- Teams on the Bubble
This is an anxious time for lots of educational institutions waiting on the bubble to find out if they will be picked for the big dance. Their anxiousness looks small relative to the sweaty palm readings of their fans.
Teams on the bubble that might be selected do not have the best overall record for the entire season. These teams have come on strong lately. With their momentum, they know they can go all the way. It is up to the selection committee to perceive which teams have the talent and should be given a chance to go to Detroit.
Just as the NCAA selection committee must do, we are evaluating candidates that are coming on strong. Not every trade can make it into our portfolio.
How do we find “trades on the bubble?”
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Finding Fundamental “Trades on the Bubble”
March Madness is upon us. Go ahead, root for your team –- and place your pseudo-bets on what bubble teams will or will not make the tournament. Just don’t let the madness spill over to your trading.
Trade with the momentum created by a bubble -– either on the long side in a company that was blown up, for no reason, with the bubble or on the short side against a company yet to crater because of the bursting of a bubble.
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Finding Technical “Trades on the Bubble”
Despite the market’s uncertainty and volatility, one form of analysis has continued to provide a number of investable opportunities, both bullish and bearish.
Stocks often move more aggressively as they cross (or fail to cross) through their respective 50-day moving averages. For this reason, we view stocks that are trading very close to this trendline as on the “technical bubble.”
The 10 trades on the following pages appear ready to make fast moves based on whether they will clear their technical bubble levels or based on fundamental bubble levels.
And now, let’s go to our 10 “On The Bubble” Breakthrough Trades
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Bubble Trade #1:
Swimming in Profits on the Commodities Bubble — Exxon Mobil (XOM)
By Michael Shulman
ExxonMobil (XOM) is, over time, the most profitable company on earth producing the best rate of return for shareholders. Let’s call them Duke. Yes, oil prices are volatile and the company’s stock price often moves with the price of oil. That being said, over time, the use of oil and gas will increase and we are at the low end of the price range for oil — $35-$65 is the current range. At $65 a barrel, ExxonMobil will go up 15%-50% and this position could double.
Buy yourself some time – buy the 2011 Call LEAPs.
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Bubble Trade #2:
On the bubble as the next big thing in green technology is CREE Inc. (CREE) . . . and its winning.
By Tobin Smith
The winner in the Obama Green plan is cities converting wasteful public lighting to solid-state LED lighting. Cree’s (CREE) products use 90% LESS energy and each bulb last 50,000 hours . . . 100 times longer . . . it’s the first no-brainer of Obamanism…
You can buy this stock straight away or periodically trade short-term calls.
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Bubble Trade #3:
Yamana Gold (AUY) on the Technical Bubble Bounce
By Chris Johnson and Jon Lewis
After slumping from a mid-February high, the price of gold appears to have stabilized around the round-number $900 mark.
That’s good news for gold stocks such as Yamana Gold (AUY), which pulled back to support at its 50-day moving average around the 8 level. The 50-day average provided perfect support in January, and we look for history to repeat.
Look for gold and AUY to enjoy a bounce after their recent pullbacks.
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Bubble Trade #4:
From a Solid Lock to “On the Bubble” is Charles Schwab (SCHW)
By Ken Trester
Charles Schwab (SCHW) has been in a steady downtrend as investors scale back on stock trading. It could fall below $9 before finding chart support. It’s on the bubble for an even further fall.
Here is the best way to play more weakness in Charles Schwab…
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Bubble Trade #5:
Sherwin-Williams SHW in Trouble on the Housing Bubble
By Michael Shulman
The Street has a rebound in housing and construction in early 2010 priced into Sherwin-Williams (SHW) stock. Sure, right.
Sherwin-Williams is a good company serving dead or dying markets, here and overseas. Sort of like Notre Dame before they joined the Big East. The stock is selling at multiples that are greater than others serving the commercial and residential marketplaces. They will surprise to the downside either with Q1 or Q2 earnings.
Buy the furthest-out puts -– September of this year -– and keep a sharp eye on it.
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Bubble Trade #6:
Sohu.com Inc (SOHU) on the bubble as the next Google . . . and it’s making it in China.
By Tobin Smith
China is funding its own recovery with its own cash and they are the leader in the recovery because they don’t have to borrow the money. Sohu.com (SOHU), the giant of online products and services is the Chinese Google only about 10 years later . . . so they have 2 billion people to go. Get on this trade early.
You can buy SOHU or buy the calls on the LEAPs to allow for more time.
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Bubble Trade #7:
Another “Technical Bubble” trade: Avon Products (AVP)
By Ken Trester
Avon twice rallied to its 50-day moving average the past couple months but was unable to break through both times. It has since broken below support at $18 and is now headed lower. Here is the best way to play more weakness in Avon Products…
Buy the Avon Products AVP July 12.50 Puts.
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Bubble Trade #8:
A Fast Mover on the Technical Bubble is Comerica (CMA)
By Chris Johnson and Jon Lewis
This Texas regional bank is far from out-of-the-credit-crisis woods. The company expects rising defaults among its commercial and industrial loans and the weak economy has yet to fully shake out all the bad news from the financials. On the charts,
Comerica (CMA) is running headlong into its declining 50-day moving average for the fifth time this year. With the previous four resulting in declines, look for more of the same as CMA continues its overall downtrend.
You can jump on the CMA puts today.
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Bubble Trade #9:
Itron Inc (ITRI)…on the bubble as the big winner in the Smart Grid build out…
By Tobin Smith
Second winner of Obamanomics is $50 billion for smart grid technology, and the smart grid is not smart without smart meters at the home or businesses. Itron Inc. (ITRI) is leader by a mile and utilities think in decades… ;they want the long-term winner and that is ITRI
Go long ITRI.
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Bubble Trade #10:
And on the Credit Bubble Fighting Back is Goldman Sachs (GS)
By Michael Shulman
Goldman Sachs (GS) was the premier investment bank among many — the Kansas or Indiana of college basketball, places where it all began. GS is now the premier investment bank among a few. It is not going out of business; it will be more profitable than others but it can never regain the levels of profitability it had in the past.
Why? The company has reduced its leverage by at least a third (and probably half) and the Street has failed to recognize this. Disagree? No IPOs, no private equity deals except workouts, reduced trading, no mortgage securitization, no credit card securitization, and so on. How will they generate big profits in the future?
Buy long-term puts -– the January 2010s or January 2011s.
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Bonus Bubble Trade
Trading Close to the Trend Line Bubble is iShares MSCI Brazil Fund (EWZ)
By Chris Johnson and Jon Lewis
Brazil’s economy is one that has been able to duck out on some of the fundamental weaknesses that have strapped other countries. The iShares MSCI Brazil Fund (EWZ) has outperformed the market lately, as it continues to build a bottom in the $32-$33 region. After moving above their respective 20-day, 50-day, and 100-day moving averages, the shares appear ready to vault higher. We expect EWZ to make the cut and at least return to its 2009 highs around $40.
Buy EWZ.
Check out more trades here:
- 7 Stimulus Trades No One is Talking About
- 12 Unbeatable Trades at Sale Prices
- 10 Stocks to Fall in Love with Again
