FRI. JAN. 30 - Share Offerings

A topic I am frequently asked about is the concept of share offerings and how I play them. First, let’s 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, I’d 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.

Watch list:
1302009Eriklist.zip
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 “Mad Money” last night

CAT- mentioned positively on “Mad Money” 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 – 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 “Mad Money” 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 – 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 – 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.

www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist of Epiphany Trading, LLC