THURS. AUG. 19- Merger Time

On March 3, I wrote a piece about a potential mini merger mania (which also referred to a May 13, 2009 piece on the mechanics of day trading mergers):

http://epiphanytrading.blogspot.com/search?q=mar+3+mini+merger+mania

I won’t repeat anything from either of those blog entries except to note that the last week has seen the highest level of mergers & acquisition activity across various industries in 2010. We’ve seen deals in the tech sector whereby the likes of Unica UNCA) received a takeover bid more than 100% above prevailing market price. Dynergy (DYN), a seller of electrical energy, received a takeover bid 60% above prevailing market price. The most notable takeover, Potash (POT), a maker of potash products, received a bid 15% above prevailing market price but it is actually ahead more than 30% of where it was merely a few days ago. This morning, Intel (INTC) bid 60% up for Mcafee (MFE). So what gives? While the debt of the U.S. government continues to soar, this is actually not the case with corporations. The low rates has given many companies incentive to pay back their debts as LVS did yesterday when they announced a $1 billion payback of its debt. Furthermore, many companies are awash with cash. Well, they can either accept a miniscule bank deposit return or they can use the cash for investment; finally, it appears some companies are starting to do so. There is no reason for this trend to stop. For day traders, the macro effect is that it places a bid for the market beneath current prices because investors know that companies in any industry can be taken out at any time. The micro effect is that rumors such as MT for X yesterday can and indeed will appear out of nowhere particularly in an options expiration period in a low volume environment. So, keep your eyes poised particularly on relative strength plays that much more these days as a merger rumor (sometimes with substance) could well be behind an intra-day move- a move that can extend itself to a great degree.

Markets in Asia were up overnight from 0.2% in Hong Kong to 1.3% in Tokyo. In Europe prices are down about 0.5% across the board. The dollar is flat, gold up slightly, and oil down slightly. Futures took a weird spill just after the bell yesterday, recouped all of that ground overnight, and then lost it again on a poor jobless claims number. Look for a very weak open with not a lot of movement from there ahead of options expiration on a sunny summer Thursday. Focus on the Internet security stocks, the stocks with earnings, the rumored deal plays such as X and POT, and relative strength plays particularly in the half hour after the 9:30AM ET open as some short covering can occur in select stocks.

Reiterating-

If the whole story is not there -

If something is good, assume either a short 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.

If 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

AMAT- decent earnings guidance

PETM- good earnings

SNPS- decent earnings

X- closed near a high on takeover speculation

BSDM- closed near a high after signing a deal with ISRG

TGT- closed near a high after posting decent earnings

POT- closed near a high

ENMD- closed near a high

HAUP- closed near a high

CVO- closed near a high

WSM- decent earnings

DLTR- good earnings

STEM- reported publication of new preclinical data which demonstrated that the company’s human neural stem cells restore lost motor function in mice with chronic spinal injury

DKS- decent earnings

SYMC, CHKP- will likely trade higher in sympathy with the MFE takeover

TTC- decent earnings

Bad-The following stocks have bad news and/or a weak technical pattern

NTAP- poor earnings

GYMB- poor earnings

HOTT- poor earnings

BRCD- poor earnings

SNDK- convertible notes offering

SCOK- closed near a low after restructuring

BIDU- closed near a low

GOOG- closed near a low

SPLS- poor earnings









Earnings:

THURS AUG 19 BEFORE

BKE DKS GME

PLCE ROST SHLD

SPLS TECD WSM

YGE

THURS AUG 19 AFTER

ARO BCSI CRM

DELL FL GPS

HPQ INTU MRVL

VRGY




Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner