PEIX was a short trade entered just under a year ago which hit it’s final target for a 65% gain in less than 3 months (that trade and accompanying notes & charts can be view by clicking here or by using the “Post By Symbol” feature to the right). Once again, PEIX is setting up for a potentially big move and as before, I must reiterate that this is a high risk, potentially high return trade so make sure that this trade is inline your trading style & risk tolerance and as always, DYODD (do your own due diligence). My own preference on this trade, due to the increased risk, expected volatility and large potential returns (and stop allowance) would be to take about one-quarter of my usual position size (i.e.- beta-adjust my position to .25). The basis for adding this setup, although as a long-side trade this time around, is based primary on the charts.
However, a big factor as to whether or not this trade will play out is the heated debate over the US Government’s mandate to move from E10 to E15. As an avid boater, I’ve been following the E15 drama for a while (Gov’t wants it, corn farmers & other interests want it, but it is potentially destructive for engines, especially boat & smaller engines such as motorcycles and lawn equipment. The marine & automotive industries and even AAA are all against it). Anyway, I don’t have time or really the inclination to discuss E15 beyond that other than to say there are ongoing debates in Washington regarding E15 so a quick web search could bring you up to speed on the issue if you are interesting in PEIX as a trade or even a potential long-term investment (I will be adding this trade to the Long-Term Trades Setups category as well due to the potential for gains over time, especially if they move forward with E15). Keep in mind that regardless of whether or not that happens, PEIX is a penny stock and to be honest, I had expected them to have filed for bankruptcy protection by now. Not many stocks plummet from nearly $300 (split adjusted) down to 26 cents in 6 years and recover from it.
Remember, the charts will almost always lead the news (as insiders and those in-the-know act on information before you or I read about it in the papers). Therefore, I’m going to let the charts be my guide on this one, not what I read or hear about E15 or anything else that might effect the company. A long entry will be triggered on a break above this downtrend line as show on the 2-day period chart below. As of now, that would be on any move above 0.43 (0.44 or higher). As a downtrend line moves lower over time, so does the breakout level/entry for the trade. Assuming an entry at the 0.44 level, the first target of 0.52, although 8 cents doesn’t sound like much, would be an 18% gain. As we won’t know the entry price until it happens, stops will be determined upon entry but should be no less than a 3:1 ratio to your preferred target. Currently, T2 (0.80) is my preferred target with T3 (0.97) the final target and if this trade were to begin to play out, I may very likely add additional profit targets as shown on the weekly chart below.