Hey friends! I have two ideas to share that are worth watching depending on what the market does next.
If the S&P 500 is able to continue to hold above 3980, then I think we have some potential for buyers to trade control and push the market higher. If that's the case I would lean toward my long idea, PR.
If instead, we break below 3980 on a closing basis, I think we are likely to see more selling pressure as sellers gain a technical advantage. In that case I would favor my short idea, ALNY.
3980 is the yearly point of control if we look at about 220 trading days of data of the S&P 500 futures and then adjust for the point variance between it and the index it tracks.
Permian Resources Corporation, an independent oil and natural gas company, concentrates on the development of crude oil and related liquids-rich natural gas reserves in the United States.
PR looks like it is breaking out, and that often ends up having some continuation. We've crossed above the yearly point of control with rising relative strength not only as measured by RSI, but also vs its benchmark ETF, XOP. The company is also above its Ichimoku cloud and the exponential 8-day moving average. Clearly buyers are in control here.
The relative strength gives me additional confidence that there's more room to the upside, but we may see some consolidation first after such dramatic outperformance of late.
The company has been accelerating its revenue growth, and until Q4, was also seeing sequential earnings improvement.
Risk management: stop out below EMA(8) and trail stop of (IV+RV)/29 (3.7%)
Interim term upside potential: $14.15 to 16.25
Timeframe: 1-2 months
Notes: Will be sensitive to energy prices. Watching WTIC, and to a lesser extent natural gas, could be key.
Alnylam Pharmaceuticals is a speculative biopharmaceutical company. They focus on discovering, developing, and commercializing novel therapeutics based on ribonucleic acid interference.
ALNY looks weak here, and possibly set to fill this large gap in its chart to the downside. The stock is below its Ichimoku cloud, exponential 8-day moving average, yearly point of control, with RSI well below 50. We also see a bearish cloud twist on the horizon.
The relative weakness ALNY is showing vs XBI tells me that despite the sector being vulnerable due to where we are in the credit cycle, there is also individual company weakness worth watching.
As a speculative biopharmaceutical company, ALNY has a high rate of cash burn that has been accelerating even as revenue has been rising year-over-year.
It also has a staggeringly poor -109% profit margin, and trades at a premium price-to-sales ratio of 28.24. While the company is reasonably cash rich, with $2.1B on its balance sheet, it still burns cash at a rate of about $400M per year and is already in $1.32B of debt.
Risk management: stop out below EMA(8) and trail stop of (IV+RV)/29 (2.6%)
Interim term downside potential: $140-163
Timeframe: 1-2 months
Notes: Will be sensitive to sentiment in long duration risk. If rates fall, it could see a strong bid and vice versa if rates rise.
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