NEW BEARISH Plays
Moody's Corp. - MCO - close 26.06 change -0.18 stop 28.60
Moody's Corporation (Moody's) is a provider of credit ratings; credit and economic related research, data and analytical tools; risk management software, and quantitative credit risk measures, credit portfolio management solutions and training services. The Company operates in two segments: MIS and Moody's Analytics. MIS, the credit rating agency, publishes credit ratings on a range of debt obligations and the entities that issue such obligations in markets worldwide, including various corporate and governmental obligations, structured finance securities and commercial paper programs. Revenue is derived from the originators and issuers of such transactions who use MIS ratings to support the distribution of their debt issues to investors. The MA segment develops a range of products and services that support the risk management activities of institutional participants in global financial markets.(source: company press release or website)
Why We Like It:
MCO's chart is broken and a lot of damage has been done. The stock is forming a bear flag on its daily chart and I believe conditions are ripe for the decline to continue. The stock has been hanging on to a recent support level and its 200-day SMA, both just below the $26.00 area. I think it is only a matter of time before this level is broken. I am bearish on MCO and if the market starts to pullback MCO could be a nice winner for us. I would like to place an initial wide stop at $28.60 just in case there is a spike in the stock from short covering or a news event. If that happens I am confident MCO will be sold by many who may still be holding long shares creating additional pressure. There is plenty of resistance and congestion just overhead as well. Our target is $23.25 and our time frame is a couple of weeks.
NOTE: The ratings agencies are also under the microscope in Washington as reports have surfaced that they were overly influenced by Wall Street firms and they used outdated models for rating complex securities, i.e. mortgage-backed securities, CDO's, etc. I would be surprised if they are not regulated as part of the financial reform bill which traders will probably view as a negative for the stock.
Suggested Position: Short MCO at $26.25
Suggested Position: Buy JUNE $25.00 PUT, current ask $1.23
Entry on April xx at $xx.xx
Earnings Date Over two months
Average Daily Volume: 3.5 million
Listed on April 26, 2010