Good evening. I've got one bearish set-up for you tonight along with two trading ideas below. Continue to stay nimble this week as the volatility is likely to continue. A healthy broader market correction is imminent and when it comes I would use the opportunity to consider launching new bullish positions with tighter stops. SPX 1,150 seems like the most logical target but 1,160 will have to be dealt with first by the bears. If 1,150 is broken then 1,130 should be very solid support. I would view breakouts higher as suspect. Please email me with any questions.
Long WEN (Wendy's/Arby's Group): This is a more speculative play trading just under $5 that has some potential. The company is a takeover candidate and Trian Partners (the top institutional holder at 17.86%) is usually the name mentioned as a potential buyer. Aside from a takeover target, WEN has broken out of resistance on heavy volume. Target a move to the $5.50 to $6.25 area.
Long SFD (Smithfield Foods) - Listed again from last week. The stock is on the verge of breaking higher and looks bullish. A stronger dollar should lead to lower commodity prices and will help stocks like SFD. Technically, the stock is consolidating above its 20-day and 50-day SMA in a bull flag. If the stock breaks out target a move up towards the $17.50 to $18.25 area, which is +6% to +10% higher than current levels.
NEW BEARISH Plays
Leggett & Platt, Inc. - LEG - close 21.01 change -1.98 stop 22.05
Target(s): 19.70, 19.10
Key Support/Resistance Areas: 22.00, 21.70, 21.50, 21.30, 20.55, 19.70, 19.00
Current Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes, see trigger
Leggett & Platt, Incorporated is an international manufacturer, which conceives designs and produces a range of engineered components and products found in many homes, offices, retail stores and automobiles. The Company's operations are organized into 19 business units, which are divided into 10 groups under four segments: Residential Furnishings; Commercial Fixtures & Components; Industrial Materials; and Specialized Products. (source: company press release or website)
Why We Like It:
Shareholders of LEG have been taken on a wild ride as of late. After plummeting -24% from its May highs to August lows, the stock went up in a straight line until 10/13, gaining +26% along the way. On Thursday after the bell the stock reported earnings and they were terrible. The company missed earnings, missed revenues, and lowered guidance. The company said that "certain markets primarily related to residential furnishings, weakened noticeably in the third quarter and as a result, third quarter sales were lower than those in the second quarter, which rarely occurs." The stock lost -8% on Friday and I do not believe the selling is done. I suggest we capitalize on the momentum and initiate short positions if LEG trades to $21.46 (above Friday's high and near the 200-day SMA) or breaks below $20.49 (below Friday's low). Conservative traders may want to wait for the break down. All of the moving averages are overhead and I suspect there are still many unhappy investors looking to dump the stock. We'll place a tight initial stop overhead at $22.05.
Trigger: $21.46 or $20.49
Suggested Position: Short LEG stock
Options Traders: BUY the December $20.00 PUT, current ask $0.75
Annotated weekly chart:
Entry on October XX
Earnings Date: More than two months (unconfirmed)
Average Daily Volume: 1.5 million
Listed on October 23, 2010