Market Notes: Add Some (Sun) Life To Your Portfolio -- July 9
Portfolio Strategy, Long/Short Equity, Special Situations
Seeking Alpha Analyst Since 2008
Speculation that billionaire activist investor Bill Ackerman is interested in possibly buying a chunk of FedEx (FDX) caused the stock to jump over 4% on nearly seven times normal volume. Since FedEx is a prominent component of the Dow Transports (as well as other indices), the push helped the index to not only break out of its downward trending channel but to punch through minor resistance at 640. The S&P (SPX) and the Nasdaq followed suit with both major averages breaking above recent resistance levels while the Russell 2000 (RUT) notched another new high. All of this bullishness is not keeping the bears away, though, as selling pressure came into equilibrium with buying pressure at the close for the second day in a row. What this indicates is that the bears are still unconvinced that a summer rally is in the cards. However, a falling VIX is telling us otherwise and it may be the bulls who get the last laugh after all.
Trade Note: Are the homebuilders back on track?
Yesterday's bearish analysis on how rising mortgage rates could hurt the housing market (especially the home builders) was apparently not taken too seriously by investors. Today, the home builders came charging back with some individual names gaining as much as 7% over yesterday's close. But is this the start of a renewed rally or just massive short-covering? Methinks it could be the latter but we won't know for sure until we get some sort of confirming signal on either side. If you're itching to play the upside, I would wait until the home building etf (XHB) breaks through $30.50 resistance. If it's unable to break that level, then we could see a fallback to $28 support.
Trade Idea: Are estimates for this earnings season too low?
Analysts have been predicting sluggish earnings growth for Q2 and Q3 for some time now but recent opinions have been revised upward with some analysts grousing that perhaps the targets were set too low. (See this article in Yahoo! Finance for further info.) Should this prove to be the case, then this would be just the catalyst needed to propel the market higher. You gamblers out there may wish to consider throwing a little dough at some at-the-money or slightly out-of-the-money index call options to take advantage of this possible scenario.
Subscriber Notes: I was researching Canadian-based insurer and investment service provider Sun Life Financial (SLF, $31) as a possible Stock of the Day pick. Today's chart break out on heavy volume attracted me to it. Several hours of research showed that there is a lot to like about this company especially its low price to free cash flow, lower than average debt, good growth prospects, and decent dividend (4.4%). The only reason I didn't add it to the Stock of the Day list was because there doesn't seem to be any institutional interest in it possibly for the reason being that most of the analysts feel it is already fairly valued. (The top price target estimate is $34 giving the stock not much more expected upside.) However, analysts have been wrong in the past and I do think those investors seeking income plus some price appreciation may want to take a closer look at this company.
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