Syria in Flux, Summer Ends, September Begins, Spoos Surge
Posted by vikingtrader
Happy Labor Day y’all. Hopefully everyone was able to disconnect for at least a little while this weekend despite a news-filled holiday. While a Syrian airstrike appeared imminent following Friday’s comments from the White House, President Obama chose to take the traditional route of seeking Congress’ support before launching a strike in the Middle East. This decision is a risky one for Obama, as his beleaguered relationship with politicians has prevented this administration from accomplishing much in the President’s second term. While Obama has the ability to call a special Congressional session to accelerate the timeline, it appears the administration will wait for Congress to return from its annual summer recess, though the President indicated that he does not necessarily need Congressional approval to launch a strike.
Meanwhile, markets have taken the news in stride, with S&P futures surging 10-15 points on last night’s open and extending gains into today. Markets around the world have rallied as well, with the Stoxx, CAC and Nikkei each rising more than 1%. While we speculated before the market’s open on Friday that the Syria sell-off may have been over done, we certainly did not expect such an aggressive rally in the worldwide markets to begin September, which is traditionally a bearish month. The Syrian situation remains a wild card and is likely to have an impact at some point in the next week or two as Obama calls on Congress to approve military action in the region, but for now we will take the bullish momentum in stride, a trend that has ceased to abate for the duration of 2013. If you leaned short on Friday, tomorrow may be a rough day, but that is simply the nature of the beast.
We didn’t take too much action on Friday aside from peeling off a losing $AAPL weekly option trade. We contemplated taking a position in the $SPY either via stock or weekly options, but given the uncertainty following Friday’s news out of Washington we chose to roll with our current position. However, this week should present plenty of opportunities to act as traders return from vacation, bringing volume along with them.
The name we’ll be focusing on the most this week is FuelCell Energy $FCEL. For those who are unfamiliar with fuel cell technology, it is an alternative energy source that converts natural gas and biofuels into electricity with minimal emissions, significantly lower input costs and zero reliance on the power grid. Fuel cells have been around since the principle discovery by Christian Friedrich Schonbein in 1838, but the first commercial use did not occur until well into the 20th century. $FCEL has been working towards profitability for years, and the company has a healthy backlog and an installed base of just over 70 MW. The company has identified 80 MW as the necessary level to begin generating consistent positive EBITDA, with net profitability coinciding with an annual run rate of roughly 90 MW. The firm has landed several projects on the east coast, including the Bridgeport Fuel Cell Park in Connecticut, the largest in the United States. We have had a position in Fuel Cell for the better part of two years, and we view the technology as a compelling long-term investment opportunity.
From a technical perspective, $FCEL has been stuck in a descending triangle for the last several weeks. In mid-April, a series of insider buys from management triggered a major reversal off of the YTD lows. Momentum in the stock continued through earnings after the company beat top and bottom-line expectations, sending the stock to a YTD high of $1.64. We took profits on last quarter’s earnings move after establishing a position under $1.00 per share in 2012, and we have been accumulating shares in the last few weeks at an average price of $1.27 per share. The stock broke out of its descending triangle on Friday on volume of just over three million shares, well above the 10-day and 90-day average volumes. We will explore leveraging our position with options this week, eyeing the January $1 and $2 strike calls.
We will also continue to explore opportunities in the high-beta tech space, including $TSLA, $FB, and $AAPL. We are also keeping our eye on the casinos, as the latest data out of Macau showed strong revenues for the month of August. The chart for Wynn Resorts $WYNN appears most compelling, while Las Vegas Sands $LVS and MGM Resorts $MGM may also provide an opportunity in the near term.
$WYNN appeared poised for a breakout last week, as shares moved above $145 in trading on Monday before Syrian volatility triggered a sell-off during the rest of the week. The chart remains strong as shares bounced off of the 20-day moving average last week, and the rounded bottom pattern remains intact. If shares can advance above the $142-$145 range, it could ignite a move to $150 and beyond.