The next near-term support area for SPDR S&P 500 ETF Trust (SPY)—a good area for writing c...
A Long and Short "Advantage"
05/11/2008 9:08 am EST
For those seeking more speculative ideas, Advantage Bulletin is an exciting service from Elliott Gue. Each weekly issue offers a variety of long and short positions, usually with a holding period of one to six months. Here's a sampling of his recent trading ideas.
"As has been the case during the past 18 months, when the market looks good it's time to sell, and when the market looks bad it's time to buy. Someday this dynamic will end, but for now it's the name of the game. In our minds, the major indexes are more a sell than a buy at current levels, as the downside risk looms larger than upside during the next couple of months. Thus, we believe that individual, special situations remain the best bets.
"ID Biomedical (IDBE NASDAQ) is a developer and marketer of vaccines. Chief among these is Fluviral, an influenza vaccine currently used in Canada and in the latter stage of the US approval process. Recall last year's big scare when Chiron's British manufacturing facility for influenza vaccines had to be shut down, and there simply weren't enough vaccine doses to go around. This makes approval of Fluviral even more urgent- the Food and Drug Administration (FDA) fast-tracked the company's application for 2006 approval. The company also has a Meningococcal Group C vaccine being used in Canada and several vaccines under development, including a flu vaccine delivered nasally.
"Technically, the stock based for about nine months and has started to move higher on heavy volume. The catalyst for the move seems to be the FDA's decision to fast-track the company's flu vaccine. We caution that this stock can be volatile, and we suggest a smaller-than-average position to protect against downside risk. The stock is a trading buy at prices below $22 for a holding period of two to six months. Set an initial stop at $17.50, and trail the stop higher as the stock rallies.
"For traders looking for a downside bet, we recommend shorting Friedman Billings Ramsey (FBR NYSE). This is the only investment-banking real estate investment trust, a structure management chosen for tax purposes. The company merged with FBR Assets, an affiliated mortgage REIT, a couple of years ago and has since been active in the mortgage securities market. Although the company's history reads like a streak of never-ending successes, the stock is still selling near its late-1998 post-IPO levels and can retest its 2005 lows soon on the back of its mortgage-backed securities portfolio. Those mortgage assets can do a number on you in a time of a rapidly flattening yield curve.
"FBR has gone from the high 20s to near ten and is now back in the mid-teens. Technically, in a bizarre twist, FBR recently downgraded Annaly Mortgage Management, another mortgage REIT. We're sure the move was made for good reason. But when a mortgage REIT in disguise downgrades another mortgage REIT, it almost feels like FBR is downgrading itself. Take their advice and short FBR. We suggest shorting the stock above $14 and suspect the stock will see ten again within the next three to six months. Set an initial stop at 16.45 and trail the stop lower as the stock sells off ."
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