Revised Upside Targets for Fannie and Lehman

Earlier this week I made aggressive buy recommendations to all of our subscribers, and those recommendations need further updates.  The recommendations were to buy Fannie Mae (FNM) and Lehman Brothers (LEH) at specific levels (for aggressive accounts only) with the goal of near-term capital appreciation in mind.  Quickly, after those recommendations were made, these stocks appreciated measurably and updates to those recommendations are now necessary.

The following updates reveal my current upside targets for Fannie Mae and Lehman Brothers.  In addition, although we did not recommend Freddie Mac (FRE) directly, we have offered our upside target for Freddie Mac as well because that stock is lumped into this overall strategy and could easily have been chosen along with Fannie Mae and Lehman Brothers.

First of all, these stocks were chosen for two primary purposes, and then an additional catalyst came into play.  First, the market was in a bottoming process and poised to turn higher, so we were interested in long plays which offered significant turnaround potential.  When the Market reaches channel-based bottoms the corresponding recovery is almost always lead by short-covering.  That told us to look for stocks which were heavily shorted, in anticipation of a corresponding short covering rally.  Obviously Fannie Mae and Lehman Brothers were high on this list.

Second, Both of these stocks were testing their own longer term support levels as defined in our real time trading reports for FNM and LEH respectively.  This told us that the risk/reward of buying these stocks near support was in our favor.

Then, the final decision was made when the Government stepped in to regulate short selling in FNM, and the SEC revealed an inquiry into Goldman Sachs (GS) in relation to the Bear Stearns (BSC) debacle.  Please review my article from Wednesday on this subject.  This final catalyst told me that short sellers would start to pull away from FNM and LEH because the SEC was watching closely for misconduct. 

Combined, the first Market Timing signal, the corresponding test of support in the stocks themselves, and the added catalyst offered above, presented compelling opportunities in FNM and LEH, with FRE part of the group.

Here are the specific recommendations and revised upside targets for FNM and LEH:

Fannie Mae (FNM):  Our entry level into FNM was $8.8.  The revised upside target for FNM is represented in our real time trading report for FNM as longer term parameter #2.  We recommend taking profits at or near that level.  In addition, understand that this report updates every day, so please monitor this target price for any adjustments.  Here is the report (watch longer term parameter #2).

Lehamn Brothers (LEH): Our entry level into LEH was $14.35.  The revised upside target for LEH is represented in our real time trading report for LEH as longer term parameter #2.  We recommend taking profits at or near that level.  In addition, understand that this report updates every day, so please monitor this target price for any adjustments.  Here is the report (watch longer term parameter #2).

Freddie Mac (FRE): Although we did not recommend FRE directly, we have identified the upside target for FRE as longer term parameter #2 in the real time FRE report as well.  It also updates every day, so monitor it closely.

Comments

[Look at my ...:]

Of course there was an upside this week. After the SEC ruling, brokerages were compelled to make more shares available for future shorting.

2008 Jul 20 09:39 AM

[borisb:]

i dont appreicate you trying to sell your work this way.

2008 Jul 20 02:12 PM

[Mexx:]

Agree with borisb, we have another newsletter peddler in disguise.

And if you don't subscribe to his monthly service by 8/1, rates will go up 50%. Yeah right! -I'll check back on 8/2 and will report if you don't raise rates as you said.

2008 Jul 21 11:23 AM

[pelican:]

If SA screens and edits articles in advance, shouldn't they screen for product pushers as well?

2008 Jul 21 10:30 PM

[Ellen:]

I wish I could put you on a negative watchlist or mark you on a list to ban from Seeking Alpha. I don't appreciate you using Seeking Alpha to sell the opinions and advice that others offer here as a shared resource for free. Don't waste our reading time by posting here again please.

2008 Aug 10 04:51 PM

[Zeon:]

What are you advising your clients to do now, with FNM around $4. Back up the truck?

2008 Aug 20 06:37 PM