Concentrated Big Short Player Gone

Based on my observation of the SWC daily chart for July 31, August 1st and today, August 2nd, I have to draw an incredible conclusion that the concentrated big short player is gone!

Note I am NOT saying the shorts are gone. The outstanding shorts in SWC is probably still more than 6M shares. But the big short player is gone, replaced the big short are a whole lot of new shorts who are the day traders who get lure in because of the relentless hammering of SWC that every one saw in the last week. Some clueless day traders must figure this is a company on the brink of bankruptcy, and figure they can short this one safely. That's exactly what the big short player wanted. When new retail shorts come on board, they can cover and unwind their position and walk away with their profit.

Why the big short player is gone? Because those relentless hammerings of SWC are all of a sudden absent from SWC daily charts for the past three days. Tuesday, July 31, the volume suddenly dropped. Wednesday the volume is slightly higher due to general market jittering, but I see no serious attempt to hammer down SWC. Today, wednesday, the volume is pathetically low. If the big player is still here and still want to hammer down SWC, there are plenty of opportunity to do so and push SWC down rapidly. Longs cautiously buy here, scared of the prospective that the short may suddenly assault again. But no short assault happened. So that's really good news to longs.

We are only two trade days away from SWC's Q2 earnings release. I am excited. As I explained, based on my best estimate, SWC should report a profit as high as 27.9 cents per share, while the street consensus only give SWC a break even. If the actual earning comes out beat the street by such a huge margin, I fully expect a great rally, and a fierce short squeeze of the full 6M retail shorts trapped here. The float shares of SWC are just too narrow to allow 6M shorts to cover and unwind.

SWC and PCU Compared: Both 20 Baggers!

The copper mining stock PCU closed on Mar 31,2003 at $14.60, which is dividend and split adjusted $5.14. Four years later PCU closed today at $109. That's a 20 bagger in 4 years.

I compare SWC of today with PCU of 4 years ago, and find there are lots of similarities.

On Mar. 31, 03, the market cap of PCU was $14.60 * 80M shares = $1.168B. Today, SWC has a market cap of $1.11B. Similar size.

In Q1, 2003 PCU sold 198.7M pounds of copper, sold at $0.76 per pound, total copper sales revenue was $151M. The stock price/sales ratio was 1.93. Less than 2.0. In Q1, 07, SWC sales revenue was $146M. The stock price/sales ratio is 1.90. Both stock has similar sales revenue, similarly low price/sales ratio of less than 2.0.

In Q1, 2003 PCU made a slim profit of $18M, which is a very small fraction of the sames revenue. So the profit margin of PCU was very thin, same is true for SWC, which hardly makes any money from its huge sales revenue.

But if the underline commodity is bullish, you could never judge the value by the low profit margin. Once the metal price goes up, the profit margin immediately goes up. Copper went from $0.76 to recent $3.60 a pound, slightly more than quadrupled. So when the commodity quadrupled, the PCU stock price gained 20 folds.

SWC today stands where PCU stood 4 years ago. SWC could well be the next PCU and gain 20 folds in the next four years. All it takes is for palladium price to quadruple, just like copper price quadruple. I think I have made a very solid case why palladium price outlook is super bullish. see my previous blog entries, and here, and here. Pallalunar

Note: David posted a good question, as copper went from $0.76 to $3.60, palladium also went from $142 to near $400. Why PCU boomed and SWC did not? Simple answer is before copper reach $0.76, copper mining was not profitable so PCU was flat before 2003, once copper reached that profitable threshold of $0.76 it really start to take off! For SWC, the profitability threshold is not at palladium $142, but at palladium price being $339. Last quarter SWC had a slight loss of one cent per share. So SWC should start to take off here because this is the threshold where SWC starts to make money. In the past when palladium was much lower, SWC was protected by palladium hedge sales contracts which guaranteed a floor price of $339-ish for more than 80% of the production. Those hedge put a palladium ceiling price at $1000 and limits 20% of the SWC production. We are far from hitting that ceiling yet and even when we do only 20% of the production will be hurt. See Q1,2006 quarterly report, page 12 and 13 for details of those hedges.

Golden Proportion Rules. SWC Bottom Soon!

I am going to discuss some technical analysis of SWC chart, although I am not a big technical guy.



First graph. Let me circle out all four bottoms, the one in 2003, the one in 2005, and the one in 2006, and the current one. We see that all four point line on a perfect straight line!!!

More over, if you see the distance between the four bottom points, it looks like a Divine Golden Proportion. Could it really be Golden Proportion rule? I looked up the historic data on SWC. Sure enough it was a Golden Proportion Rule!

First bottom was on Mar. 20, 2003, the little peak between the double bottom. It traded as high as $3.18, Let's count it as $3.15.

Second bottom was on May 16, 2005. Price went as low as $6.05. From First to second bottom is 788 days. Golden Proportion says times 0.618034, which gives 487 days.

Third bottom was on Sep 15, 2006, the little peak between the double bottom. Stock closed at $8.39 that day. That was 489 days after the first bottom.

It looks like we are pretty close to the fourth bottom, but can not say the bottom has already occured. Based on Golden Rule, we take 487 days and further multiply by 0.618034, the result is 301 days. 301 days after Sep. 15, 2006 is July 13, 2007, which is next Friday!

A more amazing feature is the third bottom close price at $8.39, when divided by first bottom price of $3.15, the result is very close to the base of natural logarithm, 2.718. Actually if you use $8.56 to divide, the result is exactly 2.718!!!

Extrapolate the result, the fourth bottom price would be at $10.84. The ratio is $10.84/$3.15 = exp(0.618034)^2. Another Golden Proportion Rule!!!



Thus I predict a bottom on July 13th at $10.84, based on the Devine Golden Proportion Rule.

A nice set of palladium coins I recently received. You know what they are? There are no more than 100 whole sets like this the whole world around!