Pacific Ethanol, Inc. (PEIX) has been one of my most popular research reports for 2010.  I have the software that allows me to track clicks and time spent reading the info and PEIX has been very popular.  And, I can see why.

PEIX has made two major “stair steps” in their chart on their way from 40 cents to a 52-week high of $2.75.  Now, the stock is trading around $2.00 which seems to be a good support level for it.  It is perched on the 50-day MA which could give support to the “next leg up”.  The question is “will PEIX make the next leg up?”

My annotated chart makes a good case for some short term gains:

PEIX has coped very well through all of its troubles over the past few years.   PEIX seemed to be the poster child for the problems with the ethanol industry.   In early 2009, the bankruptcy of its operating subsidiaries was a desperation move for a company that was in deep trouble.  Here is a link to a Chapter 11 summary.

The ethanol industry crawled off its death bed with the news that the U.S. EPA made positive comments relating to a reports regarding E15 gasoline, which if approved, would boost the legal percentage of ethanol in gasoline by 50%.   The resumption of operations at several of its plants was news that the market approved of.  A drop in corn prices, increases in the price of oil and an easing of the ethanol oversupply all contributed to a positive sentiment in the minds of investors.

Of course, any bad news will drop a hammer on PEIX.  I think that it is a little fragile given the history of the ethanol business.  The shorts are around 10% of the float, so there is a constituency is hoping that the hammer falls.   It may fall long-term, but I am not a long-term investor.

The chart, to me, looks good for a little “pop”.  Any break below the support that I charted and the stock should be avoided.

Trade like you mean it!

Jeffrey Dean

Editor

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Investor Soup

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