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Editor's note:

We are bullish on stocks in general but remain wary about adding new bullish candidates at current levels. The major stock averages remain short-term overbought and due for a correction.

First Marblehead - FMD - close: 44.05 chg: +0.65 stop: 42.49

Company Description:
First Marblehead provides outsourcing services for private, non-governmental, education lending in the United States. The Company helps meet the growing demand for private education loans by providing national and regional financial institutions and educational institutions, as well as businesses and other enterprises, with an integrated suite of design, implementation and securitization services for student loan programs tailored to meet the needs of their respective customers, students, employees and members. (source: company press release)

Why We Like It:
While we remain cautious on stocks short-term we're willing to outline a potential bullish set up for shares of FMD. The stock was hammered in late April after the company reported earnings and then issued an earnings warning. Naturally investors were unhappy to hear the news and the stock gapped lower. The initial oversold bounce failed near $42.50 but now recent strength has pushed FMD back towards the bottom of its gap down and round-number resistance at the $45.00 level. The P&F chart has already reversed from its sell signal into a new buy signal with a $55.00 target. We think FMD might offer traders a "fill the gap" type play. We're suggesting a TRIGGER to buy calls at $45.01. Our target will be the $49.50-50.00 range, since the $50.00 level is both round-number resistance and relatively close to technical resistance at the top of the gap down.

Suggested Options:
We're going to suggest the July calls. September strikes are also available.

BUY CALL JUL 40.00 FMD-GH OI= 0 current ask $5.60
BUY CALL JUL 45.00 FMD-GI OI=38 current ask $2.50


Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/28/05 (confirmed)
Average Daily Volume = 782 thousand
 

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