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I Love This Chart: PEIX Trade Setup

This long-term chart of PEIX (Pacific Ethanol Inc) speaks volumes to me: Double-bottom, divergent low, coming off oversold levels that have sparked "rallies" ranging from 130% to 1275%, bullish falling wedge, etc... just a beautiful chart IMO.

PEIX weekly Feb 26th

PEIX weekly Feb 26th

Although PEIX might begin to rally on a break above the 3.80 resistance level + the 50-ema (which has defined bullish & bearish trends), the official long entry will be on any break above 3.95, which should have cleared this downtrend line, assuming a breakout triggers soon. The entry price might be adjusted down to a break over 3.80, should PEIX fail to breakout within the next couple of weeks. The maximum suggested stop if targeting T2 would be based on a daily close below 3.00.

PEIX daily Feb 26th

PEIX daily Feb 26th

Keep in mind a trade setup is just that... a setup that has yet to, and could very well fail to, trigger a long entry. Resistance is resistance until taken out so until we get some evidence of a potential trend reversal, an impulsive breakout & weekly close above the bullish falling wedge on the chart above being a start, PEIX is a stock in just off recent all-time lows that has been solidly entrenched in a vicious secular bear market for nearly a decade now. As a sub $5.00 stock, the risk of a large news-induced gap down is omnipresent until the fundamental prospects for this company firm up. Accordingly, consider the proper beta-adjustment to your position size, assuming this aggressive trade meshes with your risk-tolerance & trading style.

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11 Comments

  1. Shambo February 26, 2016 2:56 pm at 2:56 pm

    Thanks Randy. Nice chart, great annotations. I just bought 200 shares to keep an eye on it.

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  2. rsotc February 26, 2016 3:05 pm at 3:05 pm

    Good luck Shambo. Although it hasn’t broken out yet & is sitting just below dual-resistance, I also took starter positions following that post in a few accounts. My best guess is if PEIX is going to breakout soon, it will likely do so with a bang, which can come in the form of a big gap up or maybe a very fast rip once those levels go.

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  3. rsotc February 26, 2016 3:20 pm at 3:20 pm

    Here’s a 60-minute chart with an early trigger & near-term price target for active traders. With only 40-minutes or so left in the trading session, probably best to hold off until tomorrow or at least only take a fractional position, should PEIX take out 3.76 today. Should this play out, that would be good for a quick 30% gain.

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  4. snp February 26, 2016 11:06 pm at 11:06 pm

    earnings march 9 after the close. how can ethanol compete with so much crude in excess? I guess that explains the longer history of the chart. this looks like a bear flag to me. that 2.50 level sure looked good tho.

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  5. rsotc February 27, 2016 12:26 am at 12:26 am

    I don’t often discuss fundamentals as my written (posts) and video commentary already take up the bulk of my working day but I do very much factor fundamental analysis into the trade ideas that fall under the Long-Term Trade Ideas (aka- investments), such as PEIX was categorized. It just takes too long to outline both a fundamental & technical case in writing & with supporting charts/graphs but since you raise a good argument & I have a few minutes tonight, here’s the fundamental case behind a long in this leading ethanol producer:

    Unless I missed something recently, the EPA’s push to move from E10 to E15, after a brief abatement recently, has once again continued to move forward: http://www.usnews.com/news/articles/2015/11/30/epa-raises-biofuel-requirements-finalizes-renewable-fuel-standard
    What most people don’t understand about the idiotic mandate (pardon me, I’m an avid boater & I’m acutely aware of the detrimental effects that ethanol has on outboard motors and small engines such as chain saws, leaf blowers, motorcycles, etc…) is that not only the original E10 quotas but also the planned increase to E15 is not calculated on the percentage of gasoline consumed, rather it is based on a hard number of total gallons of gasoline sold. As such, the plunge in gasoline sales leading up to & following the Great Recession kicked off in 2007 caused a huge drop in ethanol demand, as evidenced by the bear market in PEIX.

    Again, if I missed some recent developments, I’d encourage others to chime in but the point that I would impress is to not confuse the drop in ethanol producers with the fact that crude prices have been plunging (largely due to a supply glut) as the price of crude essentially has nothing to do with the demand of ethanol (which, as pointed out in the comments above and below, should only be increasing going forward unless Washington backs off their planned move towards E15 again). Rather, one should focus on total volume (of gallons consumed) demand, which has been steadily increasing over the last year as evidenced by this chart from the EIA. More gas sold = more ethanol sold. Even hold gas sales steady and continue toward the E15 mandate = more ethanol sold.

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  6. snp February 27, 2016 10:01 pm at 10:01 pm

    you are right, its a long term trade post. i looked at it wrongly from a shorter term perspective. the true double bottom is i think around 2.30 to 2.40 and that would be a great buy.

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  7. rsotc February 28, 2016 11:27 am at 11:27 am

    @snp Absolute. That 2.40 area, should the charts still confirm a likely reversal, would be an idea entry. That’s support from that late 2013 previous reaction low. Another visit down to that level would offer an objective long with a stop somewhat below on a weekly closing basis. The only thing is that PEIX already kissed that level once recently. That may or may not be the last time so I’ll go to a full position (or near-full, allowing for a backtest to add) if/when that daily downtrend line/weekly falling wedge gets taken out.
    I should also clarify that after re-reading the fundamental comments that I added on Friday night (after midnight while my brain must have fallen to sleep before my body) that the fall in PEIX shouldn’t have been attributed to a huge drop in ethanol demand, as the mandates were set to blend a minimum amount of ethanol into a hard number of gallons, not a percentage of total gallons sold. What I believe attributed to the huge fall in PEIX was a combination of sky-rocketing corn prices from 2010-2012, leading to outcry from farmers, food companies & even the general public as the surge in corn price was largely attributed to the E10/E15 mandates. From there, the EPA backed off the planned push from E10 to E15, therefore the anticipated demand softened. At the very least, PEIX is a stock that has shown very little correlation to the broad markets in recent years which is something that I like to see for long candidates right now with the fact that we are likely in the early stages of a new bear market.
    Based on that, I also like the fact that PEIX is not over-loved & over-own like FB with a 69% institutional ownership & only 4% held by insiders; GOOGL 79% held by institution with 0.17% by insiders compared to PEIX with only 51% of shares held by institutions and 21% by insiders. Bear markets are marked by forced selling by institutions (mutual funds, hedge funds, pension plans, etc…) that are forced to sell what they have the most of to both meet redemptions and reduce risk (equity exposure).

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  8. snp February 28, 2016 12:29 pm at 12:29 pm

    I appreciate the thoughtful responses (since my crass remark). I believe (as you have probably noticed) in third hits of TL’s as the best, strongest reaction in price if one is to be. so I like the 3.20ish area on daily for a bounce. I agree on the retest at 2.41 jan 20 tail as likely the bottom, but as we have seen, a bear trap would be just a bit lower, and that support of 2.33 lies there. it just looks so bearish on the daily: its dropped the last 3 times at achieving the daily 50 dma, and many times by 50%, and its a heck of a flag. Monday it has a chance to confirm above that and actually break that wedge. I would sure rather see a bull flag retrace than the bear flag grind up. if it faded daily for 6 days under or over that TL on top of the 50 dma i’m in. kinda like the mid june 2014 pattern.

    the February 2014 TL under price runs down to the low $2 area. im going to watch for that double or triple bottom. I also believe in counts of 7. the last bear flag dropped at 28 days. this flag is now 27. this is a great forum for the sharing of different ideas. I am learning a lot from you and other members just watching and reading.

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  9. Gaucho March 8, 2016 2:28 pm at 2:28 pm

    Hi,
    PEIX has reached the target T1, now is retracing.
    I’ve drawn a Fib and the 78,6% is at $4.40 and the 61.8% is at $3.97.
    Now is moving in this band, most close to the upper part.
    Is this the retracement expected or is going to the 61.8% ($3.97) value?
    Regards

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    • rsotc March 8, 2016 3:02 pm at 3:02 pm

      After that sharp run up & near-perfect kiss of T1, especially in light of my other recent comments about the low-priced stocks that had recent sharp runs now due for a pullback, I’d say that PEIX could very well continue lower to the 3.97 level & quite possibly back down that blue former resistance, now support level at 3.80. I can’t even rule out a backtest of the downtrend line, especially if the broad markets continue lower in the coming days/weeks. PEIX offer a nice pullback short trade off the T1 level but right now the stock is in what I like to refer as no-man’s land, smack in the middle between support & resistance.. very tough to call the near-term direction of the stock at this point. If the market hold up & the recent dash-for-trash resumes, the PEIX should rally & take out the T1 level as the charts remain constructive. Best of luck on your trades!

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      • Gaucho March 8, 2016 8:08 pm at 8:08 pm

        Thnks!

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