Trader’s Narrative

The weekend linkfest:

• The relationship between gold prices and real interest rates
• Bubble psychology, are we doomed to booms and busts?
• Brazilian banks unscathed in financial turmoil
• Why Carl Icahn is swooping down on corporate debt
• Interview with Gil Morales - former Chief Market Strategist of William O’Neil Co.
• The Cheech & Chong Stock Market Indicator
• Henry Blodget reinvents himself

And more…

Why a Modern-Day New Deal Won’t Work

Last week I wrote about the emergence of solar stocks and the solar sector as a white hot (pun unintended) area of the market. You should always pay attention when a group of stocks in a sector acts alike - like a school of fish or a herd of gazelles darting in one direction. This is a strong signal that has a terrific track record in pinpointing tremendously powerful thrusts in price action.

After I wrote that review, Shane sent me a note over the weekend pointing out that I had missed out on JA Solar (JASO). I was thankful but shocked! I still can’t believe I missed this one because it is one of the few that have recently come public and I made a special note to pay extra attention to recent IPO’s in this sector.

This is something I’ve learned from William J. O’neil’s class “How to Make Money in Stocks” (I know, cheesy title, but brilliant book). O’neil says that new stocks (IPOs) are ‘fresh’ and have a new constituency. The fact that an IPO has 100% happy holders is a very important element of a sustained uptrend.

So which stock do you imagine rocketed higher? Yup, the one that I somehow missed:

JASO went public just a few months ago in February 2007 and since then it went into a tight trading range between $20 and $16. Then late last week it broke through resistance with a wide range bar and massive volume. The next few days saw even more extreme price expansion with run away gaps and wide range candles as momentum players piled on. As far as I know, there is no news. This is a pure technically driven move.

Look at that intraday price action! You can’t get any more beautiful than that chart. There were so many contraction areas that offered a low risk entry. If you’ve missed the move so far though I think the prudent thing is to wait for a pullback. There will be one as some of the longs will want to ring the cash register. Even if there isn’t one, you never want to chase a parabolic move.