This is going to be a silly week to guess the markets.
Holiday fever is everywhere and the year is closing on funds who make repositioning moves to spruce up their virtual portfolios for reasons that are very obscure sometimes.
Some stocks will be pumped up, some will be taken down. In the last two weeks of last year, the markets rocketed into the new year, only to be promptly decimated in the first two weeks of January.
We can hope for more of the same this year but individual stocks may be tricky to pick.
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Pfizer will be rocking the markets today but I doubt it will break the $25.25 barrier. Dow components do not often gain 10% in one day. If it breaks above $25.50 we could see a retest of $28.75 this week. If that happens, there will be a lot of money to be made on $27.50 calls, even after today’s open but it is a very high risk play. Ranbaxy, the loser in the generic case ruling, vows to appeal, of course, but lost 40% of it’s market cap in Europe today.
As there was a “preponderance of evidence” in the judge’s ruling, there may be some pin action for big pharma (GSK looks good) and negative effects to generic drug makers.
AZN, who makes a similar drug to the one PFE won its case with, will see a side benefit to PFE and may be my Trade of the Day as it did not pick up the action that Pfizer did in the after markets. AZN has just rallied up from $45 and looks tired but if the Jan $50s can be had for less than $1, they could be good for a quick 20% but I wouldn’t be greedy on this one at all!
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Major property and casualty insurers will benefit from the government’s extension of the Terrorism Risk Insurance Act. Although the insurance itself is fine, the rip-off occurs behind the scenes as the government back-stops the insurance companies once they take $50M in losses. So, as an insurance company, I can write $1Bn in policies with a fair assurance I will make no less than an 85% profit. Who really pays in case of an attack? You do.
PALM came out with a really nice T/X handheld device and the stock can really blow up if Blackberry takes a hit in court. The stock pulled back under $30 last week but I think that reflects option manipulation more than anything else. The Jan $30s are an outrageous $2 (a $2.43 premium) so I like buying the stock and selling the calls for protection all the way down to the 200 dma of $28. It’s a nice quick way to make 8%.
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A lot of banks will benefit if there is additional evidence of the Fed being done, but these small bank stocks may rocket:
- PNFP has great growth, an amazing chart and looks primed for a good move.
- FCBP with solid growth and huge momentum.
- CFNL is up 25% in revenue and 40% in profits! Same price as last December.
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YHOO looks amazingly strong but is up 33% since October it looks like it will test the high of $43.45 next. A volume move above that mark will be significant. If Google takes off, this stock will absolutely follow. People talk about Yahoo like they are Google’s poor cousin but this veteran net company is looking at revenues growing by 50% and possibly 100% increase in EPS for 2005! The January ’07 $35s are a bargain at $10.50, especially as you can sell Jan $45s for .70 (7%).
If the airline sector keeps improving then LUV should be a star but I stay away from all of these stocks.
In addition to YELL, I am liking USAK, a company with amazing growth this year. This company transports commodities and will continue to be strong as long as the industrials are.
BIDU is selling 3M additional shares today (10% dilution) and Google doesn’t want any. Stay away from this stock…
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SU may be primed for a great fall if oil prices go below $55, this one bears watching. I like taking the Jun $70 put for $9.70 and selling the Jan $60 put for $1.35 which wipes out half of your premium in the first month!
The danger to this trade is that, if Suncor drops fast, the Jan will appreciate faster than the Jun so you have to have faith that on expiration day the premium will come out and it will end up OK. Oh yes, one more danger, oil may continue to go up….
UPL also has outrageous option pricing you can take advantage of by buying the Jun $65 puts for $10.60 ($1 premium) and selling the Jan $55 puts for $2.65.
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After being downgraded by Amtech on Friday, ATYT is upgraded by JP Morgan today so it will be interesting to see which way this one goes. The company was a disastrous disappointment last quarter so it will be interesting to see which way it goes. There was huge volume on January calls on Friday.
TOL, PHM, and other homebuilders we talked about should have a good week as long as the 10-year stays below 4.5%.
MVL looks like it is at the end of its dead company bounce. Expect them to disappoint again this quarter for a grand total of -20% for the year, even though the stock is down just 10% (so far).
This may be the week that people realize that CY owns most of SPWR, whose market cap now equals that of its parent!
