Fundamental outlook on major markets by Bill Baruch President of BlueLineFutures.com....
06/30/2006 12:00 am EST
Using a three-pronged strategy, Bernie Schaeffer seeks out his bullish positions by looking for stocks with a combination of strong technicals and solid fundamentals, along with negative sentiment, which he views as a contrary indicator. Here are two stocks he things are worth a "call."
"Garmin ( GRMN NASDAQ) is an outstanding performer, having outpaced the broader Nasdaq Composite on a monthly relative-strength basis since January 2002. The shares currently enjoy the double-barreled support of their ten-week and 20-week moving averages, trendlines the equity has closed just a few weeks below since July 2005.
"Additional support is offered by the stock’s ten-month moving average, which has guided GRMN higher since July 2005. Although pessimism unwound to the tune of a 29% short-interest decrease during the past month, nearly 7% of the company’s float is sold short and it would take roughly five days to cover these shorted shares. This combination could provide the means for a short-covering rally on any good news.
"Finally, analyst ratings from Zacks current shows that nine out of the 12 analysts covering Garmin now rate it a ‘hold’ or worse. Should this group issue upgrades on Garmin, the stock could enjoy a bit of upside pressure. For options traders, we recommend buying the January 2007 90 calls.
"With all the talk surrounding rising interest rates, pessimism continues to build on banking concerns. New Century Financial ( NEW NYSE) sentiment outlook is no different. Short sellers are trying to call a top to the shares, as roughly 19% of the stock’s float is sold short.
"Further, it would take nearly seven days to buy back these pessimistic positions, providing plenty of fuel for a short-covering rally. Elsewhere, Wall Street is bearish on NEW, with nine of the 14 analysts covering the shares doling out ‘hold’ ratings. Any upgrades could provide a bit of a boost.
"Technically, NEW has consolidated along support at the 45 level since March and moved into its ascending 20-week moving average. This trendline has helped usher NEW higher since the start of the year. New Century could use this trendline as a springboard to launch it on the next leg of its uptrend, along with help from unwinding pessimism. For options traders, we recommend buying the January 2007 40 calls."
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