The major indexes remained volatile today but they also remained mostly in positive territory. With one day left in the week the direction could still be volatile.
Friday could be a settlement day where traders clean up all their left over trades that are not working for 2016. After Wednesday's volatility I am sure there are a lot of broken trades and probably some that were bought on the dip that failed to gain traction today. Friday will be a good day for traders to rethink the cards they are holding and clear the decks for a fresh start next week.
I am recommending we start next week with a bang by adding Smith & Wesson as a long position, market permitting.
NEW BULLISH Plays
SWHC - Smith & Wesson
Smith & Wesson is a gun manufacturer. Business has been very good but they announced this week they are looking for some acquisitions in other outdoor areas so their business is not so tied to the cycles in gun sales. Whenever an administration begins talking about more gun control measures their sales soar. When there are no politicians trying to ban guns we see sales decline.
The current administration has been the best for gun sales since the Clinton assault weapons ban. The FBI said the increase in the number of background checks for gun purchases has been so strong that their system is overloaded and they have had to halt appeals for denials until they can add some more personnel.
December saw a record of 3.3 million background checks, which was more than 500,000 above the prior record for December in 2012. On Black Friday alone there was a record 185,345 checks and a new single day record.
While this surge in gun sales has powered Smith & Wesson to record profits the company realizes that the election of a pro gun administration will slow those sales. For this reason S&W announced this week they were looking into getting into the $60 billion outdoor sporting goods market. They will likely be trying to acquire brands that they can add to their lineup that are not directly related to guns.
S&W said they were on the hunt for candidates but did not have any announcements at the current time.
This is a good move for S&W for obvious reasons. By branching out into other products, it will also help widen the S&W brand even if those new products have their own brand names.
Shares spiked to record highs over $26 when they reported earnings in early January. The post earnings depression appears to be over and shares dropped back to support at the 100-day average. This is a good spot for people to launch new long positions and once the current market weakness is over the small cap stocks like S&W with strong growth will be in demand.
Earnings March 8th.
With a SWHC trade at $21.35:
Buy SWHC shares, initial stop loss $18.85
Buy June $23 call, currently $1.80, initial stop loss $18.85.
NEW BEARISH Plays
No new bearish plays
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