The Invisible Hand Giveth

Raul3 Wed Apr 16, 2014 5:10pm EST 1 Comment

My tech heavy portfolio is earning back some unrealized losses but I expect the ride will not continue to be smooth sailing for very long. After the bell we had soft earnings from big new tech Google and big old tech IBM. Both are lower afterhours. You can read all about these announcements elsewhere, I’m sure, but I want to talk about Alibaba.

If you are in the trades then you have utilized this site. There really is no way around it and without it our world would seem so much bigger than it actually is. I use alibaba to generate 20 offers on a product in minutes. This type of quotation capability is like old school stock market and I personally consider it one of the most interesting tools in my arsenal.

I like LED lighting. So does everyone else in China apparently. I am getting reports from my foot soldiers that there are about 3,385,749 LED vendors at the Guangzhou Canton Fair this year. In market talk, this means there is an overwhelming number of intermediate term sellers in the market. So many, that we are very likely to begin seeing serious incentives offered by these inventory heavy middlemen. The key is to wait for these weak short term hands to become desperate and then begin accumulating an inventory below fair value to then flip onto the eager masses. These supply constraints are pressuring many domestic LED companies who hold aging inventory. Aggravating the situation more is Haitz’s Law which forecasts the steady improvement of LEDs much like Moore’s Law of computing power.

We could write off the entire industry and their stocks based on this fundamental information, or we can take the thought a bit further and consider who is likely to benefit. Foremost, this does not jeopardize Cree. Cree is a driver of innovation, researching and developing on the forefront of the technological edge in LED lighting. They will prosper over the next ten years. But will RVLT?

Revolution lighting is currently a hodgepodge of LED technology concentrated under one Nasdaq umbrella ticker symbol. They offer everything from fabric LED strips for inside your cabinets to municipal grid systems with integrated software and controllers. The problem is the model. They have thousands of products and an untrained distribution force who struggles to properly communicate the benefit of LED lighting. That and their prices are too high.

Hell, all LED lighting prices are too high. This is a big fail for the industry, they need to get the prices down. And whether they like it or not, market forces are hard at work behind the scene massaging price down with their omnipotent invisible hand.

This price drop will drive many business models into a negative cash flow environment, much like a scalper in the futures has seen their edge diminish as algos outperform them. From disruption comes opportunity for leaner organizations to fill the demand void left behind. This is all occurring as we speak.

In summary, Alibaba is making a fortune via shrinking international trade down to a few mouse clicks. LED lighting is one of the most heavily peddled products on their site and it is moving by the container load as prices drop. There is an LED inventory glut and it is nearly obsolete. This is a unique opportunity for a lean organization to swoop up discounted product. Businesses and individual consumers will have the opportunity to update their lighting to energy efficient LED at much better prices soon.

Finally an actionable stock, AIXG. This chart reminds me of FSLR before they released their FY15 guidance and a massive rip ensued. They are German which says precision to me. I have viewed their strategy and what I like most is the clear expectations and measurable goals they have set. They have also made a heavy drive into strengthening their corporate culture. I have seen this type of strategy play out and it can be very potent. I have no position in this stock, but it ranks high on my want list.

In completely unrelated news, my algos are performing well, as am I, in the testing grounds. We will see how the numbers look by month end, but great strides are being made in the race to develop a consistently profitable futures trading hybrid strategy.

And just slightly aside, I cannot believe jackass NY attorney general subpoenaed a number of HFT firms. Prepare to be on the receiving end of a wave of angry algo robots throttled to full speed.