| NEP: Aug ‘07 to Sep ‘07 | NEP:Dec ‘09 to Jan ‘10 |
Look at the two charts above comparing NEP’s current parabolic run to it’s previous parabolic run from Aug to Sep, 2007. Notice the similar progression of sharp rallies, followed by short correction. If my read is correct, and this similar “climax pattern” takes place, we should print the ultimate top in a few days. This supports my theory that NEP’s move will top out in the next few days.
Reviewing NEP’s chart today, I remembered a very important chart principle regarding triangles. NEP just broke out of a triangle, and I believe this thrust will be terminal and should end within the next 1-5 days.
Here are the relevant principles regarding triangle formations from Elliot Wave Theory by Robert Prechter:
A triangle always occurs in a position prior to the final actionary wave in the pattern of one larger degree, i.e., as wave four in an impulse…
On the basis of our experience with triangles…we propose that often the time at which the boundary lines of a contracting triangle reach an apex coincides with a turning point in the market.
(note: bold emphasis added)
Now let’s look at NEP’s chart to see where we stand. The first chart was taken from a post written several days ago and shows that NEP definitely did break out of a triangle formation. And as you can see from the labeling, this is likely a 4th wave triangle. Thus odds suggest that this recent rally is terminal in nature.
The second chart below shows the detail of the triangle and subsequent breakout. I have highlighted the apex of the boundary lines of the triangle, and you can see that this point in time will be reached within a few days. As the quote mentions, the market will often reverse at this point in time.
Therefore, given the excessive bullish sentiment currently surrounding this stock, the parabolic nature of the rally, and the Elliot Wave principles, I am inclined to believe that the stock will begin a reversal within the next few days. Good luck to all!
I stand by my previous hypothesis that the long-term (1-3years) share-price prospects for NEP are substantially lower at this price. Is this not a parabolic chart?
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:
| Company | 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):
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!
