short-selling
Slow Global Demand and Higher Inventory Bearish for Oil
By George Leong for Investment Contrarians | Apr 22, 2013
Oil drives the world.
But the problem now is that the industry is building up an excess inventory in available oil while global demand is dwindling, as the global economy continues to struggle with the aftermath of the Great Recession in 2008. The result: lower oil prices.
Some argue oil prices will easily rally back, but I’m not convinced, based on both the fundamental and technical pictures.
On the chart, the near-term technical outlook for oil prices is bearish. Spot oil prices are below $90.00 a barrel for West Texas Intermediate (WTI) oil, and they’re edging lower to the mid-$80.00 range.
Spot oil prices have recorded 10 new lows and five new highs over the past three months, according to data from Barchart.com. Over the past year, spot oil made 21 new lows to go along with only eight new highs. It’s clear that the market bias is negative on oil prices.
Based on the spot high of $106.16, reached on May 1, 2012, the spot WTI oil price is down 18.3% as of Thursday, which is nearing the official definition of a bear market.
The chart of the WTI spot oil price below shows some indecision, according to my technical analysis.
Chart courtesy of www.StockCharts.com
The fundamental side is also helping to confirm a potential downward pressure on oil prices.
We all know that oil is one of the most volatile of the commodities, fluctuating with the prospects of the global economy and, of course, the happenings in the Middle East.
On the supply side, there is some calm in the Middle East, but the tensions in North Korea … Read More
Why Short Selling Can Be Viewed as Bullish
By George Leong for Investment Contrarians | Apr 19, 2013
Traders bearish on stocks often employ a short selling strategy and hope the stock subsequently declines in value, thereby profiting off of the difference between the initial shorted price and the lower price at which the short trader hopefully buys back the stock.
While some argue that stocks with large short positions are bearish, I would counter that by saying heavy short selling means there’s an opportunity to make money on the stock.
When a shorted stock with heavy short selling begins to rise in value, you will likely see a big influx of short sellers moving back into the market and buying back the shorted stock to replace the initial position. If enough short sellers do this, a short squeeze would likely materialize, helping to drive up the price of the stock in the market.
So while stocks with heavy short exposure are viewed as bearish by many, I often take the contrarian view and look at these heavy short stocks as long opportunities to make some quick money.
A classic case of a short squeeze is the shares of Groupon, Inc. (NASDAQ/GRPN). Trading at $2.60 in mid-November, the stock has since surged 150%, and part of this upward move was driven by the significant short exposure in the stock. As of March 28, 2013, there were 41.7 million shares shorted on Groupon, or 20.1% of the float.
Chart courtesy of www.StockCharts.com
Groupon is just one example of a stock with heavy short selling exposure, but there are many others.
Two of the top-five short selling positions as a percentage of the float are Tesla Motors, Inc. (NASDAQ/TSLA) with … Read More
When the Bears Go Running: How to Turn Short-Covering Into a Contrarian Opportunity
By George Leong for Investment Contrarians | Mar 15, 2013
Bearish traders tend to short stocks and/or the equities market. While stocks subject to short selling are viewed as negative, I often take the contrarian view, and look at these shorted stocks as a possible buying opportunity due to the short-covering possibility.
Let me explain. With short selling, a trader disliking a particular stock would short the stock by borrowing the stock from his or her broker and selling it in the market at the prevailing price. The short-seller hopes the stock falls in price. For the short-selling strategy to pan out, the short stock must drop in price so that the short-seller can buy it back at a lower price and replace the borrowed position to the registered holder. The short-seller would profit.
In my view, looking at heavy short-selling stocks is a strategy to buy a stock that could have more potential than what the short-seller thinks. By taking this contrarian short-selling approach, you can often discover stocks that may be set for a short-covering rally in which you can profit.
For instance, online leader Google Inc. (NASDAQ/GOOG) is trading at over $800.00; however, investors continue to like the stock, as there are minimal short-selling positions on the stock at 1.6% of the float, or 1.4 million shares, as of February 15, 2013. (Source: Thomson Financial, last accessed March 14, 2013.) But note that a month earlier, there were 3.28 million short shares on Google, so the stock attracted some short-selling covering that helped to drive the stock higher, based on my stock analysis.
I normally would not look at a stock like Google as a short-selling buying … Read More
Google Isn’t as Expensive as You May Believe
By George Leong for Investment Contrarians | Feb 7, 2013
For all of you who are attracted by the battered price of Facebook, Inc. (NASDAQ/FB), I suggest you keep on reading: Google Inc. (NASDAQ/GOOG) is the top player in the Internet space, in spite of it hitting an all-time record high of $776.60 last Friday, and here’s why.
My stock analysis indicates that some of you may feel that, at nearly $800.00 a share, Google is valued at way too lofty a price. Moreover, some may be spooked by the recent collapse of Apple Inc. (NASDAQ/AAPL) on the price chart after trading at over $705.00 a share in September 2012. What I would say to you is that Google is not Apple, and it’s definitely a much better company than Facebook, based on my stock analysis.
In fact, I think Google has more of an opportunity to reach $1,000 than Apple. Of course, that is if Google doesn’t undergo a stock split. I recall when Google first debuted in August 2004 at $100.00 a share, when I was debating in my mind whether the stock was a highflier or the real thing. At that time, Internet stocks were really still in their infancy.
The stock chart for Google below shows the stock’s upward trending channel and strong relative strength. But you need to be careful, as the stock could decline back to the area defined by the blue circle between $715.00 and the current price. A retrenchment into this space could signal a buy, based on my technical analysis.
Knowing what I have learned over the past eight years, I wish I had picked up some shares of Google; but … Read More
Why You Should Stay Away from HP
By George Leong for Investment Contrarians | Oct 5, 2012
Hewlett-Packard Company (NYSE/HPQ) sank on Thursday after warning the market to expect less in 2013, as the former technology kingpin struggles to revamp its business.
The company has seen over half of its market-cap dissipate over the past year, rewarding the short-selling traders, according to my stock analysis.
CEO Margaret Whitman has a titanic job ahead of her, as she tries to turn the sinking ship around; but with crippling declines in the demand for PCs and intense competition in printers and other products, my stock analysis tells me that the path will be difficult and there is no guarantee of success.
My technical analysis of the chart of Hewlett-Packard (HP) tells the story of the company’s demise from a Wall Street darling to a misfit. Based on my stock analysis, the rapid switch between CEOs (there have been three since 2010 alone) has hurt the company’s business. HP had been in the retail tablet market, but it exited in August 2011 under the leadership of former-CEO Leo Apotheker, who took over in 2010 from Mark Hurd. Following the company’s departure from the tablet business, Apotheker was replaced by Whitman in September 2011, who now faces the daunting task of figuring out what to do to save the company.
Chart courtesy of www.StockCharts.com
According to Whitman, it will take years to turn HP around, as the company looks to streamline its product line and become a leaner, more efficient technology company. Yet, according to my stock analysis, the company’s lack of exposure in the surging mobile business is problematic. But this could change, as HP now has a dedicated group … Read More
Chinese Companies Looking Elsewhere
By George Leong for Investment Contrarians | Sep 7, 2012
Chinese stocks are leaving the U.S. equities markets as fast as they arrived. It has been a relatively quiet year for new Chinese stocks, following the debut of 60 Chinese stocks on U.S. equities markets from 2008 to 2011. In 2012, there has been one Chinese listing on U.S. equities markets, along with the delisting of several Chinese stocks that have been privatized. Since August 2011, 23 Chinese stocks have delisted from U.S. equities markets, according to Money Week magazine.
Some of the companies were delisted by the exchanges due to fraud, while others decided to pack up and obtain listing in Hong Kong and elsewhere. Others were taken private due to a lack of buying and overall distrust in the U.S. equities markets.
We all know about the trail of fraud initiated by numerous Chinese companies that emerged on U.S. equities markets via the speculative reverse merger process.
The pipeline of new Chinese stocks has essentially dried up in the North American equities markets, as Chinese companies are currently subject to intense scrutiny and detail reporting. I like the move to cleaning up the mess from fraudulent companies, albeit, many sound Chinese stocks have suffered in the process due to the general distrust in the market.
The reality is that I do not sense a return to recent years. Speculation of several big Chinese e-commerce initial public offerings (IPOs) looking to list in the U.S. equities markets this year have not come to fruition. Three Chinese Internet plays that were looking at listing in the U.S. were 360buy.com (online retailer), Vancl.com (largest online clothing retailer in China), and Xiu.com … Read More
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