Corning Inc.: Glass House Or Diamond In The Rough?

Jun.25.12 | About: Corning Inc. (GLW)

Corning Inc. (NYSE:GLW) has been trading in a range since September 2011. The extreme pivot points of the range are a high of $15.60 and a low of $11.60. Subsequent to the extreme pivot points, the range has settled at a high of $14.50 and a low of $12.50. This latter range within the range is for all intents and purposes the focus of this recommended trade.

I believe Corning will continue to trade within this second shorter range. The swings will be between four to eight percent. It is currently positioned for a nice move to the upside. The terminal phase of the short term advance will once again be defined by the large blocks which will evidence themselves at the highs of the range. I believe it is not only likely but probable that the blocks of June 15, will push this issue higher to the $14.31 level.

I have highlighted two blocks in the matrix, that I wish to call to your attention. The block which traded on November 4, 2010 and the block which traded on December 15, 2011 have a very interesting similarity. They are both for exactly 6,755,949 shares. What are the odds of that happening? I have said many times that I do not believe in luck but I do believe in chance. That said, chances are that events occurring today were well conceived and put into motion far in advance.

The Designated Market Maker believes the investing public has short attention spans and that probably nobody was watching. He may be right. After all, who do you know personally that would notice the same block transacting thirteen months apart. Whoever this phantom is, rest assured he is conducting very important merchandising operations.

Click to enlarge

On the Basis of the foregoing these are my views and observations:

The Trade:

I recommend establishing a long position in Corning Inc. Open your position with only 1/4 of whatever capital you intend to commit to Corning Inc. at $12.75. Purchase the remaining 3/4 of the position at $11.73 and stop out at $11.25. Do not post your stop out. I have said it before but it is so important that at the risk of being redundant and in an abundance of caution I will say it again. It is too easy for the Designated Market Maker to cash investors out by moving the price above or below your stop out and move the price right back down or up again. In addition, when a stop out is triggered it converts into a market order and that could be disastrous if the Designated Market Maker decides to really take advantage. Remember the "Flash Crash"? I would be looking to exit the trade at an upside price target of $14.31. Do not allow this position to exceed 5% of your overall portfolio. You could write some near-to-expiration covered calls, as Corning Inc. approaches $15.00 to exit the trade with a little premium. If the stock is called away, then the premium will add to profit and if not then the premium is money in your pocket.

There is always the possibility that the trade may not work out.

There Is Never A Sure Thing (particularly on a short)

Investors must realize and recognize that there is never a sure thing. Sometimes, events that have a low probability of occurring bring forth very serious consequences should they come into being. Investors must judiciously consider what the inherent practical limits are and how much they stand to gain in relation to the risks involved in establishing any position.

In addition, persistence can become desperate folly by allowing a losing position to become a viable argument for deciding on a new position. Rather, such decisions should be based on the current and soon-to-be circumstances.

Any position in which one unexpected factor has a significant impact on your portfolio is the result of poor planning. It is a fault most commonly associated with people who want to explain away their losses. According to Sun Tzu in the Art of War "Use an attack to exploit a victory, never use an attack to rescue a defeat."

If you follow the process recommended and the trade does not work, the overall loss in this model is $3,000.00. That amounts to .003 of the overall portfolio (theoretically valued at $1,000,000).

And finally, never be a brave and brainless investor because a fool and his money are soon parted.

A portfolio of $1,000,000 should position size in the following manner.

This is a trade, not an investment. Be ever vigilant.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLW over the next 72 hours.