1.5 years ago, almost to the day, I projected that NEP was nearly at a peak, and would suffer poor returns for the following 2-3 years. Unbeknownst to all the investors, there were several negative developments that arose from NEP, including accounting problems which led to a trading freeze and near delistment from the AMEX. As I anticipated from the charts, volume, and sentiment, price has since performed extremely poorly, averaging returns of –60% annually. All things come to an end, however, and NEP seems to have weathered the storm. It appears attractively priced, and I’m buying around $3. Here’s why:
- NEP had $75m in cash as of 3/31/11, and currently has a market cap of $105m. If the auditors are not lying, then this is a pretty good valuation at which to buy NEP.
- The accounting issues that plagued NEP are out of the way.
- The lawsuits which sprung out of the trading halt and claimed that NEP breached its fiduciary duty to its stockholders have been dropped.
- Volume is mostly down-trending as price declines (see chart below), indicating a decreasing level of interest in the stock. This is preferable to seeing volume increase as the stock tumbles which indicates lack of confidence in the company.
- There was a significant basher article by “Bigfish” research which cause the stock to drop significantly on volume of about 3m shares). Then, the next day, there was a massive short squeeze on 3m shares as well. This price action is simlar to what happened in Dec 2009, except opposite (see chart). Back then, price spiked up in the direction of the uptrend on 3m shares, reversed violently the next day on 3m shares, and then proceeded to retest and exceed the previous highs. Now we’re seeing the same pattern. Call me paranoid, but it seems like someone is playing those spikes, and it tells me that we’re near a turn.
- Finally, from an Elliot-wave perspective, we had a complex 3-wave down trend (see chart). This tells me that we could see a basing pattern and a rise out of NEP.
- I conclude that NEP’s return prospects going forward are now positive.
