Happy New Year 2013

12/30/12

                  Welcome to this week’s edition and the last edition for 2012 of the Lewison Letter.  I wanted to get one last letter in to hopefully help everyone prepare for what could be the best buying opportunity of 2013, the Fiscal Cliff.  It seems pretty clear as to what will happen over the next couple days, and that is that Washington will get little to nothing done.  In my opinion, what’s going to happen is pretty obvious.  I don’t think it’s a matter of Republicans thinking that millionaires should be taxed more, because they do believe that.  I think the real issue is that it’s a matter of Republicans not wanting to give in to Obama on his tax policies.  So…what will happen is that the two sides will not get a resolution by January 1 and taxes will go higher for everyone.  What that means is that the taxes will revert back to Clinton-era tax rates for the millionaires, which is what Obama wanted.  Now the Republican’s can say that they never gave in to Obama and never raised taxes on the rich, keeping those supporters in their corner.  Within the first 2 weeks of January, Congress will reduce all tax rates on households earning $250,000 or less to the Bush-era tax rates, where now both parties can say they lowered taxes on the middle income Americans (which in reality everyone knows they didn’t really lower any taxes).  Republicans are already getting the full blame for this debacle so going over the fiscal cliff for a couple weeks isn’t going to do them much more harm, in fact, may actually help them, for the reasons I previously mentioned (lower taxes on middle class and not giving in to Obama’s tax increases). 

                  What is the best way to play the fiscal cliff saga?  Most people would say to hide out in “safe havens” like Treasuries, US Dollar, Yen, gold, etc…until it’s resolved.  The problem is that out of all of those investments, none of them are really “safe havens” except for Treasuries.  First, the Yen.  What really got me going about this was reading the paper this morning and reading about the Yen being a place to hide out in during uncertainty.  Well, last time I checked, which is as of this writing, the Yen is at multi year lows and has traded lower for 7 straight weeks and on a monthly chart, has built a massive bearish head-and-shoulders formation for the last 2.5 years.  Next, the US dollar.  If people are buying the dollar, why is it just $1.66 of the 52 week low and about $4.50 off the 52 week high?  Not only that, but the US dollar, much like the Yen, also has a bearish head-and-shoulders formation built over the last 1.5 years.  Next, gold.  Since the November election, gold is down about $100/oz. or 8%.  An 8% drop in a 45 days, is not my idea of safety.  If gold were really a “safe haven” it would be flat or higher, given all the uncertainty on the fiscal cliff and debt ceiling.  The only true “safe haven” out there is US Treasuries, which have stayed relatively flat since Obama’s re-election.  Unless you have access to futures contracts, the only real way to play Treasuries are through the TLT (iShares Barclays 20+ Year Treasury Bond Fund), which is up 5.7% this year including the 2.5% dividend.  While a 5.7% return for an investment that is very low risk is very good compared to a savings account or CD, you were much better off forgetting the whole “safe haven” idea and sticking with stocks, where the S&P is up 11.3% in the same time period. 

                  Because none of you trade futures and commodities, where it makes sense to be in and out of investment vehicles, how about you do the right thing and buy high quality stocks and stick with them.  As an investor, you should want to go over the fiscal cliff, temporarily of course, because it will give you a great chance to buy stocks that are unfairly hit, very cheap.  After seeing how strong market has performed in the last month with all the negativity about the fiscal cliff, my price target for the S&P next year is 1575 (all-time highs), which would imply only a 12% move from Friday’s close.  Stocks will be the place to be in 2013.  After all, if you had bough the market on January 1, 2012, you would have bought the low for the entire year. 

                  One place to put your money to work is in the retail industry, where those stocks have been hammered over the last few weeks due to the fiscal cliff and dock strike on the east coast.  However, yesterday the dockworkers agreed to go back to work through the middle of February where by then a new deal should be in place.  Just about the only sector that rallied during Friday’s miserable trading day were the retailers, with Macys, TJX Companies, and Nordstrom all trading higher.  Those three, along with Amazon are the best ways to play retail.  My first preference is Macys, which I bought early Friday before it rallied, as it’s trading at just 10x 2013 earnings and is the cheapest among its competitors. 

                  Another stock that I love, which unfortunately has already rallied sharply over the past few weeks and seemingly will not pullback, is Ford.  In my opinion, it’s the best way to play the global growth story that will happen in 2013.  Ford is up 46% since making a new multi-year low in August (up 10% just this week) and is just $0.18 off it’s 52-week high of $13.05.  They already have very strong US sales and Europe and China are recovering, which will only boost their global sales numbers.  My price target on Ford is $15.65, a 22% gain from Friday’s close.  With that being said, I don’t necessarily recommend buying Ford on Monday, but instead, wait for a pullback closer to $12 and then buy aggressively. 

                  I am also looking for another big year in technology stocks, let up by the one stock that has been beaten to pulp since hitting an all-time high back in September, Apple.  While there are many reasons that Apple has gotten hammered (slow down in iPhone and iPad growth, possible lack of new products, increased competition, etc…), I think the main reason the stock has sold off about $200 is because of profit taking going into higher taxes next year.  Compound that with individual investors panic selling and you get Apple at $509.59, trading around 10x 2013 earnings or a 30% discount from its historical P/E.  The stock looks like it wants to hold the $500 level, which it did on November 16^th and December 17.  I would be a buyer of Apple but wouldn’t take it much lower than $480.  That’s about a 6% risk for a stock that I predict will trade back up to $660 next year, or about 30% from Friday’s close. 

                  Other stocks I like for next year are Caterpillar, Starbucks and Dunkin Donuts, Visa and Mastercard, McDonalds, Harley Davidson, Nike Under Armour, and Petsmart. 

                  Happy New Year

Full disclosure: I am currently long Macys (M)

Jeff Lewison  

I Was Wrong

12/2/12

                  Welcome to this week’s edition of the Lewison Letter.  Two weeks ago I wrote that I expected the stock market to continue to sell off toward 1315, despite the key reversal day on the previous Friday.  Since that time, the S&P has rallied in a straight line up 67 points, or 5%.  Given this recent 2 week rally that just priced in a fiscal cliff deal getting done this year, I can admit that I was wrong in thinking the market would continue lower and ignored the technical signs that said the selling pressure was over.  This entire past week, we heard from both Democrats and Republicans that they are nowhere near a deal on the fiscal cliff, and the market’s reaction was positive.  One of the most important signs of a strong bull market is that it’s able to shake off any negative news.  As soon as House Speaker Boehner came out on Friday and said that they were at a stalemate, the Dow immediately dropped 60 points, only to rally back and actually close higher by 4 points.  Then, this morning on Meet the Press, Treasury Secretary Tim Geithner said that Republicans would eventually buckle under the pressure and settle for tax hikes.  Two weeks ago, that would result in probably a 10 point drop as the futures opened Sunday night…tonight the S&P opened 2 points lower.  If you look at other “risk-on” trades like oil, Euro currency, and copper, they have all traded higher for 4, 3 and 2 straight weeks, with very bullish looking charts.  The S&P has reversed course and traded higher 2 straight weeks, after trading lower 4 straight weeks.  While there will be minor pullbacks along the way, I am looking for these trends to continue and you should be a buyer of the market on dips.

                  As for the S&P, there are a few levels that I am looking at on the downside to hold as support.  As usual, I’m using Fibonacci retracements from the 52 week high of 1475 to the low of 1202 last December and the 200-day moving average.  Friday’s close of 1416.18 is exactly the 78.6% retracement and should actually be resistance to the upside, so see if this level holds.  I’m looking for three straight closes above this level, if not, the S&P should head lower towards the 200-day MA.  Looking back at Wednesday’s price action, it was no surprise that the market traded as low as 1385, only to rally back sharply and end the day higher by 11 points.  1385 is the 200-day MA and a major support level that should hold if tested again.  If that level fails to hold, then the S&P should be a lock to trade down to the 61.8% Fibonacci retracement of 1371, another 45 points, or 3%, from Friday’s close. 

                  Right now there are a number of places where you can put your money and have success.  The most unfairly beaten down stocks right now are the retailers.  With the negative November sales caused by Sandy and the notion that if taxes rise, consumers have less money to spend on discretionary items, top names like Macy’s, TJX Companies, and Nordstrom all trading at a nice discount.  Macy’s is my favorite in this sector and around $38 is the best price to buy it.  Since September, everytime Macy’s has traded this low, it’s rallied three or four dollars and has put in a series of higher highs and higher lows, representative of a bull market.  This could be the last great chance at getting Macy’s before it rallies to a new all-time high.  I like TJX at $42.50 and Nordstrom at right here at $54.

                  If you’re bullish energy stocks like I am, then look to be a buyer on pullbacks.  I really like the refiners like Valero and Tesoro.  Valero has built an inverted head-and-shoulders over the last two months, and I want to own the stock at $30.40, which is the top of the shoulders and Tesoro at $40, which is also the shoulder line.  If you would rather have yield, buy Chevron and Conoco Phillips or Phillips 66 (but only on a pullback to $47, a 10% drop…the stock has gone straight up since its went public). 

                  There is no question that the long-term trend is going to push the stock market much higher, as all the bull market technicals are in play.  Since putting in the key reversal 2 Fridays ago, the market continues to shrug off any talk of a stalemate in Washington.  As it gets closer to December 31^st, and no deal gets done, the market will start selling off, giving you a good opportunity to buy.  Use these sell offs to your advantage.

Full disclosure: I have no open positions at this time.

Jeff Lewison

Obama vs. Congress

11/18/12

                  Welcome to this week’s edition of the Lewison Letter.  The Dow finished lower by about 2% and the S&P closed down 1.5%, despite the strong rally on Friday.  It was really a tale of two types of politicians this week and lets start first with Obama.  On Wednesday, Obama held a press conference where it wasn’t so much what he said, as to how he said it.  Obama took a “putting his foot down” tone in talking about the fiscal cliff, which caused the S&P to drop about 20 points or 2.5%.  On Friday, House Speaker Boehner, Senate Majority Leader, Harry Reid and House Minority Leader, Nancy Pelosi, came out and showed a unified front with a positive overtone, and the S&P rallied from its lowest level since July 26 (1343) only to close up 6.55 points at 1360, a whopping 2% off the low.  So whom do we believe…Obama and his market dropping rhetoric or Boehner, Pelosi and Reid and their market saving unified front?                     

                  There is no question that Friday’s price action was a key reversal and cannot be ignored.  Anytime the stock market drops to make new lows, only to bounce back immediately that same day to close at the highs for the day, you have to respect that price action.  Before I get to the technicals, let’s revisit the fundamentals in this market right now.  Friday’s meeting between Obama and Congressional leaders seemed to go better than planned and anytime something is better than expected, stocks rally, as worst case scenarios are always priced in first.  But at the same time, what did Boehner, Reid and Pelosi really say that we didn’t already know?  Boehner said he believes they can solve the fiscal cliff, Reid said they understand what the problem is and they have the cornerstones to work something out, and Pelosi said it was a constructive meeting and they have to work something out.  Perhaps the only real news that came out of Friday’s meeting was that talks were constructive, and “hope” of a debt deal alone seemed to be enough to rally 20 S&P points…and hope is never a reason to buy stocks. The markets are also dealing with tensions between Israel and Palestine, a European crisis that just won’t go away, a rising dollar, high unemployment and corporate profits coming in much lighter than expected.  While I have no doubts a deal in Washington will get done before the end of the year, it will still be a while before that happens and with more negative news than positive, I am looking for the market to continue to trend lower.                            

                  Now to the charts…Friday’s bullish price action resulted in a bull hammer, price action in which the market opens, trades lower, often times to a new low, only to rally back and closer higher on the day.  This candlestick chart formation is often times a key reversal day and signals overwhelming demand at the lows that indicate a bottom has formed.  Ordinarily I would say that it would be time to buy against that level, however, this price action was created by an outlying event (Boehner, Reid, Pelosi), not a technical level, and therefore cannot be trusted.  As I mentioned previously, I see no reason to jump all in at this time and reiterate that I am looking for a drop to S&P 1315, where there is actually technical support in the market.  Also, it’s important to note that Friday’s close at 1360 is actually a point of resistance to the upside.  If you connect the 52 week low of 1159 from last November, to the low on June 4 this year at 1267, and carry that line out, it leads to 1362, which happened to be Friday’s high.  While it would not surprise me if the market had another day or two of a relief rally, I fully expect that uptrend line to hold, and you should look for another move lower over the next couple weeks. 

                  I do want to reiterate that if you are looking to buy in this market, do not do so all at once.  Identify high quality stocks that have been unfairly hit, and buy in blocks until 1315, where I recommend buying aggressively.  While I think Apple is getting close to a “buy of the century,” I would wait for a move back down towards $500 again as I think the stock could ultimately pull back to $493.87.  I also love Starbucks and Dunkin Donuts (Starbucks more for long term growth especially for their recent acquisition of Teavana), Amazon, Macy’s, Visa, Union Pacific, Petsmart, Cummins and Ford for long term plays, and CVS Caremark, just to name a few.  Be careful buying this week, as there will be light volume going into the holiday. 

Full disclosure: I currently hold no open positions, but will be selling the S&P on rallies and buying US Treasuries on dips.

Jeff Lewison

Welcome Back

11/11/12

                  Welcome back to the Lewison Letter.  A lot has gone on since my last writing…and a lot has also stayed the same.  Obama is still in office, Republicans and Democrats are still fighting and the equity markets are still moving around.  Europe still has problems and US unemployment still sits around 8%.  Nevertheless, there is about to be a perfect buying opportunity in these markets and I want you to be able to take advantage of it.  

                 

                  Last Tuesday, before Obama was re-elected, the S&P rallied 11 points in anticipation of a Romney victory.  Since that time, the last three days saw a drop in the index of 48 points or about 3.5%.  Before I get into the technicals, I’ll talk about what is fundamentally wrong with the market right now.  Unless you’ve been living in the box the last few months, you know that the Bush era tax cuts are about to expire and unless Congress gets its act together, the economy will go back into a recession, unemployment with rise back up and the market will continue to sell off.  There’s also the concern that third quarter earnings, which were already expected to be bad, are actually looking worse than expected, to go along with weaker outlooks.  While those are two real big problems, there are some positives that people are missing.  China’s economy seems to have bottomed and is actually starting to grow again.  The bad news in Europe is so overplayed that it no longer is affecting the US markets, despite what you may hear or read about.  The reality of the situation is that nothing fundamentally has really changed from when the S&P hit a high of 1475 to where it is now, about 100 points lower.  Everything I previously mentioned was in play in September, as much as it’s in play right now. 

                  As for what the charts say…we could be in for a lot of pain and very little gain..short term.  Since September, the S&P has built a massive head-and-shoulders formation that is working out perfectly.    In fact, it was one of the more perfect formations I have seen on a daily chart in a long time.  The head is a series of lower highs and lower lows, which is a dead giveaway that a drop is coming.  As soon as the S&P failed for a third time to make new highs on October 18, that should have been your signal to sell.  The market sold off and then built the right shoulder for the first 12 days of November, until Wednesday when the market dropped through the armpit line, leading to where we are today.  What you also have in play is the armpit line at 1406, just so happens to be the 78.6% Fibonacci retracement from the 52 week low to high.  The next level of support doesn’t come into play until 1353, another 2% drop from Friday’s close, which we are sure to hit.  In fact, until there is a resolution to the debit crisis, I expect the markets to continue to trend lower, with a few days of relief rallies interspersed.  In fact, I’m looking for a sell-off down to 1315, the 50% Fibonacci retracement and an 11% drop from the 52 week high. 

After hitting a year-long low last November of 1159, the market turned and rallied to a new 52 week high on April 2.  From March through May, the S&P built a head-and-shoulders at the 52 week high, only to fall 11% to 1267.  This recent formation built since September, at multi-year highs, looks exactly like what we saw earlier in the year.  If you look at a one year chart, as I am doing, there is actually a much bigger picture that is taking place this year.  From the 52 week lows last November to where we are now, there is a big Elliot Wave count developing, where we are currently building out the 4^th wave down.  Elliot Wave Theory says that markets alternate between an impulsive phase to corrective phase with a total of 5 wave counts.  If you look really closely, wave 1 (1159-1405), is almost equal to wave 3 (1267-1475).  Wave 2 (1405-1267) should lead to the drop I am expecting of wave 4 (1475-1315).  At 1315, I want you to buy aggressively, as it should lead to new multi-year highs of 1525, which is my 2013 S&P price target.  Until we hit 1315, be cautious in what you’re buying.  Without a resolution in Congress, the retail stocks are going to get slammed because of the anticipation of people not having as much money to spend.  But if you want to be in a retailer, go with Amazon, Macys or TJX Companies, who I think are best in class.  Buy stocks of companies that have already reported strong quarters and maintained a positive outlook for future quarters.  Coffee stocks like Dunkin Donuts and Starbucks are two that I like, especially with coffee prices sitting at multi-year lows, and those two restaurants are not lowering their prices, which will increase margins.  I also like financials like Discover and Visa, who continue to make new all-time highs.  Until Apple turns around from it’s 20% drop from all-time highs (no it’s not time to buy Apple), avoid tech stocks because that seems to be the most hated sector right now.

                  There is too much going against the stock market right now so trim profits where you have some and cut your losers if you have those.  Be patient when buying stocks and don’t buy all at once.  Until we know exactly what is going to happen with the tax situation, the markets should continue lower, giving you a great buying opportunity.

Full disclosure: I currently hold no open positions.

Jeff Lewison

Germany & FOMC

9/9/12

                  Welcome to this week’s edition of the Lewison Letter.  It was a breakout week for the stock market as Mario Draghi decided to go ahead with a bond-buying plan for countries in Europe who ask for help.  That drove yields on Italian and Spanish bonds to their lowest levels in months and the US stock market to new multi-year highs.  Then on Friday, we received a very disappointing jobs number, but nevertheless, the markets finished higher on Fed stimulus hopes.  The Dow rose 1.6%, the Nasdaq is at it’s highest level in 12 years and the S&P finished up 2.2%, its highest weekly gain since June. 

                 

INDICES

The US economy showed an increase of 96,000 jobs in August, which was much lower than the 125,000 analysts were expecting.  Job growth continues to disappoint, but as I mentioned in last week’s letter, a bad jobs number would actually be bullish for the stock market, which it was.  There are a few key events this week, starting with Wednesday.  Apple will hold it’s press conference to announce the iPhone 5, an event that will lead to a drop it the stock, as it always does.  Expectations are so high for Apple that no matter what the iPhone 5 has, it won’t be good enough was investors.  Also on Wednesday, the German Constitutional Courts will rule whether or not Europe can go ahead with its rescue strategy.  The market has already priced in a positive ruling, so anything negative from Germany, and the stock market will sell off.  Thursday brings the 2-day FOMC meeting to a close where the market expects Bernanke to announce a new round of Quantitative Easing through some sort of bond-buying purchasing.   I think we get exactly that, which will remain long-term bullish for stock prices. 

Obviously the two biggest market movers for the week will be the German court decision and the results from the FOMC meeting.  The markets have already built in the German courts ruling in favor of the ECB bailouts and the Fed to announce QE3, so I do expect the markets to sell off slightly on both pieces of news.  If the markets are surprised with the opposite results, the S&P is a shoo-in to fall back to the 1400 level, about 2.5% from Friday’s close.  While I do expect the markets to continue to march higher, look for some profit taking this week and a move in the S&P back down to the previous breakout level of 1415 and the Dow 13,100.  This market has gone almost straight up since June and is ripe for profit taking, so I would look to be a buyer at those levels.  But like I said, the stock market is poised to go higher despite all the analysts calling for a pullback in the S&P to 1300-1350.  Copper prices, Euro currency, and energy prices are all trending higher to go along with a dropping US Dollar, which is all good news for equities.

My recommendation for this week is to watch and see.  Wait until we hear from Germany on Wednesday and the Fed on Thursday.  Let the markets digest the news and put in a bottom before you start buying.  Have a stock shopping list ready to go, so when you get the prices you want, you are ready to buy.  Stick with my previous recommendations for stocks.  I like companies that have minimal to no European exposure and have already reported strong earnings and guidance. 

METALS 

                  Gold, Silver and Copper all continued their march higher last week, with gold and silver trading at their highest levels since February.  Likewise, copper is trading at its highest level since May 14.  Gold & Silver traded sharply higher late in the week after the ECB announcement, along with a terrible jobs number, passing through key Fibonacci levels.  Friday morning, gold and silver rallied through the 50% retracement, making that the new floor in the stock.  For silver, look for $32.19 to hold as support and for gold, $1723.80.  I expect the two metals to continue to trade higher, no matter what the outcomes of Wednesday and Thursday are.  If you already bought either the GLD or SLV, continue to hold them through the week, if you have not bought either, buy on Monday and use the Fibonacci levels as your stop loss.  For the SLV and GLD, those come into play at $31.54 and $167.06, respectively.    

                  Copper made a huge rally on Friday behind strong Chinese construction data, and that rally should hold.  Copper broke through previous resistance of $3.55/lb, through the 50% Fibonacci of $3.6085, to close at $3.6415.  I am looking for the $3.6085 level to hold, so continue to hold Freeport MacMoran (FCX), Toll Brothers (TOL) and Pulte Groups (PHM).

                  Last week I recommended buying the Euro currency through FXE, which, if you took that advice, you got a nice gain for the week.  The FXE is going to be a key indicator to watch late Tuesday and early Wednesday.  The euro will indicate what the market thinks the German courts will decide on, which should translate to same move in the stock market, meaning that where the Euro goes, US equities go.  Again, I reiterate not doing anything this week, but let the market come in and then buy before another move higher. 

Full disclosure: I currently hold no open positions.

Jeff Lewison

ECB & Unemployment

9/3/12

Welcome to this week’s edition of the Lewison Letter.  As expected, it was another very quiet week on Wall Street until Thursday & Friday’s market sell-off and rebound.  On Thursday, the market took a dive as investors repositioned themselves for Big Ben’s speech at Jackson Hole, with the broader averages dropping about 1%, and the S&P closing right at that key 1400 level at 1399.48.  While that technically is a close below 1400, Friday’s price action wiped it out with a rally to close at 1406.58.  While the initial reaction to the Fed Chief’s speech was a sharp 12 point sell-off, the market quickly rallied back to close 8 points off the low and once again, holding the 1400 level. 

It’s important to note what was behind Friday’s rally, which was absolutely nothing other than smart money realizing the technical level at 1400 is a true floor for stocks.  Ben Bernanke said absolutely nothing that he hasn’t said over the last month, and did not announce any new form of quantitative easing.   In fact, the futures indicated this rally was entirely induced by the European markets since at 7:45am on Friday, the S&P futures were already up 13.5 points, at what turned out to be the highs of the day for not only the US market but also the highs for the day in the DAX, Stoxx 600, FTSE and the rest of Europe. 

As positive as Friday’s price action was, it does bear noticing that the indices, treasury prices, metals, energy, and currencies all traded higher, an anomaly that should not exist.  Treasury prices and the metals should move in the opposite direction of the Euro and stock market.  With everything moving in the same direction, one of these markets are wrong and exactly which one will be made very clear by Friday at 7:30am. 

INDICES

As I mentioned previously, the stock market has found its’ footing at 1400 on the S&P and 13,000 on the Dow.  Both levels have been real strong support since August 6^th, and should remain that way until it gets tested when the ECB (European Central Bank) meets for their policy meeting later in the week, only to be followed by US Non-Farm Payrolls for August.  Both will be major market movers, and events I do not want you trading in front of because they could go either way.  Europe has yet to prove they have any idea how to get themselves out of a recession and although we saw a better-than-expected jobs report last month, I don’t see that continuing in August. 

                  First, the ECB will hold a policy meeting later in the week, and market bulls expect European leaders to come up with a way to help the struggling economies of Spain and Italy through some sort of bond buying program.  Since nobody really thinks that will actually happen, I’m taking the other side and think they will get some sort of resolution going.  Early in August, ECB leader, Mario Draghi announced they are ready to use any means necessary to help the struggling Euro, only to be shot down by German leader, Angela Merkel, a few days later.  Second, with last month’s jobs number being higher than market analysts anticipated, the August estimates have been raised to a bar which is way to high.  But if you think that means the market will sell of, think again.  A lower number means the Fed is more likely to stimulate the economy when they meet on September 12^th, which in turn should actually rally the stock market. 

                  When I listen to analysts on Wall Street, I keep hearing everyone waiting for the big market sell-off.  The problem with that is that everyone is waiting for something that just isn’t going to happen.  There is so much bearishness on the street right now that the easiest thing to do would be for the stock market to continue to rally to new multi-year highs in what is historically the worst month of the year for stocks.  Nobody expects the market to continue higher, which is why I continue to reiterate that you should be a buyer on every pullback.   

METALS

                  If you bought SLV two week ago on my recommendation, you would have a 13% gain, and looking at the charts, should have a lot more coming.  On a weekly chart, if you draw a trend line from the highs of April 2011 ($48.35) to the high made on February 29, 2012 ($36.44), you would see that SLV is trading above the long-term downtrend line that it broke through on Friday.  I’m using those two points because April was the all-time high in silver and the February high was the yearly high and an outside reversal day.  For those in the trade already, I want you to move your stop to $29, which is where the trend line comes into play and is also the 23.6% Fibonacci retracement.  For those who are not in the trade yet, wait for a move back closer to $30 before you buy and use $29 as your stop loss.  The next point of resistance level will come into play right around $31.54 (38.2% Fibonacci) and also a previous floor that the metal crashed through.  My price target for SLV is $33.46 which would be the 50% Fibonacci number and about another 15% upside from here.  Say what you want about how gold and silver are trading as a safe haven, the real reason these metals have broken out and will continue to do so, is simply on the technicals and nothing else.  These metals were rallying 2 weeks before Bernanake’s speech at Jackson Hole and no matter how good or bad the ECB meeting and jobs report is, silver will continue to rally higher.

                  As mentioned last week, copper doesn’t seem to want to go lower and much like silver, looks ready to break out to the upside.  The week of August 20^th, was just the third time in last five months that copper closed above the 38.2% Fibonacci level of $3.4635, and although it traded below that level last week, the metal held in there and closed right at $3.4650.  As of this writing, copper is currently up $0.03 at $3.49/lb., again holding that level.  I don’t really like the copper ETFs, so I continue to reiterate the best way to play copper is through the homebuilders like Toll Brothers and Pulte Group.  While I realize these two stocks have already rallied more than 15% each since I first recommended them, they are still great buys on a pullback (TOL at $31.15 and PHM at $13).  You can also play copper through Freeport MacMoran (FCX), but as I mentioned last week, wait for a pullback close to $34 before buying and stop yourself out at $31.  My outlook for copper is a move back up to $3.7535/lb, which is the 61.8% Fibonacci level.

ENERGY

                  Turning to energy, I continue to be a bull of this market as heating oil has been up four straight weeks, crude oil up five of the last six weeks and gasoline up nine of the last ten weeks, I would say that’s a trend that I want to be a part of.  While I do realize that the summer driving season is now behind us and the effects of Hurricane Isaac are already priced in, I still see further upside for the sector.  Gasoline prices for the front month are at $2.99, just $0.05 off multi-year highs made in March.  Oil, having broken through the resistance of $95/barrel, has turned that into a nice floor and should rally all the way up to $100/barrel again, especially if the unemployment data on Friday is anywhere near expectations. 

                  Over the last 4-6 weeks, I have been recommending the refiner stocks like Valero and Tesoro, which have been great trades, but while both still have some room to the upside, there are better ways to play higher energy prices.  If you own these two stocks, I recommend taking profits.  I would rather see you in names like Phillips 66 (PSX), Chevron (CVX), Exxon Mobil (XOM) and Conoco Phillips (COP).  All are trading near multi-year highs and with the exception of PSX, pay very hefty dividends, which is a trade that is working very well right now. 

CURRENCIES

                  A key metric to watch that I haven’t really mentioned for months is the US Dollar and its counter currency, the Euro.  After hitting a two-year high back in mid July, the Dollar has sold off almost $2 to $81.175.  Additionally, on a weekly chart formation, the US Dollar put in a 5^th wave up on that high, and as it should, sold off.  I’m looking for the Dollar to continue to sell-off towards $79.458, the 50% Fibonacci retracement from the 52-week high to low. 

                  Looking at the Euro, it looks poised to break out, and could very well do so on anything positive this week out of the ECB meeting and better than expected US unemployment data.  On a daily chart formation, the Euro built an inverted head-and-shoulders at multi-year lows, with the head at 1.2051.  The Euro is currently sitting at 1.2591, slightly above the 23.6% Fibonacci retracement from the 52-week high to low.  If it closes tomorrow above that level, it will be three straight closes and new support.  I’m looking for a move in the Euro back up to 1.2904, the 38.2% Fibonacci level.  With a rally up to that level, stocks and metals should trade higher and US Treasuries should sell off.  Keep a close eye on the Euro currency that has closed higher for three straight weeks.  The best way to play the Euro is through the Currency Shares Euro Trust (FXE).  As long as the FXE holds the 122 level, it should continue to trade higher.  Wait for a pullback to 122.75 before buying and stop yourself out at 122 on the downside. 

                  It should be another calm week in the stock market until the ECB meets on Thursday and the US unemployment data is released Friday morning.  Use the key levels in my letter to trade against and never buy on rallies.  Be patient and wait for a pullback to get into a trade. 

Full disclosure: I currently hold no open positions

Jeff Lewison  

Calm Before Jackson Hole

8/26/12

                  Welcome to this week’s edition of the Lewison Letter.  After stocks hit a new 5-year high early in the week, Wednesday and Thursday led to some profit taking, with the S&P dropping 20 points from its highs, only to rebound on Friday to close just about 1% below the those same highs.  Much of last week was determined by the minutes from the last Fed meeting and Bernanke’s remarks made on Friday, giving the market a nice boost.  I expect another relatively flat market throughout the week until Bernanke and ECB President, Mario Draghi speak at Jackson Hole, Wyoming at the end of the week. 

INDICES

                  While all three indices were lower last week, the trend is still higher and that’s where they should continue to go.  The Nasdaq will be getting a nice boost on Monday with Apple winning their patent infringement lawsuit against rival, Samsung, late Friday afternoon.  A US jury found Samsung guilty of infringing on 6 of the 7 patents Apple sued for, awarding Apple $1.05B, and rallying the stock $11 after the close, to new all-time highs.  As of this writing, the stock futures are already indicating a nice open Monday morning.

                  The important level to watch for the week is 1400 on the S&P, which seems to be very strong support for the market.  On Friday, the S&P traded to a low of 1398.50, only to rally out of the hole and close at 1411.  As mentioned in last week’s letter, while I expect the market will hold the 1400 level, if it does drop below, we have another 11 S&P points to the downside, where 1389 comes into play as the 78.6% Fibonacci level. 

                  I continue to reiterate that I like companies which have little to no European exposure and have already reported strong quarters.  Wait for pullbacks in these stocks and ride the wave higher.  Stick with stocks that I mentioned in previous letters, along with Macy’s, Petsmart, Phizer, Merck, etc…

Metals

                  I hope you were able to take advantage of the rally in gold and silver last week, with both breaking out sharply  Gold did exactly as I expected it to do, trading right up to the 38.2% Fibonacci retracement of $1676.60/ounce, closing at its highest level since March 5^th.  Likewise, silver broke out to close at its highest level since early April.  I would be looking for another $2-3/ounce in silver and about $50/ounce in gold before pulling back.  Any pullback in the gold or silver should be bought against $1618.30 and $28.11, respectively. 

                  The other metal market that had a nice rally despite the stock market trading lower was Copper.  The industrial metal rallied 2% to close at its highest level in over a month.  Most importantly, copper broke through a key resistance level on Wednesday, closing above $3.4635/pound for the first time since mid-July.  Wednesday, Thursday and Friday all closed above that key 38.2% Fibonacci level, putting in a new floor and a great level to trade against.  While I previously recommended playing copper through homebuilders such as Pulte Group (PHM) and Toll Brothers (TOL), both have skyrocketed to new multi-year highs, so I suggest waiting for a pullback.  While I previously did not like Freeport MacMoran, one of the world’s largest copper and gold miners, the stock has a nice base at $31, which is a good level to trade against.  

                  Without a lot happening in the markets this week, that wraps up this week’s edition on the Lewison Letter.  Again, only buy on pullbacks and be cautious until the meeting at Jackson Hole at the end of the week.  A lot of expectations are that Bernanke will be announcing another round of easing, and if he fails to do so, I expect the stock market to pull back sharply. 

Full disclosure: I am currently in all cash.

Jeff Lewison 

Never Be Short A Quiet Market

8/19/12

                  Welcome back to this week’s edition of the Lewison Letter.  For the second week in a row, things were pretty calm in Europe and Wall Street leading to the sixth straight week of gains for the broader markets.  Without any big economic reports coming out next week, it should be another quiet one on Wall Street

INDICES

Looking at the S&P, Friday’s close of 1418.16 is the 2^nd highest daily close since early 2008 and the highest weekly close since that same time frame.  The S&P has closed higher for six straight weeks and 9 of the last 11.  Last time we saw a streak like this, started in January of last year.  There are a lot of factors involved in why these markets are heading higher.  The lack of any news at all coming out of Europe in the last two weeks, to go along with overall better-than-expected economic data out of the US, is giving investors more reason to buy into the stock market.  There is also a big Fed stimulus premium built into the market, which could be a disaster if Bernanke and company decide next month not to continue their further easing.  But, what has really driven this market higher is the same thing that led the market lower earlier this year…technology.  For evidence, look no further than what has led the Nasdaq higher over the last couple months, tech giants, Google and Apple.  Apple closed Friday at new all-time highs and Google closed at its highest level since January 2008.  Along with those two stocks, many of the chipmakers are trading at or near multi-year highs.  

With stocks trading this high, I am hearing more bearish sentiment than bullish, which is to be expected.  I am in the camp that believes the trend is your friend and the markets will head higher.  Equities have had every opportunity to trade lower, but every pullback has proven to be a great opportunity to buy, and that will continue.  On August 7^th, the S&P rallied through what was previous resistance of 1400, and the broader index has closed above that level every single day since.  You now have a perfect level to trade against, and until the market closes below 1400 three times, continue to use that level as your resistance to buy against.  Any drop below that level, and the S&P should hold 1390, the 78.6% Fibonacci. 

I again urge you to stick with the companies that have reported strong quarters and have minimal European exposure, with the lone exception being Apple.  If Apple pulls back to anywhere near $625/share, you have to buy it.  Home improvement store, Home Depot, reported a very strong beat and raise last week, sending the stock to new all-time highs.  That is the single best way to play the housing recovery.  Companies like TJX, Macys, Altria, Disney, drug companies like Phizer, Merk and Abbott Labs, and homebuilders like Toll Brothers and Pulte Groups will give you a great opportunity to make money. 

ENERGY

                  Over the last couple months, the energy markets have traded exactly as they should based on the technical formations.  First, looking at crude oil prices, you may have noticed the steady rise off the low of $78.16/barrel back on June 28^th.  Since then, oil has rallied $18.38 or 24%.  When looking at the daily formation of oil prices dating back to the beginning of June, oil built an inverted head-and-shoulders pattern from June 1-July 12, and broke to the upside, sending oil prices higher for 5 out of the last 7 weeks, including the last three weeks in a row.  The previous resistance in oil was at $94.41, which is the 50% Fibonacci retracement from the 52-week high to low.  On Wednesday, oil closed above that level for the first time since May 14^th, and has closed higher the last two trading days.  The trend in oil continues to head higher with the next level or resistance coming into play at $98.24, which is the 61.8% Fibonacci retracement, a level it hasn’t traded at since May 10^th.  Although we’re coming to the end of the summer driving season, the July US unemployment picture is giving the markets hopes of higher demand, driving up prices.  I continue to see oil prices rally another couple dollars but should sell off at $98.24.  That would be a level to sell against, with a floor put in at the $90.57 level, 38.2% retracement.  The best way to play oil continues to be through the leaders like Exxon Mobil, Chevron, & Conoco Phillips, all trading at or near multi-year highs and offering very strong and safe dividends.  But as I mentioned earlier in the letter, only buy on pullbacks, using the oil floor as your level to trade against. 

                  As previously mentioned, gasoline and oil prices, which usually trade together, have been spread out, and gasoline should rise to $3.02 on the September contract.  Gasoline traded up to $3.09, before selling off closer to the $3.00/gallon level.  On the October contract (front month), gasoline prices closed on Friday at $2.87/gallon, holding the 78.6% Fibonacci retracement of $2.8616.  Since making a new two-year low in mid June, gasoline has traded higher 7 of the last 8 weeks and should continue to do so.  Nothing on the chart indicates otherwise, and there is a definite upward trend in the market.  I see no reason that gasoline prices do not challenge the multi-year highs of $3.0402/gallon.  Looking at a trendline connecting the 52-week low of $2.2056 to the low put in on July 25^th, the floor in gasoline comes in around $2.70, giving you a nice level to trade against.  The best way to play gasoline prices is through the same refiners I have been mentioning for many weeks such as Valero & Tesoro.  I will mention that Tesoro has rallied 90% since May 8^th, so do not chase that stock.  Let it pullback about 10% before you get long.

                 

Metals 

                  Gold and silver prices have quietly been holding steady above key technical levels for some time now, and is giving investors a great opportunity to buy into both of these metals.  Over the last month, gold has closed below $1600/troy ounce just once, indicating a good floor is in place.  As I mentioned in previous letters, gold, often viewed as a safe heaven, is not a safe heaven.  If that was the case, it would trading roughly in-line with US Treasuries and prices would be much higher right now, based on a lot of uncertainty in the marketplace (i.e. Presidential election, “fiscal cliff,” Europe, unemployment, etc…).  Gold is really only trading on technicals and looks ready to break out.  The big question is whether it breaks up or down and that’s what I’m here to help you with.  Gold has been a very quite market over the last three months, and you never want to be short a quite market.  Since putting in a low of $1547.60 on June 28^th, gold has put in a series of higher highs and higher lows, indicating a bullish formation.  I’m looking for a breakout above $1627, where it should then trade up to $1675, which is the next resistance level and 38.2% retracement from the 52-week low to high.  The best way to play gold is through the ETF known as the GLD.  I want you to buy it on Monday, with Friday’s close of $156.72, and stop yourself out at $150/share. 

                  While I like gold much more than silver, you cannot overlook the fact that silver has now closed higher for four weeks in a row.  Last time this happened was earlier in the year and led to an 11% gain three weeks later.  I see a similar move, with silver having bottomed out at $25.34.  It had every chance in the world to trade lower, but failed to do so and like gold, should be ready to break out to the upside.  Silver is giving you a low risk opportunity here that I want investors to take advantage of for a TRADE ONLY.  On Monday, I want you to buy the Silver ETF, SLV, 15 minutes after the open, (remember I advise waiting at least 15 minutes to let the market settle in) and hold the position for three weeks, with a stop loss at $25, again a level it has not traded at since October 15, 2010.  It’s a low risk trade with a chance to make a nice profit in three weeks.     

Despite the stock market trading near multi-year highs, there are still many opportunities in this market.  It’s important not to chase stocks, but to wait for your price before pulling the trigger.  Remember that financial markets can turn on a dime and any bad news out of Europe should send stocks lower, giving you a great chance to buy.  Stick with the names I’ve been recommending and good luck, investors.

Full disclosure:  I am currently long AAPL

Jeff Lewison  

                       

Thank You Jobs

8/5/12

                  Welcome back to this week’s edition of the Lewison Letter.  Once again, the markets didn’t fail to disappoint in the excitement category.  The S&P fell almost 30 points between Monday and Thursday, only to be bailed out by a surprisingly strong non-farm payroll number on Friday, finishing the week positive by about 5 points.  While the payroll number increased 163,000, the unemployment rate still ticked up 1 basis point to 8.3%.  Although the 160,000 jobs was much higher than anyone expected, for the economy to really grow and for the US to shrink the unemployment rate, we really need to create roughly 300,000 jobs each month, so don’t get so excited about a measly 160,000 (although much better than last month’s embarrassment that was revised down to 60,000).  While Friday’s sharp rally put in a 3-month high, I remain cautiously optimistic because the “leaders” in Europe continue to show they have absolutely no clue how to run an economy and gasoline prices continue to rise. 

INDICES

                  A few weeks ago, I mentioned that S&P would hit a high of 1395 and with today’s high of 1394.16, I’ll say that’s close enough and gives you a good level to trade against.  I am still bullish the market, but Friday’s price action in the stock market was overblown and I expect a sell-off to come next week.  Before I get into the technicals of the S&P, the big problem that I see right now is everything we hear out of Europe is bad.  Spanish and Italian bonds continue to yield over 7%, and Mario Draghi can’t run the ECB the way Bernanke can run the US Central Bank.  Additionally, too many companies are reporting lower than expected revenues, weak guidance and slowing sales, and remember, we don’t care where stocks have been, we care where they are going. 

                  With that being said, I still say we trend higher, but it’s going to take a lot for the S&P to hit new 52-week highs.  As most of you know or can guess, I care a lot more about what the charts say than any what the fundamentals are.  The S&P is trading perfectly with what the technicals say.  Friday’s high came right up to a downward trendline from the 52-week high of 1422 on April 2^nd and the high of 1415 on May 1^st.  As I mentioned earlier, this is a level I want to be short against until the market can prove it can rally higher.  I need to see three closes above 1395 to be convinced the S&P can really go higher.  For now, I still see the market trading in a technical range with the high of 1395 and the low of 1350, which not only is a downward trendline connecting the June 4^th and July 12^th lows, but is also the 50% retracement from the 52-week high to the June 4^th low.  The reason I continue to use the June 4^th low as a key day is not only because the ultimate “Bull,” Jim Cramer turned bearish for the first time in months, but also because that represents the market low from the 52-week high, 5^th wave down and daily doji line indicating a volatile price move is coming.  Since then the markets have put in a series of higher highs and higher lows. 

                  The best way to trade this market is to use these technical levels to buy and sell equities.  I cannot recommend buying stocks at these levels, but instead, wait for a pullback closer to 1350 level.  In these markets, you need to really be patient and wait for your price.  Do not chase stocks.  If you miss one, then find one of the other thousands of stocks out there to buy at the right price.  Also, focus on buying stocks that have already reported a strong quarter and have little to no European exposure, with the exception of Apple, of course (which is already trading above levels it traded before reporting a missed quarter).  I like stocks like Macys, Home Depot, Boeing, TJX Companies, Toll Brothers, etc…

GRAINS    

                  The grains picture is starting to become clearer now and the rallies are starting to slow down.  First, taking a look at soybeans, July 23^rd marked the all-time high of $16.915/bushel.  That day happened to be a very important day technically for soybeans as it put in an outside reversal day in which it opened higher, rallied to put in a new all-time high, only to sell off sharply ($0.70/bushel or daily limit) and close at or near the low of the day, building a bearish engulfing line.  How powerful is that technical formation?  Well, since that day, soybeans haven’t traded to within $0.25 of the highs and as of this writing are down $0.39 at $15.90/bushel, a full dollar off the highs.  Right now I’m looking for soybeans to trade within a defined range of $15.00-$16.75/bushel, with the first level of support coming in at $15.64.  That’s not only the 78.6% Fibonacci retracement from the 52-week low to high, but also a level it hasn’t closed below since July 13^th.  On July 24-27^th, soybeans traded below that level only to close higher each day.  If they break below the Fibonacci level, then $15.00/bushel is the next support.

                  Corn is acting a little different as it made a new high of $8.205/bushel on July 31^st.  However, it’s interesting to note that on that day, much like the soybeans, corn rallied to put in a new high, only to close lower on the day, down $0.07/bushel or almost 1%.  I continue to see corn prices stay up and trade between $7.63-$8.20 in the near term.  Corn growing season is quickly nearing an end but temperatures have been cooling and rain has been falling a little more than earlier in the summer, which should be enough to save some of the crop. 

                  Wheat is trading almost the same as how the soybeans are trading, putting in the exact same outside reversal day on July23rd, with a new multi-year high, only to close sharply lower forming a bearish engulfing line.  The crop has yet to challenge that high and I don’t think it ever will.  But, similar to soybeans and corn, I see wheat trading in a tight range of $8.68-$9.47/bushel. 

                  With grain prices staying high for the foreseeable future, be very cautious in buying stocks that are levered heavily to commodity costs.  Stick with companies that can raise prices and not lose sales, with a stellar management team and clean balance sheet.  Stick with McDonalds, Yum Brands, and Panera Bread, all of which have already reported good earnings.  Avoid stocks that can’t handle the commodity heat like Chipotle, Buffalo Wild Wings and Tyson Foods.  As for the agriculture stocks, I still think you’re too late to the party, but if you have to be in anything, buy CF Industries and Monsanto on pullbacks and stay away from Potash and Mosaic. 

COPPER

                  While I haven’t talked much about copper, it’s a very important commodity to keep an eye on, as it is often seen as an overall barometer of the global economic health.  What you will usually see is a higher stock market, correlates to higher copper prices.  However, what you’re seeing right now is that while the stock market has been heading higher for the last three weeks, copper prices have been declining, sitting at $3.361/pound.  That is coinciding with a slowing, yet fast growing Chinese economy and of course the disaster that is Europe.  But it also indicates that the market doesn’t believe the US Economy is getting better anytime soon.  The housing market may have bottomed, but it isn’t heading up anytime soon.  Additionally, if you look at the weekly chart of copper, it has built a massive head-and-shoulders over the last three years and is sitting right now a key technical level of $3.284/pound.  What makes that level so important is that it is not just the 23.6% Fibonacci retracement, but also the shoulder line of the head-and-shoulder.  If copper prices break through that level, they should be headed for 52-week lows of $2.994/pound.  I do continue to see copper prices hold that key level and trade within a range of $3.284-$3.60/pound. 

                  Many analysts think the best way to play copper is through Freeport MacMoran (FCX), which is the largest copper producer in the world.  I am against that investment strategy since the stock trades so closely with copper prices.  If you like a good dividend but little growth, then by all means, buy it.  My way of playing copper is through the homebuilders since copper is used in every single building.  Look to move into stocks like Toll Brothers (TOL) and Putlegroup (PHM).  Toll Brothers reports earnings at the end of the month and Pultegroup already reported better than expected income and revenues.  Neither pays a dividend but both are trading at or near multi-year highs.  My advice is to split it up your total investment in this group and put 60% in Toll Brothers and 40% in Pultegroup.

                  I want to reiterate how important it is to be patient and not chase a stock.  Use trendlines, Fibonacci levels, and moving averages to enter and exit stocks.  If you look closely at the markets, you’ll see that technicals are far more important than the fundamentals.  Many stocks and markets trade almost perfectly with key technical levels, even when you think you will never see a particular price again.  If that happens to be the case, then you missed it, and look for another opportunity.  Apple is a perfect example of not only waiting patiently but also trading with technicals.  When Apple traded above $600/share in early July, it looked like it would just take off.  An earnings miss later, dropped the stock back down to the $78.6% Fibonacci level, which held for three straight days, and now the stock is up about 8% in the last week.  Those who were patient and waited for a sell-off were rewarded with a real nice quick gain, and those who weren’t patient, are flat or under water. 

                  Full disclosure: I currently hold no open positions

Jeff Lewison     

Solazyme

8/2/12

                  I was recently asked to look into a company called Solazyme.  This company engages in the production of renewable oil with a major focus on chemicals and fuels, nutrition and skin and personal care markets.  This biotechnology company essentially offers a way to cost effectively create oils that are useful in food products and alternative fuels.  They recently engaged in a joint venture with Roquette Freres (French starch company) to start building a new 50,000 metric ton/year facility dedicated entirely to food production.   

                  This is a very small company with a market cap of just $832M and when I first looked at the balance sheet and FY11 earnings report, I thought this was a terrible stock.  Solazyme reported yearly revenues of just $39M, with a majority of it coming from their skin care department.  Additionally, the company has no P/E to speak of because earnings losses accelerated from $16.4M to $54M (70% drop YOY).  Additionally, Solazyme has negative cash flow and negative margins.  The only positive on their balance sheet is they have almost $220M in cash to just $17.55M in debt, good for $3.62/share in cash, accounting for 27% of the stock price. 

                  After digging a little deeper into what this company does and where they are headed, I think there are some good prospects in the future.  First, in looking at their joint venture project with Roquette Freres, Solazyme is finally starting to make a name for itself in the food industry with a product called Altein.  This is a whole food product with the consistency of flour that is vegan, gluten-free, non-allergenic and sustainably grown.  This protein can be used in many things from beverages to ice cream and can be used to replace animal feed while costing less, which is a huge advantage in times of rising grain prices. However, all of that being said, much progress has yet to be made.  Their Phase 1 facility just finished being built and samples are starting to be distributed to clients.  The big piece to the puzzle, their Phase II facility won’t be completed until late 2013, but once operational, the company expects revenues from that plant alone could be between $350M-$1B.  Solazyme has other advantages over competitors, namely in their technology.  They have the ability to grow food in controlled environments, eliminating the yield and quality inconsistencies that weather creates.  The company can also choose its own input resources ranging from sugarcane to forest residue.   

                  While the company has been around for almost 10 years, Solazyme recently became public, debuting in May 2011 at $18/share, hit a high in July of $27.26, only to free fall to an all-time low of $7.68/share in October.  Since then, the stock has rallied almost 80% to today’s close of $13.69.  Looking at Fibonacci retracements, trendlines and resistance/support levels, the stock is currently sitting near four-month highs and a current resistance level.  Four of the last six walks traded to a high of $14.24, $14.34, $14.23 and this week’s high of $14.16.  Clearly the $14.20 area is a decision point and it’s going to take a strong earnings report (Solazyme reports August 6^th) to blow through that level.  Taking a look at Fibonacci levels, Solazyme is trading in the middle of the 23.6% ($12.35) and the 38.2% ($15.24), the latter a level it hasn’t traded above since the first week in April.  Drawing a trendline from the high of $27.47 in July 2011 to this April’s high of $15.24, the stock has about 37% downside risk before finding real strong support. 

Currently there are 13 analysts covering the stock with 11 buys, 1 hold and 1 underperform, with an average 12-18 month price target of $18.18/share ($33% gain from Friday’s close).  Analyst estimates for FY12 are calling for Solazyme to lose $1.20/share compared to a loss of $1.22/share FY11, an increase of only 2% YOY.  My long-term price target for Solazyme is $17.58/share, which is the 50% retracement from all-time highs and lows.  While that’s a 28% gain from here, I think the stock goes lower before going higher.                    At today’s closing price of $13.69, I cannot recommend buying the stock.  I also don’t want you to buy this stock before the company reports earnings next week.  With so many companies getting slammed on weak revenues and lower guidance, wait to see what earnings look like and listen to what management says about the future of their new production plant.  While I like this stock as a long-term speculative stock for your portfolio due to its high growth prospects, I would still wait until the stock pulls back before buying.  I would look for the $11.50-$12 range, which you could get on a terrible jobs number tomorrow followed by weak earnings on Monday.  From all of my years of investing, one thing that I have learned is to wait for your price to buy/sell because when you start chasing stocks, then that’s when you get your head cut off.  If you miss it, you miss it, and you go get the next one. 

                 Full disclosure: I currently have no open positions and have plans to buy Solazyme. 

Jeff Lewison