The bulls got off to a good start on Monday although the rally cooled as the market had trouble powering through strong resistance. The Financial stocks sucked the momentum out of the bulls in the second half of trading after starting the day off in the green.
Once again, the foreclosure-related headlines started picking up steam as Bank of America (BAC, $11.16, down $2.05) fessed-up by saying it has already found a few “mistakes” in some of its foreclosure practices. Shares minted a fresh 52-week low of $11.07 and appear headed to single-digits. If it gets to $8, it would be hard not to back the truck up. More on this in a minute…
The Dow finished with a gain of 32 points to close at 11,164 after testing a high of 11,247. Two of the Dow’s blue-chip buddies paced the seven losers out of 30 on the index and we just mentioned one of them. The close above 11,150 continues to show higher highs and higher lows which is usually a bullish sign. A close above 11,200 has us putting 11,500 on our scopes by year-end.
The S&P 500 also gave back most of its gains by the close after challenging the psychological 1,200 level. The index added a Field Goal (3 points), or 0.2%, and finished at 1,185 after touching a high of 1,196. We went over support and resistance yesterday and a break above 1,200 would be very bullish over the short-term.
The Nasdaq joined the Dow and traded above our target of 2,500 but failed to finish on top. Tech still managed to hold on for a 12 point win and settled at 2,490 after reaching a top of 2,507.
Back to the Financial sector…
One thing to remember, we said a couple of years ago that when the Financial sector is in the dumps and sentiment is negative that you will need to wait a few quarters and see a turnaround in earnings before jumping in. We aren’t there yet.
Bank of America fell to a low of $2.53 in February of 2009 and we mentioned those aforementioned words back in November 2008 after a dismal round of earnings two years ago with this group. This time is a little different as some of the Banks have come in with good report cards but the sector is in a downtrend and doesn’t appear to have found a bottom, yet. Be patient.
In March of 2009, when shares of Bank of America broke back above $3, we knew the selling had been overdone so we recommended our subscribers go long the May 6 call options (which gave us 2 months to play a rebound) and the July 10 call options (which gave us 4 months to play for a continued rebound) which were going for 75 cents and 35 cents, respectively.
Well, a little over a month later, the stock had rebounded to $10 and in mid-April last year, those call options were at $5.00 and $1.50. In other words, the returns on the call option trades were 566%, and 433%, and are included in our track record.
Although some of these companies look CHEAP, history shows the selling pressure can get intense and overdone but we still need to wait. The rebound will come but Ben Bernanke said yesterday that regulators could report the preliminary results of their foreclosure investigation as early as next month. This might mark the bottom and a rebound but we will have to wait and see. In the meantime, shares looked like they are headed below $10.
JP Morgan (JPM, $37.07, down $0.63), another name we are watching and a Dow component, ended lower by 1.7% for the session and will likely test its 52-week low of $35.16 if investors continue to flee the sector.
Another stock we want to talk about is Savient Pharmaceuticals (SVNT, $12.07, down $) which fell 45% yesterday after saying it has been unable to find a buyer after they put their self up for sale. The firm went on the auction block after the company won approval of its gout treatment drug, Krystexxa, a couple of months ago and thought they would be an easy acquisition target.
Although the company said it expects Krystexxa to be ready later this year, we think they rushed the gun because they knew they would need to raise additional capital in order to launch the drug. Now that Wall Street has given the firm a haircut, somebody might think they are getting a bargain.
We have profiled the stock on our Watch List for a few weeks and we said Savient might be a takeover target but we failed to list the November 17 puts (SVNT101120P00017000, $5.10, up $4.65) as a way to “strangle” the news we were hearing. When the company announced it failed to find a buyer, shares tanked and the put options gained over 1,000%, folks. More incredible, they opened at 65 cents and held steady until shares were halted pending news.
This is not the “end of the story” for Savient and shares look “attractive” here in the low teens. The damage has been done but the stock should bounce back to the mid-teens in 6-12 months.
As far as earnings we are watching for the rest of the week:
Tuesday – Aflac (AFL, $55.25, down $0.21), Buffalo Wild Wings (BWLD, $48.68, up $0.04), Chicago Bridge & Iron (CBI, $25.77, up $0.08), DreamWorks Animation (DWA, $33.22, up $0.08), F5 Networks (FFIV, $100.83, up $2.38) and Massey Energy (MEE, $41.17, up $1.34).
Wednesday – Akamai Technologies (AKAM, $48.68, up $1.07), Brinker International (EAT, $20.01, down $0.18), ConocoPhillips (COP, $61.34, down $0.33), Deutsche Bank (DB, $58.12, down $0.57), Express Scripts (ESRX, $49.10, up $0.10), Goldcorp (GG, $42.64, up $0.60), iRobot (IRBT, $20.00, up $0.52), O’Reilly Automotive (ORLY, $54.60, up $0.58), Panera Bread (PNRA, $94.23, down $0.17), Sealed Air (SEE, $23.87, up $0.11), Tootsie Roll (TR, $26.15, flat) and Vale (VALE, $32.44, up $0.37).
Thursday – 3M Company (MMM, $90.90, up $0.46), Barrick Gold (ABX, $46.53, up $0.56), BMC Software (BMC, $44.20, down $0.02), Cal Dive International (DVR, $5.32, down $0.05), Celgene (CELG, $59.56, up $0.82), Coinstar (CSTR, $47.00, down $0.50), Deckers Outdoor (DECK, $53.86, up $1.83), Expedia (EXPE, $28.59, up $0.31), First Solar (FSLR, $147.15, up $1.60), Genworth Financial (GNW, $13.51, up $0.13), McAfee (MFE, $47.31, down $0.04), Microsoft (MSFT, $25.19, down $0.19), Potash (POT, $143.70, up $1.91), Regal Entertainment Group (RGC, $13.69, down $0.07) and Sunoco(SUN, $39.52, flat).
Futures are pointing towards a lower open as the dollar is rebounding a little this morning. We have a lot to cover in our Members Area so let’s get on it.]]>