In his final Fed meeting, Bernanke elected to leave a taper trail. (Sorry, couldn’t resist.) This is bullish, my friends, with a capital B that stands for “buy ’em,” “box ’em up” and send a “bless-you” note to “Ben.”
The Fed said it would take $10 billion worth of Treasuries and mortgage backed securities off its monthly shopping list, and at the same time promise to keep the Federal Funds rate exceptionally low “as long as” the unemployment rate remains above 6.5%” and also “well past that time.” No word on what “well past” means, though you can bet it will a pretty long time. Let’s just say less than the time that it will take for the Seattle Mariners to win a World Series, but before the next ice age.
Financial markets reacted with a crooked smile. They have had three months to get over their anger over Bernanke’s taper tease in September and have accepted the idea that quantitative easing has a use-by date stamped on its label. I thought Bernanke would pass again in December but in the back of my mind was the idea that there could be sort of a “taper lite” that would allow the Fed chief to finish what he started and not leave it to his hand-picked successor, Janet Yellen, to be the bad guy in her first month on the job.
All in all, you have to mark down the Fed’s statement and the chairman’s comments afterwards as dovish. The language the Fed chairman used is important, as he said or implied that the bank would still be accommodative, expand its balance sheet and keep rates exceptionally low until unemployment is well below 6.5%. He also added that this policy would continue “especially if projected inflation continues to run below the committee’s 2% longer-run goal.”
With this momentum behind the market, I’m re-sounding the bell for a few of my recent Trade of the Day recommendations in Avianca Holdings (AVH) and Tableau Software (DATA) as each is offering very attractive entry points.
I also have a new call options trade for you in big-name biotech Gilead Sciences (GILD). GILD is a major biotechnology drug maker that has also been one of the most successful stocks of the year. It is fundamentally sound and just had its Hepatitis C drug confirmed for a new use in Europe.
I have traded GILD common stock and call options many times, most recently for a 46% gain in GILD calls overnight. That kind of quick volatility is characteristic of biotech firms and makes them perfect options trading candidates.
I recommend that you buy the GILD Jan. $75 calls at current levels. While weekly options are available at this strike, I’m recommending the regular monthly calls that expire on Jan. 18. I have an initial target of $3.45, where you should take profits on half your position, and then continue holding the remainder of the position for my final target of $4.95.
Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with volatility-related instruments.
Follow Jon Markman at Google+.