Friday, September 5, 2014

Friday's Finalists: ESV, NEM, DOW, GDX, RDHL, BP, MON

The bearish markets on Thursday tossed up a heaping handful of finalists for consideration in the last round of trading. Basically, there's very little to distinguish them from one another. But, trading is about choices and decisions, so let's jump into the pile.

(See "Friday's Prospects" for a rundown on the early round of analysis.)

The finalists are
  • From the mid-/large-cap list: ENSCO PLC (ESV), Newmont Mining Corp. (NEM), The Dow Chemical Co. (DOW), and the gold miners exchange-traded fund (GDX).
  • From the small-cap list: RedHill Biopharma Ltd. (RDHL).
  • From the large-cap bear-play supplemental list: BP PLC (BP), NEM again, and Monsanto Co. (MON).
All gave bear signals except for DOW, RDHL, and PFBX.

Three symbols failed confirmation by moving back within their 20-day price channels: ICLR, GLW and OILT.

Four had charts that were insufficiently bullish to support their signals: ACC, AFLYY, SCGLY, and SEOAY.

The rest, all with bear signals, had insufficient open interest or overly wide spreads on their options, making it impossible to construct a bearish position.

I set aside the gold miners fund, GDX, and NEM because I prefer to make my gold plays in the metal itself, via the exchange-traded fund GLD, rather than through the filter of mining companies.

ESV and DOW both have relatively high dividend yields and so would work best as trades under my longer-term rules. I toss ESV because high dividends do me no good on a bear play. DOW, however, has given a bull signal, so I keep it in play.

PFBX gets tossed because trading still hasn't opened 90 minutes into the session; that's too illiquid for my taste.

BP's huge decline and bear signal on Thursday were triggered by an adverse court ruling in the 2010 Gulf of Mexico oil spill and it is trading above its low today. I reject it, preferring to trade the rumor rather than the news.

RDHL has heavy downside momentum today following Thursday's bull signal, so it also gets tossed.

All but one of the six finalists are ranked neutral by Zacks Investment Research, the service I use to short-cut my fundamental analysis.. The exception is MON from the large-cap supplemental list, which has a bearish rating that supports its signal. That immediately makes it stand out.

So it comes down to two, both highly liquid and suitable for leveraged and hedged trades: DOW, a bull signal ranked neutral, and MON, with a bear signal, ranked bearish.

I'm partial to MON because the ranking supports the direction of the signal. Also, the broad markets have been down for the past three days, and I prefer to trade with the broader trend.

I shall post a full analysis of MON as a potential bear play prior to the closing bell.

-- Tim Bovee, Portland, Oregon, Sept. 5, 2014


My shorter-term trading rules can be read here. My longer-term 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 decisions for his or her own account, and take responsibility for the consequences.

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