Corning Inc (GLW) moved like a tsunami the first couple weeks of September on a bright outlook by Oppenheimer. With the possibility of revenue increasing from the display business this last quarter of 2012, revenue should look better, but the economy may not be healthy enough to sustain its bullish tendencies so they may be short lived. A long term investment may still look good, but a short term pull back could create an income opportunity.
As recently as this summer, Corning's stock did not look very hot. It announced in late summer that its second quarter net income dropped by 39% from lower sales and pricing from its liquid-crystal-display glass products. Earnings could not keep up with estimates and revenue also missed. In the minority, the company fell on the bad side of news the second quarter as most companies beat earnings abut missed revenue. Missing both was not a good sign. Then the company forecasted a weak third quarter saying it was concerned about the weak European economy and slower economic growth in China.
But the stock rose in early September and kept on going as Oppenheimer upgraded Corning from perform to outperform with a price target of $16. The reason for this was an upside potential in the economy as it improves. But is it really improving? If it was would the Fed have announces QE3 last week? With the iPhone 5 coming out, Corning should see revenue improvement in its display glass business. And telecommunications (optic fiber) is also predicted to grow by another 40% over the next couple years. So in the longer picture, it looks like Corning maybe a good investment right now. But in the short term I am expecting a pull back.
Technically Speaking
From a low in early August of just over $11, the stock has risen to about $13.12 - but the rise has been very steep since the beginning of September. It is unlikely the stock can continue moving like it is. The RSI has supported Corning's move and presently points to an over bought condition which could signal a pull back soon. It also has ridden the upper Bollinger Band and extended volatility tremendously. This will come back in soon. I cannot say whether the stock will move down or sideways. The MACD is also following the stock and its move-not showing us any signals other than supporting the move of the stock. I would say the stock is coming to a critical resistance point at 13.25 and if it pushes through on strength, it may be able to go farther. But watch it as a reversal point as the stock is showing over bought signals.
(click to enlarge)
The Options Play
The stock is presently trading at 12.99 and I am looking for a pullback soon. For this reason I am looking for a short term income trade leaning toward the bearish side.
- Buy a November 2012 put with a strike of '13' (priced at $0.68)
- Sell a November 2012 put with a strike of '12' (priced at $0.29)
- Net Debit to Start: $0.39
- Maximum Profit: $0.61
- Maximum Risk: net debit
- Maximum Length of Play: 2 months
Reasoning behind the Trade
- Strong resistance at 13.25 will be challenging to break through right now.
- September traditional pull back could put damper on short term bullishness.
- It has risen too quickly and needs a pull back.
- Market conditions are not as good as Oppenheimer predicted with QE3
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
