Monday, May 12, 2008

LDK Solar Goes into Earnings 5/12/08. Basic Info Round-up.

Short Interest is still a factor in the Short Term Response to LDK Earnings.


Short interest is at a record high, 14,645,718.

Max Pain is $30 - $35.

This says to me that there is still strong downward pressure on the stock. Short interest doesn't like being squeezed. They will work to either protect their shorts by selling or shorting, or by releasing bogus analysis to a willing WS media. They may have already bought up shares to dump on the market at an opportune moment*. Naked Short Shares also play a part**.


A Battle Wages. Who will win the day, Longs, Shorts, or will it be a Draw?


Of course, an overriding factor to the below possibilities will be the quality of LDK’s Quarterly Results. Considering LDK’s current incredibly low valuation, however, even if they just meet expectations, there remain plenty of arguments to support a “Buy.” However, spin shouldn’t be underestimated as a factor over the next few days.


Possible Scenarios.


If Short Interest succeeds in spinning LDK's earnings and plant update negatively, and can create a self-sustained sell-off by dumping shares, then they win the day. This would be a scenario like we saw at the end of December last year. As mentioned below*, I think that they are in less of a position to manufacture this event than they were in December. For one thing, the price is down about 45% from that period.

If, on the other hand, shorts lose control, then we could see the squeeze of a lifetime; 14+ Million Shares Short (and some additional Naked Short Shares) on about 35 Million Shares of Float. This is the kind of event that could send the price back up to new highs by week’s end. Beware of the turnaround, though.

Of course, a draw is possible. Between all of the factors, it could be that the Stock just stays in range. I can’t help but think that this isn’t the mostly likely result.


LDK has come a long way since December (in brief).


LDK has long cleared themselves of the Situ mess (The SEC has favorably concluded their enquiry), and has gained additional credibility by their continued capacity development and new business contracts (See Below).

They've released their first Annual Report, and so there is clear and detailed information out there for Professionals to study.

LDK may have some buying power of its own, with which to protect, or to advance, its price through earnings, and even if they don’t do so, those who recently invested $400 Million in Convertible Bonds now have a stake in this fight, and could get involved in protecting their investment.

With the support of Fluor Corp, LDK continues in the implementation of their grand-scale plans to realize their own poly production. This is a large component of LDK's fundamental value. Much will depend on any updates that they give on the progress of these production plants.

As the US Economy continues to show weakness, LDK has continued to develop Business Relationships with diverse Companies from elsewhere in Asia and Europe. Since December, they’ve announced deals out of Taiwan, India, S. Korea, Canada, Greece, and Germany. These are in addition to the pile of contracts secured by LDK prior to December.

LDK has gained new visibility by its addition to the Nasdaq China Index. By way of this Index, LDK is now clustered with the “who’s who” of US Listed Chinese Companies, and stands to benefit by this association.


Bottom Line.


If LDK beats expectations, then the costs and risks to Shorts of keeping the price down increases. Today will a good day to test their resolve.


__________________________


* Comparing today’s upward movement to December’s, in December during the 30 days prior to the peak, total volume was around 147 Million Shares, the vast majority of which were bought along the very steep rise over about 15 days. On the other hand, during the most recent 30 days from 5/9/08, total volume has been around 121 Million Shares. The majority of this volume was generated a month ago. What this says to me is that we’re likely in a much more tightly held state now than we were in December, as daytraders have had more of a chance to sell out since the move to $39 around 4/7/08, and they are in less of a position to take part in a major sell-off / “correction”, such as occurred in December. See Graph Below.




** See http://americansolareconomy.blogspot.com/2008/03/new-data-on-naked-shorts-ldk.html and http://americansolareconomy.blogspot.com/2008/03/naked-short-analysis-ldk.html for graphs and speculation on the Naked Short situation in December.


*** For a very good Presentation on the Basics of LDK, see LDK’s March Investors Presentation.


Disclosure. The Author is long on LDK.

Note: You are responsible for your own Investment Decisions and DD. Don’t take my word for it.



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