Trade of the Day: Blackstone Group L.P. (BX)

by Bryan Perry | February 10, 2014 10:07 am

Blame it on the weather, blame it on residual effects of the government shutdown, blame it on holdout out to weigh the cost of Obamacare — whatever the case, a muted jobs report has caused quite the fervor for U.S. equity markets Friday.

Initially, the headline of only 113,000 Non-Farm Payrolls being added to the economy, well shy of the 189,000 consensus going into the release, caused a steep drop in the pre-market, taking the Dow futures down triple digits. By the opening bell, futures were indicating a neutral opening, and then the running of the bulls ensued.

Before everyone jumps for joy that the pull back/correction is now behind us, technicians will be all over the one-year chart of the S&P which shows the two-day rally back to 1,800 is going to be a level of short-term contention.

As per the chart below, rarely have we seen such a dramatic move off of a jobs-report-related reaction low that follows through without some back-and-forth trading in the mix. A calming of the emerging markets and a rally in Japan did much to dampen the extreme investor pessimism that ruled recent trading.

One thing that is clear: Money is coming off the sidelines expecting to catch the best names on sale that have corrected 5%, 10% and in many cases 15% or 20% off the December highs. Those who bid up stocks in front of the jobs report were well rewarded. When the futures couldn’t stay down in Friday’s pre-market, the stampede into the upside reversal lured in vast numbers of fund managers and retail investors alike sitting on cash.

One reaction that is most notable is that bond prices were higher Friday, with the 10-year yield receding to 2.67% at the close. This tells me money didn’t come out of bonds to fuel the rally; it was cash on the sidelines. Bond investors are still leery of volatility in emerging markets and a debt ceiling deadline due out later this month. Treasury Secretary Jack Lew says he’s not confident extraordinary measures will last past Feb. 27.

The Fed doesn’t meet again until March, so I’m taking the late week run up for stocks after the jobs report as a short-term gift that will have to do some further proving to convince most that a bottom is truly in.

In the meantime, I continue to recommend staying long very attractive high-yield names and initiating select covered calls to take advantage of short-term pops like the one that occurred Friday. Let’s look at a name I like for a near-term upside move.

Blackstone Group L.P. (BX[1]) is on a serious mergers and acquisitions (M&A) tear, having taken Hilton Hotels (HLT[2]) public last quarter and set to also IPO La Quinta Holdings early this year. The company blew past Wall Street’s fourth-quarter earnings estimates by 62%, doubling profits from 2012 in the process.

I like the fact that earnings are in the bag, and the chart is showing clear signs of the stock forming a mini double-bottom, higher-low formation that should get the shares to clear $33 in the next few weeks.

Here’s a short-term covered call recommendation in BX you can act on to get paid today:

For every 100 shares of Blackstone Group L.P. (BX[1]) you own or purchase at market, sell to open one BX Feb. $33 call at market. (Note: This is the monthly contract set to expire on Feb. 22.)

If you get long BX stock around current prices of $31.30 and collect approximately 20 cents in option premium, your potential called-away return is 6.1%. Not bad for just a few weeks’ time using a safe, conservative strategy.

 

Could these conservative trading strategies double your money by this time next year?  You bet they could!  Once you put this plan in motion, it’s just like having your own “perpetual cash machine.”  Learn why here[3].

Source URL: https://investorplace.com/2014/02/trade-day-blackstone-group-lp-bx-jobs-report/

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