Tuesday, May 25, 2010

AltEnergyStocks' Tom Konrad on the Pleasures and Pitfalls of Prognostication (PBW; TSL; FSLR)

We'll let Tom get started and add commentary as we go.

A Year Later: Market Up, Clean Energy Down

When I called the peak a year ago, it was too soon for the broad market, but not for clean energy stocks. I think both have room to fall, but clean energy may bottom first.

Almost a year ago at the start of June, I wrote saying "we're near the peak" of the stock market. I was too early, and admitted it in August. But I also said that it was a bad time to be in the market: the risks of a decline far outweighed the potential gains of remaining in an overvalued market....
At the time I said, in "AltEnergyStocks Cautiously Cautions: Be Cautious":
I get a kick out of Tom Konrad. He's obviously sharp and just as obviously avoids controversy.
That is not to say he's bland, if you looked at a couple of his speculative ideas you might take up roller coaster riding as a meditative respite....

(image via Freak Out)

Here's Tom again:
...What Was I Thinking?

When I made my call, it was based on the feeling that all the stocks I watch (almost exclusively clean energy) had come too far, too fast, and were overvalued. My mistake, it seems, was extrapolating from what was going on in my sector to what was going on in the market as a whole....
In "...Cautiously Cautions" I added:

Despite my nervousness about some solar names I haven't come out negative on the group yet.

In Saturday's "Chinese solar stocks soar as earnings plummet. And: Chinese Solar Index Takes Top Spot"

I said:

We've been beating this drum publicly for two months* and I am starting to feel a bit of acrophobia.... and ...The stocks were also up in late after hours trading Friday but I am feeling skittish and could probably get spooked by someone saying "Boo". Keep those mental stops tight.

In Monday's "Solar: Street Feeling Upbeat After Intersolar Conference (Short 'em?)" it was:

Funny, I was just musing "What level should I start scaling in some shorts?". I'm not kidding.

Time to look at the MACD, grab a Big Mac, be the mac daddy, maybe Mack the Knife*....
Kudos to Tom. He may be a few percentage points early but booking 70% or so sure isn't dumb.
And just yesterday, although I think it could quadruple over 36-48 months, I suggested a partner may want to write some calls on Trina (TSL)!
The senior partner wrote some calls at the 30-strike, the stock wasn't called, he pocketed the premium, life was good.
Trina (which reported today) was trading at a split-adjusted $12.95, up from a March 3 closing low of $2.98. It went to $30.48 on January 8th.
Back to Tom:
...Consider this chart comparing the performance of a domestic clean energy ETF (PBW), a global clean energy ETF (ICLN), and the NASDAQ and S&P500 broad market indexes (click for full sized chart):

Perfomance Chart

While the broad market indexes continued to rise until late April this year, the S&P Global Clean Energy Index (ICLN, in red) peaked at $26.00 shortly after my call. The Powershares Wilderhill Clean Energy Index (PBW, in blue) had a minor peak at $11.37 at the same time, but went on to scratch out another 5% gain by early January 2010 before turning decisively down.

ICLN is now down 31% from its peak, while PBW is down 22% from its minor peak following my market call.

What Went Before

You'll also note that in the three months leading up to my call, clean energy had been strongly outperforming the broad market indexes. I became nervous as I saw stock valuations rise too far, too fast in my own sector, and I made the mistake of generalizing that personal experience to the market as a whole.

Over the last year, I have become increasingly bearish about the broad stock market....MORE