Is this a trend reversal for Pacific Ethanol?

PEIX - trend reversal?

Prior to yesterday the past 4 days started with a LARGE sell off each morning and we watched 5 straight days of sliding. Every time a cup started to form, if you're like I was, you said to yourself "oh no, this is the bottom and I should buy." Only to buy then promptly watch the stock fall the next day, hour, minute. This seems to happen every time - why is this so frustrating? Can these dips be predicted?

Predicting the bottoms

No stock in the history of ever always moved smoothly to the top and made a clear turn, then moved smoothly to the bottom. Many books have been written about the nature of up and down trends and how to tell if you're nearing the bottom. Today we're going to look at this stock in real time. As I write this, you can see where the stock is at this moment in the image above (just starting to stop it's sharp decent). Let's see if PEIX follows the rules and watch as this unfolds. We all know there has not been any major news on Pacific Ethanol since earnings, but the stock just seems to still be moving pretty wildly as people get in and out. 

For those that got out recently, I think they'll be upset over the next few days as this rises to around the mid-fives.

How it works - Most stocks move in 5's. I've charted this last five above. There's all sorts of rules on how to determine what leg of the 5 legs we're on, but generally the 3rd leg is the longest, the 2 & 4 legs are correction legs and if 2 is long, 4 will be short and vice versa, and within each set of the 1,3,5 legs you're likely to see a smaller set of 5 legs adhering to the same rules.

For example, i bought at $4.27 on Wednesday because the 5th leg down of another 5 legs down of a long 3rd leg down was just finishing up. That saved me from buying a few days earlier in the 5's as it was clear we were still not at the 5th leg down and there was more to lose before people started jumping back in. 

Now what we are seeing (or what I believe we are seeing) is the start of 5 waves up (shown as the green arrows in the above). Just as the rules go down, they go the same way up. We'll have 2 correction legs (the 2nd and 4th leg), the 3rd leg should be the longest and be at least 1.68 times longer than the first leg. As I type, it looks like the 2nd leg is just finishing up, however, the 2 & 4 often have a fall-rise-fall before starting the 3rd leg, so it wouldn't shock me to see it go below $4.46 before it starts the long 3rd leg up. 

So where are we now?

I believe it's headed up. But not all the way up to the big numbers. Just to around the mid-6's. Then we'll likely finish off this large long 3rd wave down we've been in since May. 

Hope that helps! Enjoy!

Nick

Why the recent price bottom - and where are we going now?

Anyone who's held this stock this last 2 months has absolutely hated life if they were long. On Wednesday we saw some hope though and I believe we will continue to see hope. The reason - the chart to my left. Nope, that's not PEIX, although it looks like it a bit. That's Ethanol Futures. At the beginning of September you can see a drop in Ethanol futures and you can also see a matching drop in PEIX.

PEIX history over the same time period

It doesn't take a rocket scientist to see why we've recently been coming back up in the stock over the last 2 days.

As Neil Koehler stated, there's a temporary pullback in price and he believed it was just that, temporary. Ethanol futures are climbing fast and it appears we've hit the bottom on them.

Other Factors

Beyond just the temporary down swing of Ethanol prices, we know that this is the time of year most companies perform yearly maintenance on their plants so we will likely see supply drop and ethanol prices rise further over the next few months. 

Options Expiration day - that's today. Wonder why we have not seen the jump of the last 2 days? This is it. The other piece is there are some profit taking due to a 33% rise in less than two trading days from the trend traders. 

Also, with the Ebola scare, the whole market has not helped as the drops are compounded. 

However, one other GREAT piece of news for ethanol is corn is falling again and ethanol prices are rising again. We won't see great margins in the future...they're already here! Today. Now would be a good time to get back in if you got out of this stock. With a solid earnings report, this will be back in the 20's range in 30 days.

Pacific Ethanol - The bleeding is likely over

The last few weeks have been painful if you were a long holder for PEIX. With the whole market coming down and news that corn futures are up some and Brazil is offering an export credit, PEIX was an easy target for profit taking by some of the big boys.

At the very end of close on Friday someone purchase about 1 million shares. This was likely someone covering their short position and going long.

It's also likely not a coincidence that we've gotten back to levels near Q2's closing price. If we would have been in the mid to low 20's the last day of September we would be looking at around an $8 million hit to earnings.

It's clear the pushing down has ended as we've seen a pretty steady last few days. Likely what will happen is the price will hold around this level until October and then start its run upwards again.

Today's weekly Ethanol Inventory report was positive for PEIX as inventory has dropped. GPRE and REX were both up today on the news, but PEIX will be held down through September (end of Q3) before we likely see this rise due to the above mentioned desire to keep the FMV adjustments to a minimum.

Next week's Ethanol Inventory report is likely to be even better due to some exports being counted that were just sitting in the Gulf Port waiting to be exported, but due to technically being on American soil they were counted.

I can't stress this enough - this is likely one of the best buying opportunities PEIX has had all year. It's certainly not a guarantee, but with the indicators mentioned, it's hard to ignore that this will likely go back up -

• Large 1 mill share purchase end of Friday signaling potential institutional investment. 
• Price hold-down to not get killed by Fair Market Adjustments on outstanding warrants.
• Ethanol Supplies declining. Next week should be even better!
• GPRE and REX up today.
• 3 day price stabilization indicating the bleeding has likely stopped and we're now just awaiting Q4 before climb back up.

EDIT (4:26PM MST 9/24/2014):
It should also be mentioned that we should expect a Fibonacci retracement. A 62% retracement of steep gains is typical, expected, and actually healthy. We hit that around $15.60 and it's held nicely. The same retracement happened when we fell to the 10s earlier this year.

Pacific Ethanol - why the big drop? And what to expect

Crazy day indeed! It started down because of the struggling market in the morning and because oil and ethanol prices have dipped. Then they started picking off stops to create a panic sell. They succeeded. This is a definite overreaction and another reason to never put stops on PEIX. Margins are still great though. And it bounced nicely off its lows getting back about half of the morning losses. The next few days to a week could be volatile as it has to now get above the 20 day MA again. But in the long run, I'm not worried. And the 4 investor's conference they're doing next week will help. 

Pacific Ethanol Stock Price Going into the Long Weekend

I personally am not an expert. I was introduced to this stock by one though. Every step of the way he's called his shots and his gains he's seen make me look like a child with a water gun. When he introduced me to this stock it was trading at 36 cents (pre 15 to 1 reverse stock split). Basically $5.40 after the split. I bought in at $3.80 range in May of 2013 and then sold when the stock capitulated to $2.80 in November 2013...and lost a bunch of money. I was so tired of watching this thing drop so much day over day and over that period the stock was basically on a slow downward trend. 

At our semi-weekly beer drinking sessions he would explain what was going on with this stock and we'd discuss the manipulation that occurred that past week and he'd pull back the curtain to what was a very interesting mix of people manipulating this stock for their gains day over day. To say it was educational would be a giant understatement. 

Immediately after I sold at $2.80 the stock pretty much started it's upward trend and that was a hard lesson for me to learn. My friend hadn't sold, but the opposite, he bought in MUCH more. To him it was an absolute no-brainer. The book value was at around $8/share, so even if it all fell apart, he'd still get paid big. When we met the next time for drinks I told him I sold. The stock had already started coming back, but all I knew of it for six months was DOWN and I couldn't take it any more.

Sell Low, Buy High, right?!??

Of course, right after I sold, within days it was back up. I eventually got back in...heh....at $8.22. The chart above shows where I sold at $2.80, then had to re-buy in at $8.22.

After I bought in I honestly thought I was cursed!! I literally bought RIGHT at the peak of the chart above and immediately (like in seconds) the stock started falling! I took a big gulp the next couple days and bought more at $7. I was not going to watch the charts for the answers anymore as that had failed me. I knew where this one was going now and I was going to Buy the Dips, man up, and just hold on. So glad I had learned the lesson.

The big lesson I learned was that when you know where the stock SHOULD be, don't get scared about the day to day moves it's making. Trust your knowledge of the company make decisions on facts, not fear. The guy who introduced me to this stock, and who will be writing some insightful articles eventually on this blog, was never terrified because he knows more about the stock and industry than 99.9% of the investors. His decisions are coming from facts. Mine were greed and fear. 

He thinks this stock is going to $40. He's YET to miss his shot - he called the $10 stock price on a fair market adjustment and he's called the stock price the whole way. I have no doubt it'll get there. 

Today he thinks we'll see low volume prior to the 3 day weekend and a potential to see the stock dip as it's easier to manipulate on low volume. At the time of this post though, we're sitting just below $23 so it's good to see it's gone the other way! So far though, we're trading on pretty low volume. Below 500k.

See you at $40. Hopefully by next earnings report!

The Street Posts a great article on PEIX

Just visit the link. A GREAT article that breaks down strong moves on high volume.

http://www.thestreet.com/story/12858583/1/strong-on-high-volume-pacific-ethanol-peix.html

REX, an ethanol producer, had great quarter 2 earnings come out today that reflected what can happen in the ethanol industry when you put it all together for a really solid quarter...much like the one that Pacific Ethanol is in right now. This indicator of potential is helping move all the ethanol sector up today and is the proof the large investors needed before buying all-in on ethanol.

PEIX's steady growth and why it will continue to creep upwards

Pacific Ethanol stock continues to gain day over day, but why? There has been no real big news on the stock since earnings a few weeks ago. However, PEIX stock keeps moving higher. Why is PEIX going up?

Thanks for asking. There are a few main drivers here.

First, when compared to its closest matching company in the same industry, Green Plains Renewable Energy (GPRE), Pacific Ethanol is GREATLY undervalued. GPRE is trading above $40 a share and PEIX should be much closer to this. Although GPRE has a much larger output of ethanol PEIX sees big advantages over GPRE due to their location of plants being near where they sell their ethanol; cutting significantly into their cost of goods sold. Many believe these companies should be trading in the same range and GPRE is not moving downward any time soon, so PEIX must go up.

This brings us to our second point, Institutional Investment. Large institutional investors are quickly catching on that this is a company with a very nice growth opportunity due to low corn prices, good ethanol prices and the pay down of most of Pacific Ethanol's debt. If you look through the volume of the stock you'll notice there are decent size buy orders coming in for 30,000 and 15,000 shares at a time multiple times a day. The institutions know that if they buy too much too quickly the price will swing, much like this stock used to do prior to the institutional investment in it.

So day after day, the big boys are adding. Companies like Black Rock, Credit Suisse, and Vangard know they can't load up all at once because that would cause a spike and they would drive the price up too fast. It's better for them to add in 15k and 30k chunks over weeks instead of all at once. Look back through the volume and you can see these large chunks being bought all throughout the day.