Stock Observations

Here’s the price action observations for today

Earnings risk – The case with BBD

Buying or holding stock ahead of earnings is always a risk, but in a bear market, it’s even riskier because stocks can plunge like crazy. It can happen in stock even with a perfect chart. See BBD Brazilian Bank for an example –

BBD had a nicely uptrending chart since the middle of December and the stock nicely rallied from 3.3 levels to 4.3 levels before plunging an 8.5% gap down today. Brazilian lender Banco Bradesco posted fourth-quarter net income slightly below analysts’ estimates but indicated a bright outlook for 2022. Is it helping? Nope. Gap down earnings stocks should be avoided.

Playing the Deal Buzz 

There was this news on Kohl’s around January 18, 2022, where an activist investor urged the company to explore a sale and just 3 days later it got an offer. It was a quick 20% trade. The Price Action

Similar development happening: Microsoft Corp. is in talks to acquire cybersecurity research and incident response company Mandiant Inc., according to people familiar with the discussions, a deal that would bolster efforts to protect customers from hacks and breaches. 

Usually, the deal happens near the recent highs which means around $24. If one buys at the current market price, one is looking at the upside of 30% BUT if the deal fails to materialize then the stock can collapse too. Such trades are risky and can be played through options. 

The New High Theme – Trades that worked

The marine Shipping theme has been on the move and the two stocks that seem to be quietly trending up – ZIM and DAC

Danos Corp DAC Price Action over the last 10 days

Today Star Bulk Carriers SBLK made a new high, so the momentum is spreading in all names.

Brent Crude Oil at $90 is driving interest in two Clean Energy plays: CLNE and GEVO

One of the most difficult trades is to anticipate that there will be continued buying in a stock that is in a deep downtrend. It’s like assuming that there will be no force of gravity. CLNE and GEVO are two mean reversion trades.

 

Gevo a play on sustainable aviation fuel: Gevo gets a big upgrade: Citi initiates coverage with a Buy rating and $5 price target, saying the company is “months away from a potential inflection point in its cash flow generation profile, from negative over the past several years to positive by 2023-2024”

Here’s one problem – If the market sells off, these stocks will lose gravity in no time

Telecom stocks are making a move as investors chase Value stocks

Vodafone and Ericcson both stocks have made strong moves and today Brazilian Telecom stock TIMB. The stock is a buy at 13.36 now.

Trade Sheet:

Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers