NOEC

[AussieTrader]

Running late.

We will be buying NOEC today around the open.

A full trade plan will be given in the next hour or so.

For now the chart, which is in full on breakout mode, so we are buying into momentum.

[berloga]

Hi,

 Could you guys try to publish the "buy" and "sell" signals at least around 9am EST?! The problem is that I usually receive your Update email after the market open on my Yahoo! account, so I usually resort to constantly updating the 3SOF page to see if any new comments will appear.

  Also, in regards to NOEC, the ATR indicator shows $0.47, which is ~6% from $7.35. What amount of volatility will you be expecting going forward for the Diversified portfolio?

Thank you!
Berloga

[AussieTrader]

Hi,

 Could you guys try to publish the "buy" and "sell" signals at least around 9am EST?! The problem is that I usually receive your Update email after the market open on my Yahoo! account, so I usually resort to constantly updating the 3SOF page to see if any new comments will appear.

  Also, in regards to NOEC, the ATR indicator shows $0.47, which is ~6% from $7.35. What amount of volatility will you be expecting going forward for the Diversified portfolio?

Thank you!
Berloga

Hey Berloga, yes we will be looking to be earlier on our instructions, that will come together over the coming days. I will answer your volatility question later, it is a good question and calls into play the overall portfolio balance.

Profile:
New Oriental Energy & Chemical Corp. (NOEC), formerly known as Formerly Sports Source, Inc.), is engaged in the manufacture and distribution of fertilizer and chemical products. The products are distributed to markets in the Peoples’ Republic of China. The Company’s primary business is the manufacture and sale of urea, a chemical used as fertilizer for crops and in certain manufacturing processes, including the manufacture of resin, plastic and medicine. NOEC also produces and sells methanol. The Company’s other products include Ammonium Hydrogen Carbonate, which can be used as a fertilizer for crops and in the pharmaceutical and food industries. In addition, another product NOEC has developed Dimethyl Ether (DME). DME has a variety of industrial applications in the production of pesticides, cosmetics and as a refrigerant. On November 22, 2006, the Company changed its name to New Oriental Energy & Chemical Corp.
Market Cap: $90M
Sector: Basic Materials - Chemical
Website:


Trading Idea:
As soon as I saw the NOEC chart I knew we had a great technical set up that could allow us to buy into momentum without over-chasing a stock way past support levels. Our downside risk is limited to the convergence of support offered by the lower area of the breakout candle, the long term descending resistance line (now broken) and the short term ascending support line.

Technical Analysis:

NOEC has just broken out of an 8 month triangle pattern, and most recently put in a basing action above $4.50 before breaking the descending resistance just above $6. The entire set-up allows us to construct a nice swing trade scenario with downside risk limited as described above and upside potential around $10 (upper area) and $8 (lower area).

Fundamentals:

NOEC has a $90M market cap with revenues above $60M. Their main business focus is in fertilizers and ‘green’ energy, which is a great mix of products based on current trends. There was an interesting news release regarding an environmentally friendly generator which can be read at the below link

http://money.cnn.com/news/newsfeeds/articles/marketwire/0403431.htm

News wise they are not overly active in press releasing and a summary of most recent developments can be found in the attached Reuters link:

http://www.reuters.com/finance/stocks/keyDevelopments?symbol=NOEC.P&timestamp=20080305133000&rpc=66

NOEC is forecasting $66M in revenue for fiscal 2008 (around 70% growth over 2007).

So in summary we have a nice technical set up combined with an undervalued $ growth company and hot market sectors. The ideal scenario will be immediate momentum continuation, but do not be surprised or disappointed to see upper breakout candle consolidation happening.

We won’t set an exact stop or target today, but as mentioned above you can see the guide points we will be looking at.

Trading Plan:
Buy NOEC at or around the open

[Paff]

Hi Aussie,

Any chance you could share the recent EPS and revenue history of this firm?

Seems, in my opinion, a nice trade, specially because it inserts itself in an interesting sector that is taking advantage of the current commodities environment.

Paff

[AussieTrader]

Hi Aussie,

Any chance you could share the recent EPS and revenue history of this firm?

Seems, in my opinion, a nice trade, specially because it inserts itself in an interesting sector that is taking advantage of the current commodities environment.

Paff

Hi Paff, NOAC has not been trading long on the NASDAQ as a consequence there is not a lot of financial history to show or go on to determine any long term pattern. Also we have no real analyst coverage to speak of. The current EPS is 0.40 (based on trailing 12 months). Previously reported revenues (annual) were around $40M with an expectation that fiscal 2008 will be in the order of $66M. Take a look to the Yahoo finance summary page for some key metrics:

http://finance.yahoo.com/q/ks?s=NOEC

Update:

Technically NOEC traded out the gate very nicely, however after testing the highs early on, the momentum couldn’t be sustained and we finished with an upper breakout candle consolidation day, which I mentioned was part of our scenario planning.

Based on the trading layout, the most likely activity now will be for further consolidation at the mid to upper breakout candle levels and then a positive continuation reaction once short term support catches up the price action. We shall see. 

When a stock enters a breakout phase like this generally its volatility tends to increase dramatically and this is the case with NOAC. Controlled consolidation periods by contrast are characterized by smaller more ranged tightly clustered candles, breakouts more by higher range extended candles. As we are in between these 2 states I don’t want to put a hard stop in place just yet which could be set off intraday by volatile action. I will refer to yesterday’s comments in that the lower area of the breakout candle and convergence of the various support zones there is an area which MUST hold to keep the breakout momentum in tact.

Trading Plan:
HOLD NOEC

[AussieTrader]

Update:

NOEC gave more back today than I had hoped for. Referring to  my comments yesterday regarding volatility and hard stops in this scenario we have to bring a stop into play in case this breakout becomes a fakeout and subsequent breakdown (if that all makes sense!!).

The trade intention was continuation of that great breakout pattern, with acceptance that we could also see consolidation before continuation. We have a lot of ascending and descending support zone (which is a bit higher than the mid term moving averages (50MA ).

So introducing a stop strategy today to protect us from breakout failure, whilst trying to keep away from volatility. The stop will be to exit if the stock is set to close below $5.90

Trading Plan

HOLD NOEC with stop exit if set to close below $5.90

[AussieTrader]

Update:

Friday was a big selloff day in the broadmarket and pretty much nothing was immune to that action.

Since we enterd NOEC on great technical setup the stock has delivered us 3 red candles heading straight back to the breakout area. From a TA perspective we can take positive outlook from a couple of things. Thursday and Friday's declines were on significantly lower volume than the previous few days, the stock is now right in the heart of what should be very strong support and support which must hold to keep any breakout action in play.

We will keep our stop from Friday in place with the same conditions, using an 'exit if set to close below' as opposed to a hard intraday stop. I want to protect capital (#1) and at the same time try and stay in this trade because,  my expectation is we will be due a reversal candle somewhere in this support zone before moving back to challenge breakout highs. However no-one ows exactly where that reversal will take effect, so we can only position ourselves as best we can for that.

Breakouts are not being rewarded so much by the present market, something we need to be fully aware of when looking for new trade set ups.

Trading Plan

HOLD NOEC with stop exit if set to close below $5.90

[AussieTrader]

Update:

Technically NOEC did exactly as expected finding support in the convergence of descending / ascending support zone. Our use of the 'exit if set to close below' did the required job of keeping us in the trade even though it was breached during the day. The long lower shadow of the candle confirms rejection of the lower prices and NOEC closed nicely above ascending support.

But, that all means nothing unless we get continuation from this reversal signal. My expectation is for the ascending support to guide us higher.  So we wait and see.

Fundamentally NOEC have till month end to officially report their latest numbers, there is no scheduled date from the company, but we will see something between now and June 30th. This lack of transparency is annoying, but not totally unusual from newer 'international' listings like these. We will keep vigilance on this reporting. That all said the arrival of the report and any guidance it may contain will provide a catalyst to bring the momentum back.

We will keep the same trading plan for now.

Trading Plan

HOLD NOEC with stop exit if set to close below $5.90

[AussieTrader]

Exited NOEC $5.65