A topic I am frequently asked about is the concept of share offerings and how I play them. First, letâs back up a step. A company which needs to raise capital and either does not want to borrow money and/or cannot find a bank to lend to it will frequently tap the equity market to raise funding. These are typically done via a concept called a secondary offering in which a consortium of investment bankers agree to buy X amount of shares of the company doing the offering, presumably at a price in which they can make money over and above the fees that they get. The last thing a Goldman Sachs or a Morgan Stanley wants to do is buy hundreds of thousands of shares of a stock which they will lose money on. Ergo, a stock will usually fall in anticipation of the offering, the offering price is announced below the close, and the stock tends to hold above the offering price. There are a few ways to play this. My personal favorite way is to short through the offering price. If a stock trades so much as one penny below the offering, it indicates to me that the investment bankers have used up their allotted resources while at other times, it is sustained; either way, I do not care as I am trying to earn a living fast. Yesterday, for instance, Century Aluminum (CENX) had a share offering at 9.50. The stock fell from 7.35 on Tuesday to close at 4.60 yesterday. The offering was done at 4.50. When the stock breached 4.50, it fell almost 30 cents in a minute or two as i-banks and momentum players sold out as fast as they could. A second way to play a share offering occurs when a stock opens below the offering price, rallies toward the offering price, a reloading bid comes in, and the stock begins to stairstep higher. For instance, had CENX opened at 4.25 yesterday, rallied to 4.51, traded a lot at 4.50 on the bid, and notched to a new high, Iâd have theoretically bought the 4.52 (confirmation of a new high). Finally, I love when a stock falls a huge amount over a period of days in advance of a stock offering and stabilizes on the day of the offering. Newmont Mining (NEM) had an offering at 37 yesterday after falling from 45.45 on Monday to 38.33 on Wednesday (with a 38.61 close). The stock initially traded lower, but held 37. When it popped thru unchanged at 38.61 after trading lower all morning, it rallied almost 40 cents within minutes and almost a dollar by the end of the day. So, pay attention to the share offerings, the prices where they occur, and what the stocks have done not only leading up to the date/price of the share offering, but what they are doing on the day of the offering because there are frequently quick day trades to be made off of these offerings. Overnight, equities in Asia were lower with Tokyo down around 3%. Stocks were flattish early on, but are now down 1% to 2% in Europe. State-side, futures are once again pointing down on bank worries ahead of the expected GDP report debacle today. Overall, look for relatively muted session; declines will likely be limited on window dressing on the last day of the month as well as the strong AMZN and XOM earnings. Benchmarks to note today will be the banks, oils, and AMZN. Look for tech to outperform relative and to lead a bit of a small rally mid-morning. Yet, the overall tone remains negative so expect a great deal of choppiness in this muted session. Reiterating- Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea. If the whole story is not there - If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified- Good- The following stocks have good news and/or a strong technical pattern AMZN- blowout earnings ACS- beat earnings for quarter DRIV- decent earnings MCHP- beat earnings estimate for quarter slightly SPWRA- great earnings; watch for pops in solar sector in sympathy YRCW- missed for quarter, but supposedly nearing getting additional financing BCR- beat slightly for quarter CYBS- beat for quarter MWW- beat estimates for quarter CA- beat estimates for quarter CHK- CEO on âMad Moneyâ last night CAT- mentioned positively on âMad Moneyâ last night SQNM- rallied back yesterday after poor drug news; may continue rallying today XOM- good earnings ACI- good earnings SPG- beat on quarter; will meet for year- this is very good as whisper numbers well below that Bad-The following stocks have bad news and/or a weak technical pattern BRCM- bad earnings CB- beat for quarter; warned on year HCN- will miss earnings slightly, having a share offering, and a shake-up in management. Stock traded down 5 after-hours before storming back. JNPR â missed earnings and warned KLAC- missed earnings for quarter MXIM- beat for quarter; warned on revenue projections for year VAR- beat slightly for quarter; warned for next quarter BANR- closed near low yesterday on poor earnings WMS- met for quarter; guided estimates for year down LNN- warned for quarter DDUP- warned for year TEX, JEC- mentioned negatively on âMad Moneyâ last night DRYS- plunged yesterday after reporting they plan on doing share offering; looking for more decline today. Company seems adequately capitalized so it is a bit of a mystery why they seek more capital. EK- looking to short thru Thurs. 4.91 low CEDC- closed near a low CETV- closed near a low SCHW- very weak in closing near a low BUSE â broke to a new 52-week low BEN- closed near a low ASH- terribly weak in testing its all-time low; 8 is a major number for the stock BDK- closed near a low after posting wretched earnings yesterday PG â warned on next quarter AME- relatively poor earnings Earnings: FRI JAN 30 BEFORE ACI AME AXL CVX GCI HON HRZ IDXX IVZ PCAR PG SPG WL XOM Good luck today. Erik R. Kolodny
Erik, i will be looking at FLS for a move to either 55 or 57.50 area. depending on where it opens. obviously if it opens showing weakness its a different story although i won't go short. i like it as a STRONG LONG.
also keep RIMM on your radar as a LONG. its been showing plenty of strength and could see the 57 area.
Man this is great info. Thanks for posting these trading tips. Ill have to print out these previous posts and see how many new strategies I can learn. And yea, RIMM is going places. I buy all the dips and sell the tops. But cnbc's crammer is whipping up a frenzy on this and earnings appear to be headed for a blockbuster so Im keeping a small chunk in for the full ride where ever it leads. I bought most of the way down when that WSJ article posted and it just paid off some more. The down side seems to only lead to more upside a day or 2 later. I just love it.
i'll look for FLS to base or form a bottom. i got in and made a quick .28 cents but was only filled for 600 shares and bailed quickly. i bought a huge gap up so i would have bailed early regardless. RIMM,I did'nt do anything yet.
Jees, when does the muted part of this choppyness kick in. Another big Rimm pullback followed by the surge back up. Making good money but looking for an adrenalin breather here... Just seen the headlines. Now that the infrastructure stimulus is getting all screwed up, Obama says that is only the beginning. I wonder if he means DOW 5500.
Trader2000- I would have had to have been a marksman to have pulled it offâ¦FLS opened at 54.30 and rallied to 55.03 on NYSE before falling back⦠You were dead on, but there was just too little liquidity for me. Nice call on RIMM too. Stts- I try. Although itâs not really ânew strategiesâ per se. I use the same strategies every dayâ¦I just do it with different stocks. Middle of day was muted (for me). Traderyin- I have a news service. So, I scan through the news. I also utilize âIn Playâ from Briefing. I did not make a single trade of more than 500 shares between 10:30AM and 1:30PM. I had a tremendous morning when prices were jumping around, but it was very quiet (for me) until that CNBC 1:30PMish announcement.
yeah, thats why i bailed on only .28 cents (FLS). i actually packed it in after that,i missed RIMM on the initial pullback. FLS was risky because it gapped up so much in at 54 and out at 54.28.