companies—-leaders in their markets and industry. They’re going up and I’m banking coin.

These are also stocks that demonstrate above average resiliency during market declines…the ones that end up bouncing back after getting hammered. Part of it may be due to institutional sponsorship and  part of it may be due to it being a hot issue with the trading community.

Take a look at some of the stocks you own (if you tend to own them more than just a week) and see what they did since October. Did they decline more than the market? Their peers?

Did they actually increase in value during that period? If they did, these are the ones you might want to hold over a longer time frame. I’ve found that you’ve got to accept a certain level of volatility to be successful at making money in the stock market. Otherwise, you end up trading, picking up nickels and dimes here and there (not that there’s anything wrong with that).

Regardless, stalwarts are stocks that I want to hold for the longer term, even through a down market cycle. The reason being,  is that I don’t know when these stocks will turn around and recover to new highs. They are stocks I want to own, however. I don’t want to get left behind in the dust, sitting there holding cash after selling them, and watching them go higher, having to make a decision when to get back in, when I could have been in the position all along.

In the midst of a downturn, I can also use weakness to add to the positions. One way I like to do this is to look for a reversal back into X’s (demand) on the PnF chart after a long column of O’s (supply).

2. Short term trades

These are exactly just that. They get the axe or I pull the trigger and sell them when it looks like they are starting to reverse direction. I don’t worry about trying to pick the tops. I can’t anyway. All I want to do is make a short term profit in them and get out and move on.

3. Laggards–

These are those stocks we all own that, for some reason, haven’t lived up to our expectations. For whatever reason, they are the problem children with ADD. They trail their peer group and show weak relative strength in relation to the market. They’re like the kids I picked on in junior high gym class. But that’s another story…

As a rule, when the market moves higher and starts to leave them in the dust, I start selling part or all of my position in them. There is no hope for the weak. These get sold, just like they are in the short term trade group, at the slightest sign of a crack in the uptrend.

Going short has always been hard for me to time. Generally, what I prefer to do during a downturn is hedge my stalwarts using options or inverse ETFs.

I have been organizing things here as of late, even with my most recent purchases. There is no telling when this upturn will reverse, and I need to be ready to take action when the time comes.

Disclaimer: This information is not intended to be used as the primary basis of investment decisions.  Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author may have a position in one or more stocks mentioned here. Trade at your own risk.

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