Tuesday, October 23, 2012

XIN Reaching Up Again

While the major markets have been getting rocked, Xinyuan Real Estate, our favorite little stock here at Whacko Trader, has been rocketing.

Here is the latest daily chart with some notations which will be discussed below.

As we had noted a few weeks ago, prior to the "surge", XIN was setting up a potential inverse head and shoulders reversal with a neckline around 3.  It appears based on the last few days of price and volume action, as can be seen in the chart, that the head and shoulders pattern has completed.

The likeliest move from here is to a completion of the move to XIN's prior highs.  As shown on the chart, this will likely either be a straight shot up, or a retest of the neckline before a more prolonged move up.  But based on the clearance of the neckline with substantial volume, as well as a quick breach of the 38.2% fibonacci (which was retested this morning).

Also, fibonacci levels appear to have been very crucial for trading XIN recently, which surged up to around the 23.6% retracement (not shown in the chart) before retesting the 38.2% as noted. 

However, one should keep in mind these longer-term inverse head and shoulder patterns that we discussed earlier in the year.   It is possible that one of these larger patterns has yet to complete (or fail) and that what we are seeing right now is just short-term noise in a thinly traded stock.

Disclosure: Long $XIN

Tuesday, October 16, 2012

Xinyuan Real Estate: Blue Ridge Selling vs. Company Repurchases

Many investors in XIN were surprised last quarter to see that Blue Ridge, a long-time large investor in XIN, began to sell a substantial portion of its shares.  In the second quarter of 2012, Blue Ridge sold 2,666,738 shares, and it's latest report shows that it holds 11,086,195 shares left in the stock.  If it continues to sell at the current pace, it would take only a little over a year for the entire position to be liquidated.

As can be seen in the following chart, Blue Ridge's selling appeared to have very significant consequences for the stock, assuming they began selling on April 2nd, 2012.

The spike in volume at the beginning of the second quarter, as well as the significant decline in the stock price, is a possible hint that Blue Ridge began selling at the beginning of the quarter.

On June 19, 2012, the company approved an additional $20 million for share repurchases.  Immediately the stock price began to recover, and the freefall the stock had been in since the beginning of the second quarter has not continued.  However, the company had been buying earlier in the second quarter as well.  From the date of the announcement until the end of the quarter, it would only have been possible for the company to repurchase 659,438 shares, due to SEC volume requirements.  The company reported 894,084 shares repurchased during the second quarter, which shows that they had been buying earlier in the quarter, and likely ran out of the authorization funds in mid-June.

If the company had bought back the maximum number of shares each day that it was allowed to under SEC rules during the second quarter, it could have repurchased more than enough to cover the Blue Ridge sales.  And going forward the company should be able to pretty much offset any selling from Blue Ridge if it repurchases near the maximum allowed by the SEC.

It is very difficult to buy at the maximum allowed by the SEC because there are other requirements imposed as well which restrict a company's ability to even buy the maximum allowed under the volume rules (including rules regarding the time of day of repurchasing, and setting of the bid price).  And sometimes it is hard to buy many shares at all.  A perfect example can be seen in the chart above.  When volume spiked to 1,295,000 shares with a huge burst of selling on April 2nd, the company's authorized repurchase amount for that day was only 102,703 shares.  And the next day the disparity was even greater.  The total volume was 1,779,400, yet the company's authorized repurchase amount had increased to only 112,125 shares.  So while the company can maintain a steady progress of share repurchases, it won't be able to respond to spikes in volume like we saw in early April. 

However, the company in the past has managed to repurchase around 2,000,000 shares in a quarter, and if it were to do so going forward, it could probably cover the Blue Ridge selling so that the institutional selling did not have a significant effect on the share price. 

Domino's a Risky Pizza Here

Domino's stock gapped up a great deal today, on better than expected Q3 earnings.  However, as can be seen on the weekly chart below, today's gap up may not even be a breakaway gap or a measuring gap.

As can be seen in the chart, today's gap up does not clear the stock's high from March of 42.21.  Therefore, it's most likely a common gap, rather than a measuring gap or a breakaway gap, as it does not gap through a major point of resistance.  Until that high is taken out, the recent move should be viewed suspiciously, especially since RSI is nearing oversold on the weekly and MACD is showing a potential reversal as well. 

The other concerns we have about the recent move are fundamental.  There are some familiar signs here that may remind some of our readers about CMG earlier this year.  One is the lack of concrete guidance in the company's earning statements.  CMG even had more forward guidance than DPZ, although it too was full of vaguery.  Another concern with DPZ is that the growth forecasts (it's PEG is over 1.4, and P/E over 20) seems to be overly optimistic.  In 2006 the company earned 1.62 over the year.  This dropped down to 0.75 in 2008, and it has been climbing back strong ever since.  But is the economy so strong that it will support DPZ continuing to climb at the current pace?  It seems hard to imagine how DPZ is going to achieve the future growth the market sees in store for it, and relative stagnation or even decline from here seem more plausible as well. 

The company has already regained the position it held about six years ago, before the general economic situation collapsed.  In our view, the market may be looking too short-sightedly at the last five years of strong growth and projecting that forward, while not considering that this "strong growth" was really just a reversion to the mean.  With CMG, a lot of problems for the stock stemmed from analysts simply taking past growth percentages and mapping them forward without a lot of clear thinking.  While we haven't delved deep into DPZ's numbers, we suspect a similar error could be taking place here.

If DPZ clears 42.21, that could cause us to question our analysis.  Indeed, the chart above shows a nice ascending channel that the stock could ride up for some time.  However, until the possibility of a double top is negated, we would look cautiously at this pizza.

Disclosure: No Position.

Monday, October 15, 2012

Xinyuan Real Estate: The Short-Term View

We have written recently about bigger-picture technical analysis issues with XIN, including a large ascending channel and the weekly chart, as well as fibonacci levels over the last year.

Today we'll take a narrower view, and just look at trading over the last few months.

As you can see from this daily chart, the stock gapped up in August and the gap proved to be a measuring gap, as the stock reached for 3.10 which is the completion of the measured move through the gap, and then quickly retreated.  Plus, the stock later went back to fill the gap in late September, so we know it wasn't a breakaway gap.  The fibonacci levels noted are just for the measured move, and are probably not as helpful for longer-term trading.  Hoewever, in the short term they may provide some important levels to watch for support and resistance.

Another chart that may be helpful in the short term is the bollinger band view.

The bollinger bands have generally done a good job of constraining price action in XIN, and are probably good tools to gauge upper and lower bounds for "normal" trading of XIN in the near term, especially since the bollinger boundaries closely correspond to the 23.6% and 76.4% fibonacci levels.  Again, if a surprising news event or similar game-changer hits, all bets are off.  But we do appear to be range bound in the near term, and the charts above may help provide some important levels to watch. 

Wheat Futures Not Done Yet

Peter Brandt had a brief post today suggesting that wheat has had a 3-month descending triangle that would be broken if the market closes below 849. 

This is a plausible analysis of the price action in wheat futures.  However, there are some potential problems with this approach.  Here is an alternative way of reading wheat's chart:

As you can see in the chart above, the descending triangle Peter sees could alternatively be seen as a bull flag continuation pattern.  For one, the bottom of the descending triangle is not exactly horizontal.  Even as Peter draws it, the line is sloped slightly.  It's hard to say there is a clear bottom to the triangle that is or would be broken below 849. 

Also, a descending triangle is usually a continuation pattern and not a reversal pattern, as Peter would have it here.  While it's possible to have a descending triangle reversal, it's also not necessarily the first charting pattern to apply here.

After such a powerful move up in June and July, it would be natural for wheat futures to consolidate for a while.  It may very well be that a descending triangle pattern has formed and is being broken to the downside, but until the bull flag drawn in the chart above is broken, I would remain cautious about shorting wheat futures. 

Thursday, October 11, 2012

Genworth Has a Nice Chart Set-Up

Genworth Financial, Inc. ($GNW) is an interesting stock we have discussed in the past.  The last time we discussed the stock it had gapped down significantly in May.  It turns out that gap was a measuring gap.

Having completed the measured move down, GNW appears to be trying to climb back up.  It has formed what looks like an inverse head and shoulders pattern, which, if completed, would give an upside target of around 8.5.  The neck line interestingly sits around the 38.2% fibonacci level from the move down from 10 to 4. 

However, even if the inverse head and shoulders pattern is the correct chart call here, it doesn't necessarily mean anything good will happen in the near term.  If the inverse head and shoulders pattern were to form symmetrically, we would see the right shoulder bounce up and down for the next couple months before completing.  So we could see the stock at 5 again several times before it broke through the upper neck line.

Still, it appears the stock has hit a hard bottom around 4, having completed the measured move down, and started to make a way back up.  If it breaks upward above the neck line with volume, that will be a very good signal that the stock's darkest days are done.

Disclosure: No Position.

Dang, That Stock Is Whack

Way back in January, we noted that $DANG was due for a significant rise to around $10, and then a fall after that.  Here is our chart from that time.

Well, can't say we didn't warn you.  Here's the full chart now, which matches up almost perfectly with our prior analysis. 

DANG is now on the cusp of a big move.  It's testing the bottom of a descending triangle.  If it breaks, the downside is much more severe.  If it holds, you can expect a retest of the upper channel line, and maybe more.  The company has experienced a ton of difficulties recently, and certainly the IPO price is laughably high compared to what we know now.  But at the same time, the market still seems unable to decide whether this is a dog (or a fraud) or a great buying opportunity.  We will find out more soon...

Disclosure: No Position.