Below is the list of stocks I will be watching Monday. It is not very long, which will make things easier. My preferred candidates are shown in yellow.
1. The Long Trades
ARRS looks to be the most interesting trade. The stock pulled back slightly and is now in a trading range with increasing LEV.
LOCK was on our leader's list every day last week. I owned a position that I sold during the first pull-back. However, the stock acted well and might very well jump higher. The problem is that it is a little extended and the probability of a pull-back into the buy zone is dim at 2.8%.
AER is an interesting trade to study. The scan picked it up because of its strong RS. You can see below that in December, the company enjoyed an impressive price surge.
The Seekingalpha article below explains the reason for the jump.
http://seekingalpha.com/article/1940...t?source=yahoo
"On December 16th, AER announced a deal to buy the aircraft leasing group of American International Group (AIG) for $5B in cash and stock. This deal added nearly 1,000 aircraft to the AER stable and immediately caused a flurry of sell-side upgrades and a big jump in the stock price. The reason for this jump being that AerCap seems to have bought these aircraft at a significant discount to their market value. Remember what I said earlier; buying aircraft more cheaply leads to better returns? Well AER just bought a boat-load of aircraft at fire sale prices. This will add at least $1.70 to annual EPS going forward."
My interpretation of this move is that short-term gains are "priced-in" and that long-term gains are fully dependent on execution: can AER really turn the situation around at the AIG aircraft leasing group?
I do not know and will simply analyze the potential trade here. First, a quick look at the Supply Figure shows that there is no stable supply until the price drops down to the $19 level. This is because AER turns over its float very slowly and hence, the big price jump will take a very long time to be digested by shareholder turnover. Indeed, for a stock to reach a new high in price, new shareholders with hope for future gains must replace existing shareholders. For AER, this will be very slow.
On the other hand, shareholders who bought before the jump are not eager to sell. This means that activity is likely to be stable for a period of weeks and even months barring a negative surprise during the next earnings season.
If we separate the loss cutting (in red) from the profit taking (in green) we can see that the loss cutting offers a stable vision of the current situation, as long as the price does not fall below $34-$35.
The safest trade would be to wait for a pull-back in the $35-$36.5 area (between LB and NB) with a stop at $34. The probability of this occurring Monday is 2%.
2. The Short Trades
I believe the settings for short trades are more interesting.
HIBB has regained its 200MA and we can see in the Supply figure that the short level of $59.03 is close to the 10% high supply limit, while the $61.04 stop is at the lowest supply level. This means that if the stock does not break down fast after the short trade is initiated, it has a good probability of bouncing toward its 50MA. This is not my favorite type of setting.
FDX could be more interesting, with a short between 133 and 135. The EV pattern does not seem to support the bounce for now.
ADP could also be an interesting short trade. There is clear resistance around the $75.5-$76 area, with a stop just above at $78. EV does not support the current bounce.
RIG is a poor short candidate for now because it is too oversold. This means that we need to wait for a strong bounce before safely entering a short trade. The probability of reaching the short area is a clear 0% for now. I will even not watch it on Monday. I note it here because it could be an interesting short candidate later in the week.