Monday Market Manipulation – M&A News Keeps Things Hot

By Phil Davis of Phil's Stock World
Date: Monday, April 28, 2014 10:26 AM EST

Pfizer (PFE) may buy AstraZeneca (AZN) for $100,000,000,000.00!!!

That's a lot of money!  That's also the same rumor (now more solid) that goosed the market last Monday and goosed the stock over 10% from $63 to $70.  This morning, AZN is going up another 15%, all the way from $68 to $80 and the timing of the release was just PERFECT to boost the EU markets and the US Futures, despite the horrific morning that the Asian markets had.


 As I warned our Members this morning in our Live Chat Room:

The fact that one multi-Billionaire can afford to buy crap from another multi-Billionaire with money they are able to borrow at 3% doesn't tell you anything real about the economy.  

What is real is the Shanghai dropping 1.62% today, finishing at the low, just over 2,000 (not reflected in chart yet).  What kind of moron would ignore something that significant going on in the World's 2nd-largest economy?  Oh yeah, US investors, apparently…

PFE had offered AZN $76.62 per share in a mix of cash and stock back in January, which drove AZN's stock from $57 to $64 and, even after AZN declined, there have been rumors all year that have kept AZN afloat at high valuations.  


All we know for sure is that PFE has admitted they have contacted AZN to "renew discussions" but PFE's stock has made no progress this year, so they'd have to pony up a lot more cash to satisfy the rumor mill.  Nonetheless, all Healthcare stocks are rising in Europe and the US this morning and Healthcare is about 13% of the S&P, right up with Financials in significance so isn't it a very happy coincidence for those who needed the market propped up that we had such a big deal announce, or re-re-reannounced this morning?

Especially for the Russell, where we're getting some nasty-looking "Head and Shoulders" action on the weekly chart (and Nasdaq looks the same) and those weekly patterns are much tougher to fake, aren't they?  We'll have to wait and see how the next two weeks play out because April ends on Wednesday, so we can't count on that AND we have a Fed Meeting that day too – another wild card to be dealt.  



[Chart by Dave Fry]

So, I remain "Cashy and Cautious" at the moment but that's NOT the same as sitting on the sidelines. Last Thursday, in the morning post, I gave you several trade ideas that are doing quite well:

  • The AAPL 2016 $500/550 bull call spread was $21 on our entry and already up to $26.70 – already up 27% out of a potential 138%, now that the stock is calming down after earnings. This was a very simple way to take advantage of AAPL, taking advantage of the high premiums of the $550 calls relative to the $500s for a cheap spread.  
  • Our 10 CAKE Oct $45/49 bull call spreads were $2,000 and we sold 8 June $47 calls for $1,520 to net $480. CAKE settled in at $45.25 after earnings and the June $47 calls dropped to .65 ($520) while our October spread is still $1.60 ($1,600) for a net of $1,080 – already a 125% gain in the first week and we can take that off the table and we're ready to take advantage of more earnings plays like this in our Live Chat Room.  
  • CROX was very straightforward as we just liked selling the 2016 $12 puts for $1.60 for a net $10.40 entry.  The short puts are still $1.60 and the stock is still $15.04 so, if you want to buy CROX for a 30% discount – here's your chance – still…
  • 4 long FB Jan $60/50 bull call spreads were $4.40 ($1,760) and we sold 5 June $60 puts for $4 ($2,000) for a net $240 credit and we finished the week at $57.71, which gave us net $5.03 on the spread ($2,012) and the short puts are $5 for $2,500 for net -$488, that's $248 worse off than we started for a 100% loss (so far).  Of course we expected a sell-off, that's why we ran this strategy, so we'll let it play out for now and roll the short calls if we have to. This, of course, means you can still take this trade now for a $488 credit if you want to play along
  • TXN was more successful as they finished right in the dead center of our expected range ($44-48) and that's perfect for the Butterfly Trade we chose to deploy (it's complex, see main post for details).  Well on track to our 220% return on that one.  

I know I said I wasn't going to give away any free trade ideas during earnings week but we have so many great trade ideas in our live daily Member Chat, we can afford to share a few once in a while.  In fact, we are bottom-fishing IRBT ($34.13) today, adding more to our Income Portfolio and initiating in our Long-Term Portfolio because, after all, it is our Stock of the Century!  


We already took advantage of the Dow Future's(/YM) move to 16,400 this morning to short them at that line in early morning Member Chat and already it's paying for our Egg McMuffins on a nice dip (8:45). We also liked Silver (/SI) long over $19.60 and it re-crossed over the line and it may not look like much but Silver Futures pay $50 per penny, per contract – so, that 0.07 move is good for a quick $350.

Join us on Tuesdays (1pm, EST) for our Live Trading Webinars, where we teach Futures Trading, along with Options Strategies and, of course, cool earnings plays like the ones above.  1,000 companies will report earnings this week and we find the best opportunities for you to make money betting on the results.  Longer-term, we find sensible growth strategies for sustainable portfolio growth.

Speaking of Portfolios, our Long-Term Portfolio is now up 10% for the year as we wisely remained long-term bullish on the bulk of our plays.  Our Income Portfolio was cashed out at the March highs and we're slowly but surely adding positions back but now it's playing catch-up, up just 7.5% in 3 months.  It will be interesting to see which one ends up with the better annual performance as both started with a virtual $500K in the account. 

Click to View

[Chart by Serge Perreault] 

We're expecting bad news on housing early this week, beginning with Pending Home Sales this morning at 10.  At 10:30 we have the Dallas Fed but, since it includes oil and oil was high in April – how can this be a bad report?  Tomorrow we get Case-Shiller and Consumer Confidence, Wednesday is Q1 GDP, Chicago PMI and the Fed and then we're heading into NFP on Friday, so mucho craziness ahead! 

Let's be careful out there!  


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