Monday, March 28, 2011

AXT Inc.

Click on the above image to enlarge

I am currently fully invested in "ATXI" at $6.2. I am currently up by 18% as of time of writing. Should I realize my gain now or should I wait for this stock to go up further? Anyone know the answer?  I am afraid not. Nobody will know the freaking answer unless you are a god, angel, demon or someone who have the superpower ability.

Anyway, back to the serious issue here, I am currently expecting this stock to move up to at least $8 and above. However I foresee that this stock will hit a major resistance at around $8.80 area. The reason is I am targeting this stock to correct at least 50% of the recent downturn. I am taking the recent downward move and divided by half to get my long target. It is further supported by the technical indicators such as MACD, RSI and Stochastic Indicator. I am expecting that those indicators will move up to touch the red circle above before it starts to hit the resistance and then move futher downward. It will coincide nicely with the 50% retracement for the downward move that I have predicted.

I will consider to sell this stock only if it can hit above $8.40 and above. Otherwise, I will patiently wait for this stock to perform as per my expectation. After all, AXTI is a fundamental sound stock with a good solig earning growth. Kindly refer to my previous post for the revenue growth report.

I will post my earning report once I sold this stock. At the meantime, kindly stay tune to this blog for further Sucker Punch activities!

Tuesday, March 22, 2011

Technical Analysis is Not Necessarily Correct

 Click on the above image to enlarge

I am currently in a big dilemma as I am currently long in Axti. I am rather confused as well when I study the technical on this chart. It appears that all technical indicators such as Stochastic, MACD and Bollinger  Band point to an upward move for this stock. However, for the past 2 days, this stock is not advancing as expected. Instead, it is currently trading sideways with low volume. The recent days low volume is definitely not a good sign because it shows that although the stock is rebounding from the previous low, however, it is still very weak as the buyer is not stepping in. 
There is a also a downward gap at around $8.3 to $7.7 level. I am also expecting that this gap will be filled going forward. But I might be wrong because not all gap are filled. If this gap is filled, then I am guarantee a profit of more than 20%. However, as I point it out in my heading, not all technical analysis is accurate and sometimes I may be wrong and the stock will go the opposite way instead. 

I really spent a lot of hours look and analyzing this stock. Even though I strongly believe that this stock will go up in the coming months but there is not guarantee to it. 

I have recently read a very interesting article on how good this stock is but it still no guarantee that this stock is going up. This article by Ben Axler was published on the famous website on March 21, 2011, however, on March 22 and 23, the stock go down instead by around 2 percents.

I have been trading the stock market for more than 12 years already and reading stock chart should be my forte, however, I admit that from time to time, I did make few big mistakes and it cost me hundred thousand of dollars. Trading in the market is truly not an easy game for anybody, once must have the discipline and able to control the emotion such as greed and fear. As Alexander the Great once said "Control your fear and you conquer death". I would say "Control your fear and you conquer wealth". 

I am currently long in Axti. If these few days the stock is not performing as expected, I will not hesitate to cut loss as I have place my cut loss level at $6.00.

Below is a very good article published by Ben Axler on AXT Inc. 

AXT Inc.: Oversold and Undervalued Technology Stock 

AXT Inc. (AXTI) is a very attractive business currently trading at a compelling valuation. AXTI is coming off its best year ever and is poised for increasing sales and earnings in the coming years, as the end markets for its products tied to mobile smart phones, LED and solar technology increase.
Company Overview:
AXTI is a leading developer and producer of high-performance compound and single element semiconductor substrates, including substrates made from gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge). The substrates are primarily semi-insulating and semi-conducting.
End Markets: Power amplifiers and radio frequency integrated circuits for wireless handsets (cell phones), direct broadcast television, high-performance transistors, satellite communications, high brightness light-emitting diodes, optical couplers, satellite and terrestrial solar cells, lasers, and optical couplers.
Manufacturing: AXTI manufactures all semiconductor substrates using its proprietary vertical gradient freeze (VGF) technology. Most of its revenue is from sales of GaAs substrates. It manufactures all of its products in China, which generally has favorable costs for facilities and labor compared with comparable facilities in the United States, Europe or Japan. It also has five joint ventures in China that provide pricing advantages, reliable supply and shorter lead-times for raw materials central to final manufactured products.
Customers: Its 10 largest customers for 2010 were: Avago Technologies Trading Ltd. (AVGO); AZUR Space Solar Power GmbH; Beijing China Crystal Technology Ltd.; Hitachi Cable Ltd.; The IQE Group; Nan Da Guang Dang; Osram Opto Semiconductors GmbH; Sumika Electronic Materials, Inc.; Sumitomo Chemical Co. Ltd. (SOMMF.PK) and Visual Photonics Epitaxy Co.
Competition: Primary competition in the market for compound semiconductor substrates includes Beijing Compound Crystal Technology, Ltd.; Freiberger Compound Materials; Mitsubishi Chemical Corporation; and Sumitomo Electric Industries. AXTI believes at least two of its competitors are shipping high volumes of GaAs substrates manufactured using a technique similar to its VGF technique. In addition, it also faces competition from compound semiconductor device manufacturers that produce substrates for their own internal use, including Hitachi (HIT), and from companies such as IBM that are actively developing alternative compound semiconductor materials. AXTI is the only compound semiconductor substrate supplier to offer a full suite of raw materials.
Investment Thesis:
AXTI's business model is attractive for a number of reasons including:
1. High barriers to entry in its industry with a supply chain that is nearly impossible to replicate. It has joint venture ownership interests in numerous Chinese companies that control extremely rare and critical materials called gallium, germanium and indium. These materials are so limited in production that they were labelled as critical materials by the EU.
These JVs were set up over the course of the past 10 years, and represent significant hidden value to shareholders. The JVs ensure critical raw materials in the supply chain and partially insulate the company against the cost pressures facing its competition. The company spent the better part of the decade optimizing its supply chain and seeking high client qualification requirements to win business and slowly take market share. Given China's increasingly tight grip on rare earth elements and critical materials in the past few years, it would be extremely difficult, if not impossible, to reproduce what AXTI has accomplished.
[Click all to enlarge]

2. Few competitors and increasing market share. There are very few competitors in the markets AXTI sells to, and none control the supply chain like it does. A few main competitors are located in Japan, and as of this write-up, there are reports that Hitachi Cable has had some severe issues and may be offline for several weeks or even a couple of months. Competitor Sumitomo appears to be nearly unaffected, as its crystal growth is well south of Tokyo. Nevertheless, given the precarious position of having a high concentration of supply in Japan, customers may increasingly turn to AXTI for a more secure/stable source of product supply. Given capacity expansions in recent years and further planned expansion, AXTI may be best positioned to respond to customer demands.
3. Operating leverage: There's tremendous operating leverage in the business due to its low cost operations in China. While sales have grown at a 5yr CAGR of 38%, SG&A has grown at sub 2%. SG&A margin has fallen from almost 50% in 2005 to 14.6% in 2010. Likewise, years of R&D spending are finally paying off and have decreased from 6.5% of sales in 2005 to 2.4% of sales in 2010. Most R&D spending goes to process improvement and manufacturing efficiency research. Gross margin improvement has increased from the mid-20% range in 2008/2009 to a record 39.8% in Q4'10. This margin improvement is despite increasing gallium/germanium/indium raw material costs. Management has guided steady state gross margins in the 35-40% range, so anything above 40% represents material upside.

4. Minimal capex requirements to expand capacity to meet growing customer demand: Total manufacturing space in China is ~190,000 square feet, 160,000 square feet of which is currently being used; the company is currently preparing the remaining 30,000 square feet for increased wafer processing. It also expects to begin construction of a new 80,000 sq ft facility in Beijing. Competitors typically purchase crystal growing furnaces from original equipment manufacturers. In contrast, AXTI designs and builds its own VGF crystal growing furnaces, which it believes should allow it to increase production capacity more quickly and cost-effectively. Total capex is estimated to be $11m in 2011 and should easily be covered by cash from operations.
Recent Developments:
AXTI's share price had steadily been rising throughout 2009-2010 as it recovered from the industry downturn and proved capable of consistently delivering earnings ahead of its guidance. The company attracted two research brokers, including Needham and Northland, who each placed $10+ targets and backed the company's outlook for strong secular growth.
In the recent quarter, the company met its quarterly estimates, but offered softer Q1'11 guidance than the overly bullish analysts had hoped for by only 2 cents, due to a seasonally weak Q1 LED market. Even though the company's Q1'11 guidance range of $0.11-0.13 cents/share represents 28-63% growth over Q1'10 results of $0.08 cents/share, analysts aggressively cut estimates for 2011 almost to the point of expecting no EPS growth, and the stock has fallen over 50% from its highs earlier this year.
Part of the precipitous stock decline can be explained by the fact that AXTI's two largest shareholders are quant fund managers, and as short sellers piled in, the selling pressure was exacerbated. As a result, AXTI's stock price is excessively discounted by any extreme valuation measure. To put the current price in perspective, AXTI's share price has fallen to a level it traded at in 2007. Yet in 2007 revenues/eps were $58m/$0.16c vs. today at $95m/$0.59c. Clearly, the price drop is excessive in relation to the tremendous growth and operational improvement AXTI has experienced and will see going forward.
The trading value comparables indicate AXTI has one of the best EBITDA margins, and growth prospects, yet trades at a meaningful discount to peers such as TriQuint (TQNT), Oclaro (OCLR), Avago, Rubicon Technology (RBCN), Kopin (KOPN), Emcore (EMKR), Anadigics (ANAD) and IQE.
The balance sheet is strong with plenty of cash and no debt. I calculate the working capital per share is $2.78 vs. a $6.45 stock price. Looked at another way, almost 45% of the stock price is in working capital. Alternatively, with $1.27 in cash, ~20% of the stock price is backed by cash. These figures offer exceptional margin of safety at today's price.
On a cash-adjusted basis, AXTI's sub 9x P/E valuation looks even more compelling as does a forward EBITDA multiple below 6x.

AXTI is now in the penalty box with analysts and quant funds after the past quarter; it's now a show-me story and will have to prove out that Q1 is just a seasonal hiccup and not indicative of broken growth prospects. Catalysts will be new client wins, analyst upgrades, LED pick-up, indicatons of increasing market share due to Japan disruption, advancement of CPV solar technology, margin preservation and expansion in the face of rising input costs.
  • Wireless mobile, LED and terrestrial CPV solar markets are not in secular growth period.
  • LED softness in Q1'11 is more than seasonal correction and will be prolonged.
  • AXTI's JV ownership does not represent a strategic competitive advantage in its industry and are not hidden value.
  • JVs in raw material suppliers will not allow AXTI to control input cost inflation and gross margins reduce materially below the 35-40% indicated by management.
  • Transition to lower cost compound semi substrate technology.
  • Delays in capacity expansion leading to inability to deliver for clients.
  • Disruptions in Japan have a net short term negative effect on the company.
Company presentation is available here.
Disclosure: I am long AXTI.
This article is part of Seeking Alpha's daily coverage of Stocks & Sectors.

Thursday, March 17, 2011

Will DJIA Continue its Downward Move?

DJIA has just tumbled another 200 points today. It has tumbled more than 400 points in the last 3 days and more than 800 points for the last 18 days. It seems like it will keep tumbling down further and faster in the days to come. One of my regular visitors who successful predict this downtrend and he manage to make more than 50k betting on the S&P in just a matter of 2 days. Well good job to him!

Anyway, will this punishment for DJIA will continue and sent the market down further? Or will it stop from here and consolidate before going more downwards? 

After very deep studies and thinking on the above matter, I believe that it will be a "Yes" answer to both questions above. I am predicting that DJIA will correct a little bit before the extreme punishment will occured and send DJIA back to its 1 and very important support at 10,960. If DJIA fails to hold and breaks this level, then the next target DJIA is heading to is 9990 which is the second important support. 
 Click on the above image to enlarge

Click on the above image to enlarge

The above chart shows that DJIA is going down fiercely with very high volume compare to the avearge. It is an extremely bearish signal which should be taken note.

Both the MACD and Stochastic are currently showing that DJIA is currently in the middle of the downward trend, it has yet to meet the oversold signal. In other words, DJIA will tumble more before it hit the oversold indicator and rebound. 

Based on the above studies, I am very convince that DJIA will eventually hit the first support level at 10,960.  From there, we will then analyze the global market and then should decide further will DJIA will hit the 2nd support at 9,990. 

Monday, March 14, 2011

The Sinking of Japan! Will US be Next?

Japan have experienced the worst Tsunami ever on March 11, 2011. It has wiped of the entire city and claims thousand of lives. On March 14, Nikkei has sunk by more than 6% which is a multi year high drop in a single day.

Grab on those Japanese Balloons if you want to save your life!

Click on the above chart to enlarge

The very important question that all my loyal readers want to know is will US be next to sink? I am sad to announce the news that yes, indeed! US have already sunk on the 22nd February, 2011 with a long candlestick down which is extremely bearish.

The sinking of Japan has nothing to do with the entire world equity market showing bearish sign. In fact Japan has also sunk much earlier than that. If you look at the chart below, Nikkei has infact sunk on the 22nd Febraury, 2011.

Click on the above chart to enlarge

Coincidently both the MACD and Stochastic Indicators on both chart also indicates that the actual reversal of the bullish trend for the both chart actually happened on the Feb 22nd, 2011.

Another regular and loyal visitor to my chart Mr. Dp also agreed to my idea above. Please read our chat below starting from the very bottom.

Edmund: u will like it trust me
15 Mar 11, 12:51 AM
Edmund: i totally agree that is why i am going to post on this, please refer to my latest post in 10 minutes
15 Mar 11, 12:29 AM
dp: this trade has a 75% chance of making big $$ as well as other indicators also supporting this down direction right of course the quake ect
15 Mar 11, 12:27 AM
dp: that would be your stop , any close above 1294 once triggered
15 Mar 11, 12:26 AM
dp: the only rule if you take the short play is that if we get the close below 1294 and then it CLOSES ABOVE 1294 there after EXIT THE TRADE
15 Mar 11, 12:21 AM
Edmund: i think this market has nothing to do with the kamikaze earthquake
15 Mar 11, 12:20 AM
Edmund: hi dp, i agree with what you have said
15 Mar 11, 12:16 AM
dp: vs my target of 1256, if we CLOSE under 1294 today we are heading down so take a short on the close below 1294 and ride it for 40 s/p points lower . either use the bgz or the tza
15 Mar 11, 12:13 AM
dp: ed i willmake this statement. this eartquake has nothing to do with the market going down. the decline started at 1344 14 days ago. what might happen though is we can go to 1180=1220 due to thequake
14 Mar 11, 11:22 PM
dp: remember the CLOSE not the intra day low
13 Mar 11, 12:44 AM
RT: However - market seems to do the un-thinkable hence why I am cash right now, waiting for direction. The action on Thursday could have been a bear trap
13 Mar 11, 12:43 AM
RT: Meant to say- "I think the market top MAY be 1360-1370"
13 Mar 11, 12:42 AM
RT: DP - I like your thinking. I tend to agree. Either way, I think the market top is 1360-1370, for now. With earnings season around corner, i could see us getting up there
12 Mar 11, 11:39 PM
dp: i would start layering in shorts at 1313 with final short at 1323 if we get there. your STOP is 1333. take the CLOSE above 1333 long for a target to 1365 or take the CLOSE below 1294 to 1256 im short
12 Mar 11, 11:30 PM
RT: Looks like we get a bounce on Monday. I am not sure how far this goes, but I expect to 1318-1320

Tuesday, March 8, 2011

US will Attack Libya and the Oil Price will Tumble!

Yesterday, I was looking at the NASDAQ stocks which tumble heavily. The first thing that comes to mind is will US interrupt in this war? If yes, what kind of soldiers will US sent to fight in this war? Kindly refer to the above picture for the answer.

Anyway, lets cut the bullshit. The reason I am posting the above heading is to get your attention. The real creme de la creme of this post is the analysis below on where are DJIA and NASDAQ heading to from here.

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Based on the current technical indicators, DJIA is looking to find the first support at 11,000. The political unrest in the middle east is only the excuses for the reason sell down. DJIA is currently very overheating and it needs a catalyst or reason for it to consolidates. The reason political unrest in Libya will be the perfect reason. Both the MACD and Stochastic indicate that DJIA will continue to consolidate lower and tumble down further.
Click on the above image to enlarge

The Nasdaq Composite is also heading towards the important support at 2,460. Nasdaq has been experiencing upward move from 1,268 in Sept 3, 2010 to the current level of 2,745. That is an increased of more than 115%. I think it is about time for Nasdaq to consolidate down seriously before any upward move to continue. It is also a good reason to flush out all the weak holders and those contra players. Both the MACD and Stochastic indicate that Nasdaq Composite current downturn is just the beginning, it still has long way to go before both the indicators show oversold position. 

Based on the above analysis, I would summarize that the recent political turmoil in the middle east is just and valuable and good excuses for the stock operators to swap the position from going long to short. I believe it is just the beginning of their move and more downward punishment for stocks that gained tremendously in the recent term will continue. 

For those who wants to go long, may the force be with you.

Saturday, March 5, 2011

Am I in the Danger Zone?

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I am in a big dilemma now. This is a serious issue here that I am facing. I have bought about $90,000 worth of stock in Axt Inc. and now the stock is not performing as per my expectation. So what should I do now? Should I sell, hold, or run for my life. My entry price for this stock is $7.20.

Once again my experience in chart reading will be very useful as this point in time. The chart shows that AXT Inc is currently consolidating after a huge downward move of this stock. This current volumes indicate that the chart is consolidating with very low volume. It may be the selling is now fully absorbed or the buyer is not buying the stock to push it upward.

The MACD histogram indicates that it is moving upwards toward the center line and perhaps above it. The MACD blue line also shows the curve that it is about to move up to the red line and above.

The RSI clearly indicates that this stock is very much oversold.

The stochastic indicator also shows that the current downtrend is about to change its course. Both the blue and red line below the 20% threshold indicates that this stock is very much oversold. The blue line is also about to cross over to the above the red line, which shows some bullishness in this stock currently.

Based on my above technical analysis on this stock, I would rate it a superb buy. However, I am not god, I cannot be 100% accurate in my prediction on what will happen next for this stock. However, I am praying that my analysis is correct otherwise I will lose some big money in this bet.

There is also high chances that this stock will tumble further after this current brief consolidation. I just hope that it won't happened cause I really can't afford to lose again. Lets all put our hand together and pray for the o' mighty god. Amen.
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