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.

Concentrated Short Getting Desperate!

I preciously discussed extremely narrow floats of SWC, and a possible TRAPPED big short player here. Latest data show that institutions loaded up even more long positions. And this trapped big short is becoming desperate in trying to unwind its short positions BEFORE the good earnings SWC will announce in a few days.

How desperate the concentrated short has become? SWC dropped 25% in just last four days, and that's on top of a 25% correction from recent high of $16.47, a correct which was triggered by an insignificant one cent quarterly loss in the first place. There is absolutely nothing that justifies such rapid and furious drop of a stock that has very bullish fundamentals. The only reason is this big short is hammering SWC by heavy shorting, hoping to trigger a panic sell from the long side, so that this big short can unwind its huge short position, which is as high as 6M shares.

But institutions are loading. Based on observation of the NASDAQ statistics. Total institution holdership see dramatic increase in recent days. They increase a net 1.4M long positions in just the past 16 days:
July 10,07: 36,354,783 shares
July 15,07: 37,144,283 shares
July 21,07: 37,429,043 shares
July 26,07: 37,736,888 shares

So who is buying and who is selling? The big institutions are massively buying cheap shares, and while some retail longs panic sold, more retail longs get an excellent entry point and they jumped in in recent days. So really the only big seller is the big concentrated short. Not only they could not unwind their positions, the accumulated even more short positions.

This short position MUST be unwind at some point. And it must be unwind before the big news of the earnings report. The big short must be pretty close to a panic, judging from how desperate they have become in hammering down SWC today.

Folks! Do your own DD. But I presented all the facts I know here. This is a rare opportunity to make some big money in a short period of time. Jump both feet on board tomorrow. But make sure you finish doing your own DD today!!!

As of this writting SWC closed the day at $9.29. I believe this is pretty much the bottom here. Big institutions, while they enjoy loading cheap shares here, would not allow it to drop too much and cause a panic within the long camp. Big boys have a short squeeze to do, remember! When big boys accumulate enough long positions, and the trapped short digged itself deep enough in a pile of short positions, big boys will launch the short squeeze. Besides many retail longs begin to jump in. Big boys do not want too many retail longs to spoil the fun, because retail traders tend to sell for profits too soon, diminish the effect of short squeeze.

So load it up before some one else does!

Extreme Narrow SWC Floats Gets Narrower

I previously posted about the extreme narrow floats of SWC, and consider it one of the bullish reasons for SWC besides the fundamental reason of palladium bull. Latest data show that the narrow floats are getting even narrower.

Out of some 91.6M shares of SWC, most are owned by Norilsk and insiders, floats available to institution and retail investors are only about 42M shares. Institutions are getting an ever larger portion of that pie of float shares, squeezing out retail longs.

Shortly before the $8 bottom of SWC last year, the institution holdership was only 18%, less than 17M shares. Retail investors owned more than 25M shares of the floats. At the $8 bottom many retail longs could not take the pain and sold out to institutions. Shortly after the $8 bottom, NASDAQ statistics showed instititions owned nearly 38% of all the shares, just slightly less than 35M shares. The majority of the 25M retail longs were squeezed out.

The institution holdership is getting even higher. The latest data on bloomberg list the floats at 40.204M shares, which is slightly lower than previous data. Mean while NASDAQ.COM shows the institition holdership now stands at 37.429M (37.736888M on July 26) shares. So you subtract the two, and you see the retail investors now only own 2.775M shares of the float, that's far less than the 25M to 26M that retail investors once owned before the $8 bottom last year!

The retail longs now only own 2.775M shares, however the outstanding shorts on SWC dramatically increased from last month's 5.284M shares, to now 6.0125M shares short. The outstanding shorts are more than twice the retail long positions. That means even if all retail longs sell their SWC positions here, there will NOT be enough shares to allow shorts to buy and cover. How are the majority of shorts going to unwind their short positions?

It really perplexed me how the short interest would have dramatically increased from June 15th's 5.284M, to July 13th at 6.0125M. If you look at the chart, the plummet started in May 7th was largely done on May 18th, and SWC was just trading sideway ever since. A reasonable shorts would have covered and take profits and walk away. How come short interest see such a dramatic increase from mid June to mid July?

Very likely, I guess there is one big player gets trapped in too big a short position to unwind here. They can not unwind here because there are just not enough shares to buy to cover. Any attempt to buy and cover in significant amount will pop up the stock price. So they have to buy themselves time and prevent SWC from going up by shorting more, piling on more short positions, and hence digging themself deeper in this hole where they hold too much short position to unwind now.

If this trapped big short player exists, the friday plummet with big volume is probably their last ditch effort to take the opportunity of a presumed bearish news release, hammer the stock down, force the longs to sell and so they can cover their shorts. But it looks to me they have failed miserably. There was no panic on the long side. The support was firm at $11.20. Not only longs did not sell, they bought the dip at the $11.20 line. Most of the sells were the short selling of this one big short player. So the big short ended carrying an even bigger short position instead of covered their positions. Many yahoo SWC message board postings also confirm that the majority of retail longs bought instead of sold on Friday.

I see a fierce short squeeze coming once we see a nice precious metal rally. It is coming right now as the US dollar is at the brink of falling below the psychological line of 80.0. BTW I also note some unusually high volume of palladium future trading on Friday July 20th, several times higher than usual, although I have no explanation what caused the unusual high volume.

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.

The mystery around the Russian palladium stockpile

In early 2003, the Head of Commodities Research of HSBC Investment Bank, Mr. Alan Williamson, gave a presentation on Russian PGM stocks. Through careful analysis of available data he believed the Russians had a 10 to 12 million ounces palladium stockpile, and very little platinum left, at that time. He painted an absolutely grim future of palladium price movement: "fundamentals of the (palladium) market look almost unreservedly grim, even allowing for a switch from platinum into palladium in the autocatalyst sector. We expect the market to move into structural oversupply, with ongoing downward pressure on prices as a result."

Of course, he is proven completely wrong today. Palladium price bottomed in 2003 right around the time of his presentation, at about $145, it then rallied in the next four years and almost tripled by today at $370. Curious though, all the supply side bearish facts he cited in 2003, were absolutely true, but the bearish prospect did not materialize. I guess that is because it has been extremely bullish on the demand side, on both industry demand and investment demand!

The author concluded in 2003 that there will be an over supply of palladium, due to the dumping of the 877169 ounces palladium that SWC received from Norilsk in 2003, and new mines in South Africa. He concluded that for price to remain stable instead of falling further, the Russians must purchase and re-stock more than 1 million ounces of palladium per year.

What really happened was the Russians have been selling off their stockpile at about 1.8 million ounces per year, in addition to any new mine production, and SWC sold out all of the 877169 ounces of Norilsk palladium between early 2004 and early 2006. With this huge presumed "over-supply" of palladium, the metal price instead rallied big time? What gives? It must mean there is a huge demand sucking up all the over supply and drive up the price!!!

What happens now? The SWC selling off of Norilsk palladium, which supplied about 7% of the global demand, had been completed in 2006. And if the Russians had 10 to 12 million ounces stock pile of palladium in 2003 and has been dumping at a pace of 1.8M per year, they probably still have about 3M or 4M left. It won't last very long until it is completely depleted. Or if the Russians are rational and they do not want to run empty, they would now start to cutback or totally cut off the selling of their stockpile, or even start to re-purchase and re-stock!!!

If palladium has seen a price rally in the past four years amid the selling off of SWC Norilsk palladium at 0.5M per year, and the Russian dumping of 1.8M per year, totalling 2.3M "over-supply" per year, what would happen when this "over-supply" is removed from the market?

It would drive the metal price sky high!!!! And it would be an extremely bullish development for SWC share holders. - Pallalunar

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!

Pocahontas Has A New Car!!

Q'orianka Kilcher, the 17 year old actress who played Pocahontas in the 2005 film The New World, received a new car.

It's not just an average car, but a futuristic hydrogen fuel cell car, FCX, produced by Honda!!!

Just pause for a moment, think about the ramifications. Honda will be producing these vehicles, next year, in 2008, not one by one, but on an assembly line! And it is not just Honda. Other major auto makers are big into the fuel cell thing, including GM and Ford. See FuelCellToday.com for more fuel cell related news.

Hydrogen fuel cells uses platinum and palladium as catalyst. Just think about the demand of these two metals. The whole world only produces 7 million ounces of palladium a year, or 220 metric tons. I do NOT think the world has any where near enough palladium and platinum to allow fuel cell vehicles to become popular. But even just a few millionaires order a fuel cell vehicles, that's enough metal demand to drive the price sky high. You would thought automakers are joking. But it's no longer a joke when not one, but several auto makers already put down tens of billions of dollars researching this thing. And they actually produced a prototype which Pocahontas is driving on the San Francisco streets! They are dead serious!

This is good bullish news to SWC stock holders. Of course I already made the case that SWC should gain 2000% based on reasonable P/E=10 and the metal price should quadruple.