NEP is one of the Biggest Bubbles, Ever!

You can see my previous posts about NEP here. As you can see, I’ve been wrong about where NEP’s rally will stop. These have been short term calls, so I believe I will be vindicated in the longer-term price action. I am going to prove to you that NEP is the biggest bubble ever, and that after the kind of move that we've seen in the stock price over the past 3.5 years will likely be followed by some years of stagnation, regardless of where this current spike peaks. The question will be whether you can sell in time to lock in your profits.

Let’s begin by examining NEP’s price action for the past 3.5 years (see the chart below which shows NEP’s weekly price candles).


The first aspect to which I’d like to draw your attention is a revised wave count. After reconsidering my previous wave count analysis, I believe we’re actually in the final thrust of a 5-wave sequence that began in 2006. This makes more sense, because the triangle from which we just broke out is normally a terminal pattern, meaning any rally is often fully retraced.

The second aspect deals with NEP’s raw price performance. In mid-2006 (7/17/06), NEP bottomed at $.17. Today, NEP closed at $9.16: a 5,288% return in just under 3.5 years, or 210% annualized growth for 3.5 years straight. No big deal, right? Many great companies out there have seen these kind of returns in their early years, right? This kind of growth should be possible, shouldn’t it? Let’s look at some facts: here is a list of great companies followed by their best lifetime stock performance, as well as their best 3.5y performance:


Max Lifetime Gain

Time Period (y)

Best Annualized Gain

Best 3.5y performance

Amazon (AMZN) 9,187% 12.5 43% 1,503%
Hovanian (HOV) 1,042% 13 18% 1,437%
Research in Motion (RIMM) 9,283% 9 63% 1,397%
Apple (AAPL) 7,273% 25 18% 1,254%
Wal-Mart (WMT) 122,940% 27 30% 1,011%
Microsoft (MSFT) 59,538% 14 59% 693%
Barrick Gold (ABX) 10,946% 23 23% 686%
Proctor & Gamble (PG) 10,460% 38 13% 205%
China Northeast (NEP) 532%* 6 28% 5,288%

*(Note: NEP’s lifetime gain is so low because the stock started trading at $1.50, significantly above it’s lowest price of $.17, 3.5 years ago)

To be fair, I looked to see if AMZN did have similar growth over a smaller period. In fact, in the first 2.5 years after going public, AMZN did appreciate by 5,423%! But there are two key differences between AMZN and NEP: 1) this performance occurred at the height of the tech bubble; 2) AMZN was introducing a revolutionary service that warranted being rewarded with faster stock appreciation, while NEP is a simply drilling oil (what’s the big deal?).

Thus my conclusion from this data is that NEP’s 3.5y price performance has been ABSOLUTELY EXCEPTIONAL AND ABNORMALLY HIGH, given the un-uniqueness or lack of novelty in the business that would normally spur bubble-like performance.

My next thought related to price performance is that perhaps since it was a penny stock, such a massive move is not out of the ordinary, as you’ll often find 1000%+ moves in pump/dump stocks. Here are a couple such bubble charts that came to mind immediately (JRJC and MXC):

122809_jrjc_weekly 122809_mxc_weekly

Notice the typical reaction is long-term downtrend, and these stocks only rallied 1,000%-1,500%. Now let’s compare these charts to a non-log NEP chart, and tell me if you don’t see a similarity:


NEP has been profitable since 2006/07. How is it possible that the market has mispriced this company so severely? An Oil-drilling company especially? What is so amazingly unique about this company that the market misjudged its profit potential at the beginning? How could it have been discounted this low? How is it possible that NEP was so underpriced to begin with that early shareholders have enjoyed 210% return per year for 3.5 years???? Has the market really been so inefficient, or is there something else going on?

Therefore, if you’re a long-term investor, ask yourself if buying at this point, after such a massive run over a relatively short period of time, makes sense. Sure, with the momentum of this move, it could double again, but this wouldn’t really change things much in the longer-term picture. When a stock goes parabolic, it will often retrace to the beginning of the parabola before starting a new run up. This indicates a retrace to $4-5.

In conclusion, make your NEP decisions knowing that history does not reward these kind of rapid moves over the next couple years. Ask yourself where the market went wrong such that it allowed the company to be so undervalued to begin with. Or, on the other hand, maybe you are part of the most obvious 10-bagger in the world (everyone has been touting NEP for a long time, well done!!). One thing I’ve noticed is that the market never rewards the obvious point of view in the long run.

Everyone, please find flaws in my logic, I'm all ears. Thanks for reading! I am wishing everyone best of luck in being able to sell their stock at high prices and booking the 'profits' that everyone has been bragging about! GOOD LUCK!

P.S. You can tell me all about P/E, valuation, etc. but I believe raw price performance will be the final factor in determining supply/demand, as history has shown in many other cases!


Interesting formation on QQQQ

I last wrote about the overall market here. As you can see, since then the market has not made very much overall progress. Today, I noticed an interesting pattern on the QQQQ ETF that tells me that this could be a terminal thrust in this rally.

122309_qqqq_weeklyAbove is the weekly chart of QQQQ highlighting my Elliot Wave count. I believe that the rally we’ve seen in 2009 is actually a triple-zigzag, a corrective move. I’ve come to this conclusion because there are no clear 5-wave moves in this rally; rather what I see is a collection of 3-wave moves that overlap significantly. Also, notice that volume has been dropping, and MACD is nearly curling over. Finally, notice that price is back-testing the uptrend line that it broke back in October.

122309_qqqq_daily The short term picture tells me that we’re nearing the end of this holiday rally. Notice that QQQQ consolidated in a very clear triangle before breaking out this past week. As I’ve mentioned many times before, triangles are normally patterns that precede the terminal thrust. Often, price will go up an amount equal to the height of the triangle. This projects a high of 45.62, where we are right now. Be careful if you’re long and complacent.

Happy holidays!


There could be a strong correction in the dollar soon

Though I am bullish longer-term on the dollar, as you can see here, I think we could actually see a strong drop in the near term.

Take a look at the Commitment of Traders for the dollar index above. Notice that commercial traders have rapidly grown a huge net short position as the dollar has rallied. If you look back to the previous time there was a similar net short position, there was a large 5-pt drop in a short period.

The Character of the Dollar's Rally is Different

You can see here that I've been following the progression of the EUR/USD for some time. I have been bullish the dollar, and thus bearish EUR/USD, because I believe that the majority of investors believe the dollar is in for a crash. Anyway, the dollar rally appears to have legs, and I think at a minimum, we'll see the dollar index hit 82 before it would make new lows, it at all.

You can see on this chart (daily candles) that /DX has made the largest counter-trend rally of the entire downtrend. This tells me that the character of trading has changed in the dollar. I believe this new rally is actually the start of an uptrend. It seems that the market corroborates this point of view because you can see that volume has been markedly higher in this rally. Even if we see a downward correction at this point, I would expect the dollar to then make a new trend high. It'll be fun to see what happens!


NEP Technical Picture

NEP just broke to new highs today. Everything about this looks great! We know the company is excellent, as you can see from my brother's posts (Is NEP Buying More Drilling Rigs, NEP 2010 Earnings Projections, NEP's Newest Addition--Tiancheng Drilling and Oil Services, and NEP Update after Q3 Results). However, in my experience when everything is perfect, and optimism abounds, it's time to take at least short term profits. I expect a drop to $5 from the $7.00-7.50 level.

On the daily chart above, you can see that we just broke out of a massive triangle consolidation. However, these types of thrusts are often quickly retraced, even if just part of a correction. I could see a retracement to the $5 range, which should correct most of Wave-(i) of Wave-iii.

On this chart, you can also see that the up move has been quite parabolic, and the breakout has come after the overall stock market has made a big up-move. Clearly NEP isn't playing a leadership role. If this stock was breaking out to NEW highs near the beginning of the rally, I would trust this price action more. However, when it's one of the last stocks, I think this stock is getting ready to wipe out all the optimism :).

Good luck!



EUR/USD just made a lower low after making a lower high. So far, the downtrend is confirmed. Let's see how long it lasts!


That should do it

I don't think there is any question that the EUR/USD has broken its uptrend now. If it does reverse once again and head higher, I think I'll quit trading.


The EUR/USD just won't break it's uptrend

You can my post here from last week indicating the EUR/USD uptrend was broken. However, we got a quick reversal that brought price back above the trendline. My bigger picture assessment remains the same, however. I think the EUR is completing a topping process.

You can see my wave count for the EUR/USD. It looks like Wave-IV is subdividing nicely, with Wave-v taking shape as an ending diagonal. I could see a rally to 1.52 to complete this pattern, then we should enjoy a sharp sell off, similar to what we had during Thanksgiving.