Month: March 2009

C March 10, a call option with undetermined maturity.

Hamilton

Citi

No idea what the exact count is, in any case it does not matter as we are a dollar away from ground level. Suffice it to say the the last leg down has a total of 9 legs and could therefore be complete. After Warren Buffett’s “over the cliff” comments and RBC DS’ sudden awakening to the banks’ predicament and even suggesting that it might be good to cut dividends, it may just be time to go long. This, at about one dollar, is an option with an undetermined expiry. Furthermore it is at the money and has a 100% (not 50%) delta. You broker does not need to be option licensed ,nor does your account need to be set up for it. Paradise??

FFH update, see also CI, March 9

Hamilton

FFH March 9

So at about $400 we recommended getting out of this stock, all based on a classic formation known variously as a rising wedge, rising flag,a diagonal triangle and a pennant. It invariable drops back to its base and often more than that. After about $125 in our favour we would be inclined to say  “thank you” and move on. Remember that we want a high probability, not a gamble and the trade can always be reentered if conditions warrant doing so. Right now the light is amber.

FRX Forest Labs March 9

Hamilton

Pharmaceuticals are looking a little brighter as M&A activity seems to be focused on this nick of the woods. We had WYE and now SGP and perhaps more to come. Obama is lifting the ban on stem cell research and so on, all good stuff but the reality is that all the pharma companies are in trouble due to patent expiries, lack of pipeline products etc. etc. The beneficiaries are, of course, the generic producers. The product has already been “sold”, it’s efficacity is not in doubt, and governments love the lower prices. Forest Labs is one of the generics.

FRX arithmatic march 9

Here is the chart since 1982.  The drop from the high near $80 is an a-b-c, potentially a completed correction. Furthermore with a low at $18 it certainly has done the obligatory 62% and then some. The P/E is around 6 to 7. As these are big moves it pays to look at this a-b-c on a log-scale chart.

FRX log march 9

Note that c is already larger than a so this stock could turn at any moment! Looking at the chart in detail;

FRX march 9

Judging by the RSI and OBV one more low below the $18.50 level is entirely possible but not necessary. To see what can happen look at CI Cigna some 6 years ago. This is best traded as an option IMO.