Trade of the Day: Houghton Mifflin Harcourt (HMHC)

Another volatile week in Ukraine continued over the weekend as Russia seized the Crimean peninsula by force and cut communications lines. The new government in Kiev stepped up its rhetoric, but its authority was in question as the Ukraine Navy reportedly defected to Russia. The global-market spillover from the crisis was limited last week but should pick up in days to come. This will probably create some important trading opportunities in gold, the S&P Volatility Index (VIX) and individual stock trading, so keep your powder dry.

In the end, we have seen repeatedly that while geopolitical trouble has led global markets to wince, the potential damage is discounted quickly and stocks recover and move on to the next high. So be ready to add to your holdings, should you wish to have more exposure, on any substantial Ukraine-related pullback.

After all, when you consider the seasonal trends, March and April have historically been the two best months of the year when combined. The S&P 500 has averaged a gain of 0.62% in March over the last 100 years, and gains of more than 1% in March over the last 50 and 20 years. March has been the most consistently positive month over the last 50 years (68%), and it is tied for first over the last 20 years with gains 70% of the time, according to Bespoke data. When combining March and April, you get the two best months of the year for the Dow as well over the last 50 and 20 years.

So looking at the big picture, the S&P 500 has cleared resistance to trade at a new high, the two best months seasonally are coming up, and sentiment is not overly enthusiastic. The weight of the evidence suggests that if the Ukraine mess creates a big divot in global markets over the coming week, it ought to be a good time for opportunistic long-term investors to take down cash levels and do some stock trading. Here’s one for you to consider on the next dip – a recent IPO in the outperforming consumer discretionary sector.

Houghton Mifflin Harcourt (HMHC) is a book publisher that owns such beloved series as “Curious George,” “Lord of the Rings” and slacker favorite “Cliff Notes,” as well as many textbook lines. The core company emerged from bankruptcy a year ago, and the current configuration is the result of a lot of financial engineering. The old company shed its debts and kept the business lines that have the best shot at success, even in a tough environment for books.

The shares came public at $12, but the first trade was in the $14-$16 range. So far, it is acting like some of the better post-bankruptcy IPOs, as shares have exceeded their first day of trading and are rising on decent volume amid accumulation by fund managers. This kind of slow but steady advance can continue for quite some time.

Buy HMHC at $19.98 limit, good till canceled. If filled, set up to sell half of the position at an initial target of $21, and let the rest ride for further profits.

Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.

Follow Jon Markman at Google+.

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