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Merger Monday

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The big news of the day is Comcast's unsolicited bid for AT&T's broadband business. The $58 billion offer would make Comcast the country's largest cable provider. While that's all fine and dandy, is there any way for us to make money off of this? Typically the company being acquired goes up, and the company doing the acquiring goes down. So we just buy AT&T (NYSE:T), and short Comcast (CMCSK). Sounds simple enough. The problem is that if the deal blow up, so does your trade (just ask long-term capital). If you have a research team constantly working on merger and acquisitions you may be able to successfully pull these types of trades off, but even then it's a bit of a gamble. The GE/Honeywell merger comes to mind.

Comcast Daily Chart

Comcast is holding up its side of the trade, down $4.31. That puts CMCSK below its yearlong up trend. That trend line was the bottom of a huge ascending triangle that the stock had been forming for over a year. Usually these patterns tend to break out to the upside, but he merger news changed all that. Now Comcast is desperately trying to hold on to support at the March and April lows around $38. Below that level, there is support at $36 and $34. If Comcast can resume its up trend, there is still stiff resistance at $46.

AT&T Daily Chart

AT&T is also holding up its end of the deal, up $2.31. The chart is a little deceptive since the price of AT&T shares has been reduced to reflect the spin off of AT&T wireless. The stock was testing the top of a descending triangle and the 200-dma, but now that's all buggered up. Regardless, the stock is up.

Jeffrey Canavan

Microsoft trading on support

This morning in the "hot list" on OptionInvestor.com we thought short-term traders and perhaps swing-traders might want to take a look at shares of Microsoft (NASDAQ:MSFT) from the bullish side if the stock were able to trade $66. Using our "fitted retracement technique" we feel that this stock has indeed broken out of a range and the recent pullback to the $65.60 level should have a buy side bias from market makers. With that said, we would be looking long the stock with a stop just below $65 and be targeting a bounce to the $70 level.

Microsoft Chart - last 10 months

Often times, when a stock breaks out of a range and trades outside of that range for an extended period of time, market makers will tend to be more bullish in their inventory efforts as the stock appears to gain favor among other market participants. With a recent favorable court ruling, shares of MSFT jumped on the good news. The recent pullback to a nice support level is what we feel a better entry point than when the good news was released near the $70 level.

In the past several sessions, we've seen selling in the longer- end of the bond market and feel that there is some cash to be put to work by institutions short-term. MSFT could be a "favorite" among institutions as the stock offers excellent liquidity and remains in an upward trend. For a shorter-term trader, entry at $66 with a stop just below $65 and a target of $70 offers a favorable risk/reward trade of $1:$4.

Jeff Bailey
Senior Market Technician
www.premierinvestor.net

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