Pfizer Inc. (PFE) took such a leap today, breaking past its high of the past 20 days, $25.30, in a move that carried it as much as 2.9% above the prior day's close.
Today's stretch up to $25.79 was part of an uptrend that began in mid-November from $23.55, which is turn is a leg in a sideways movement that has been in place since early August, stretching from a floor of around $23.60 up to a ceiling of about $26.10.
Frankly, as a trader, I dislike opening positions after out-of-left-field moves. I'm prefer charts where the price sneaks up on a breakout level and then tip-toes across. Big moves on high volume tell me that a lot of the money has already gotten in, leaving me as a come-lately.
If we follow the old saw about buying on the cannons and selling on the trumpets, then today's move is all trumpets. However, the price was on the rise even when the cannons were firing.
The uptrend had legs, with a trend score of 1.11, one of the stronger scores I've seen in this lackadaisical week.
Today's high stands 1.2% below the top of the sideways move, so the significant potential profits will come either from a rise strong enough to break through the sidewinder's ceiling or a short-term retreat that allows entry nearer the breakout level before the rise resumes.
The news that made traders happy about Pfizer was positive results of studies into an experimental breast-cancer drug.
Pfizer, with a research headquarters in Groton, Connecticut, has higher revenues than any other pharmaceutical company in the world. Pfizer is synonymous with Big Pharma, with the market clout that implies.
The chart reflects a high level of analyst bullishness; I give PFE an enthusiasm rating of 63%, which is quite high. A return on equity of 21% with fairly low debt amounting to 38% of equity can't hurt.
Earnings over the last dozen quarters aren't trending at all, but rather fluctuating in place. All but one have shown upside earnings surprises, and that one miss was long ago in 2010.
Institutions own 71% of shares, and the price is expensive; it takes $3.05 in shares to control a dollar in sales.
PFE on average trades 31.1 million shares a day. It has an excellent selection of optoins strike prices with open interest near the money running to five digits. The front month at-the-money calls have a bid/ask spread of 3%.
Implied volatility stands at 18%, about a third of the way up the six-month range. It has been on the rise since mid-November, although today it is showing a dip.
Options are pricing in confidence that 68.2% of trades in the next month will fall between $24.31 and $27.02, for a potential gain or loss of 5%, and between $25.01 and $26.32 in the next week, for a 2.5% gain/loss.
Options trading isn't spiking today. Overall, trading is at 79% of volume for the past five days, with calls leading by 9% above average volume and puts at half the average.
The fair-trade zone on today's 30-minute chart runs from $25.34 to $25.76, encompassing 68.2% of trades surrounding the most-traded price, $25.67.
The most-traded price is near the top of the zone, today's trading has shown four prior significant price areas as the stock moved up, and trading the last two hours has stayed fairly close to the most-traded area.
These suggest to me that the market has found its level, and so I'm not expecting any dramatic upside moves the rest of the day or at the open tomorrow.
Decision for my account: I'm fully committed under my rules so I don't the have cash to spare for this trade. So, I won't be opening a position.
If I did have the resources, I might take the trade, but with reservations. The low volatility suggests that the upside may be near exhaustion, as does the slow options trading and the most-traded price situation on the half-hour chart.
Also, the low volatility limits premiums on my initial position, which I would structure as a bull put spread, short the $25 January puts and long the $24 January puts, for a yield of 14%. This puts the break-even point at $24.84, close to a stop/loss that is double the average daily trading range below the entry point.
My trading rules can be read here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.