No Random Walking!

A good summary on IOC's situation at this link. Knowing that Elk-4 is being drilled, I've been thinking of buying the stock. The arguments are (1) The well is very close to Elk-1, the discovery well. (2) I would think that the management have gone conservative, i.e., safe,  in picking the Elk-4 location, given the disappointing results at Elk-2, just to appease the investors and to save the company. and (3) Following the crash in stock price after Elk-2, people's expectation is much lower now and may have sold or shorted excessively, ---and  for contrarians, that's the best time to buy (and probably sell just before the drilling is completed). 

So when you see the market gyrating wildly downward and hear some pundit saying it’s because of this or that data or this paradigm or that ratio, remember trader realism. The traders move the market any way they want, any way they think they can make money, and then they whisper a reason to journalists later in the day. Then the journalists print it or say it on television, and the amateurs believe it. And the traders snicker.

Link to Can Their Wish Be the Market’s Command? - New York Times

Spansion (SPSN), a Sunnyvale, CA, based flash memory chip maker and long-time money loser, rose more than 10% today. I believe that it is the good fundamentals that are driving the price now. Positive news helps too. A red flag: its 1.0B net debt.

[UPDATE] Spansion's Q4 2007 Earning Call Transcript

The main catalyst in 2008 is the start of its new SP1 facility in Q1, which will become a cash flow contriutor instead of a liability as it was before (hence the debt). The company expects that it will be well positioned in 2008 in the flash memory market with its NOR technology winning over that of competitors (Intel, STMicro and Samsung).

On the lagging stock price, Spansion's CEO had this to say:

We are very, very sorry but the stock market is not looking at these investments as being useful. Essentially right now they are looking at SP1 investment like junk. That’s essentially the way they are essentially looking at our investment.

Link to China Finance Online and China Telecom Form Alliance to Provide Financial Information and Services to Millions of Broadband Users: Financial News - Yahoo! Finance

[UPDATE] JRJC is up almost 80% since it touched $10 during Tuesday's panic selling. Most analysts are negative about it ("It's just another theStreet.com"), but they don't live in China! They have no idea how hot the market is over there and frankly they forgot how big the country it!) With a current market cap just over $300 mil, I see it double very quickly!

... that's if you can handle its volatility!!!   

Suppose you own stock A which you believe it is way undervalued and has the potential of returning 200% any time within the next 12 months. Now comes an opportunity to buy stock B which you believe is almost certain to return 5% within three days. With no exrea cash in hand and all other things being equal (size, liquidity and volatility of A and B), would you sell A to buy B?

My answer: yes. Mathematically it is straitforward (or is it?), but in reality it isn't always an easy decision. 

By the way, the question is not a hypothetical one. It comes up quite often. I've learned the lesson many times over (but am still learning...)

First the leading indicators, now the trailing (confirming) indicators have all turned positive.

Very low P/E. Very high short interest. In a huge and rapidly expanding, but very competive industry. Report of customers over-booked in previous quarters. Earning reports still four weeks away. Compeling buy.  

P.S. After the recent sell-off, there are many other such candidates.

Too many things are happening afterhours today, mostly good ones. A log of companies reported earnings  exceeding guidance, though Apple is going the other way. With its stock crashing down from $200 to $140 in less than one month and its lukewarm guidance for the coming quarters, I think that Apple's long and spectacular rise on the back of its iPod has finally come to an end.

The market is edgy but I feel that the worst may be over. Next test: Microsoft's earning report after tomorrow's close.  

I've lost big during the last couple of days. However the latest market sell-off has created opportunities to pick up value stock. I know it is risky to assign "value" to the beaten-up stocks, but it's hard to resist the temptation. I did some buying today anyway. I had to cut some loss to free up cash for the purchases. 

Also normally I wouldn't buy into a stock right before the earning, but I am taking an exception here today. I bought tons of Plexus Corp. (PLXS), an Electronic Manufacturing Service (EMS) company, just below $19. I am hoping, after doing my research, that the earning will be good. I am also hoping for a gap-up tommorrow morning, but my record of predicting market's reaction to earnings is very poor. 

Also picked up some OVTI and some Chinese internet stocks today, all of which have been very strong during the latest sell-off.

For now I feel comfortable with these "risky" purchases. The market very often confuses us with risk and volatility. If a risky play is thoroughly studied, it may becomes a safe play, and a very profitable play indeed due to its volatility.

Ghost towns are turning into boom towns, in North Dakota, Montana and Canada, due to high oil price and new recovery technology, which has made extracting oil from the Bakken formation possible. Estimate of oil-in-place in Bakken vary widely: 20 to 400 billion barrals, much more than the much-debated ANWR has.   

See Also:

1. Dr. Leigh Price's original but highly technical paper, which made me feel nostalgia. 
2. Executive summary: Bakken Formation Reserve Estimates, by North Dakota government
3. My other post on ND oil http://norandomwalking.net/blog/?p=72 that I posted in 2006.
4. Government paper: Petroleum Geology of Williston Basin, N. Dakota

All three charts show incredible strength during the recent market melting down. Caution: the RSAP line can sometimes generate a false signal, esp. when the price is at a previous low acting as a temporary support. NTES and JRJC are at or near previous low, however I do have models that can explain for their strength better). It is very important to investigate the reason(s) behind the strength, or be prepared to sell when the support breaks down.

PS: I would add that a lot of US-traded Chinese stocks are poised to rise soon. They went down in sympathy of the US-related news. Ask the question: what do the high US unemplyment rate and subprime credit risk have anything to do with the prospect of, say, Sina or Shanda Communications?