What a difference a week can make. Not too long ago I was looking at 3 key ETF’s in order to try and analyze some of the leading sectors in the market to see if they were turning bearish. Since this time, Financials, Housing, and Transportation stocks have all taken off with the rest of the market. Last Friday (5/3) the jobs report numbers clearly surpassed everyone’s estimates and this ended up being the next catalyst needed to drive the market higher. The market opened up above 1,600 within minutes of trading, and we are now approaching the 1620 level. From 2012′s closing level (1,426), we are up an astounding 13%!
Passing the psychological round number 1,600 level definitely opens up the potential for some new long ideas. Many months ago, I shared some of my favorite tools for building a watch list, and I have been trying to come up with a solid list of potential trades.
Using FINVIZ, I came up with a quick list of stocks that fit the following criteria: Up over 10% YTD, price>$10, average daily volume >2,000,000 (for liquidity purposes), short interest (as a percentage of the stock’s float) >5%, analysts’ ratings indicate “hold”, and (finally) anywhere from 0-10% below their 52-week high. Also, these are all optionable tickers (as we only trade options here at Schaeffer’s). You can find the filter here.
The general thinking behind this filter is that these are strong stocks that have considerable levels of short interest where the shorts could eventually be forced to cover. Also, they are trading not too far from their 52-week highs—and as the market makes new highs, we would like these candidates to follow suit. I picked a few of my favorites below, and added some chart commentary.
It’s tough to believe, but Best Buy (BBY) is one of the top performing stocks in the market this year. BBY is right below its recent 52-week high of $26.92 and could be slowing a bit before breaking above the $27 level. The stock recently gapped up much higher on an upgrade. Since then, it is still showing how powerful momentum can be. Watch for the next round of short-covering on this one as over 10% of its float is sold short.
Airlines have been on a tear lately—just look at Delta (DAL), Alaska Airlines (ALK), U.S. Airways (LCC), and finally United Continental Holdings (UAL). UAL (featured below) has posted a year-to-date gain of 41 percent, and is coming fresh off of 52-week highs. Fundamentally speaking, the recent plunge in oil prices has certainly benefitted the major airlines as fuel costs are undoubtedly one of their major expenditures. Nearly 7 percent of UAL’s float is sold short, and any further strength in the market (and weakness in oil) could lead to another leg higher. Trading the airlines is tricky, as they often trade on their own merit and do not necessarily follow the market closely.
Navistar International (NAV) is a name that I have looked at on more than one occasion. This stock hails from the Consumer Goods sector and is a play off of the transportation theme. Transports have been strong market leaders since this rally has really matured early this year—and this is the type of action that we want to see continue. Nearly 15 percent of its float is still sold short (there was certainly a short-covering rally post-earnings this year). NAV boasts a year-to-date return of 60 percent, and is also sitting just below its 52-week high of $37.65. While this has certainly been a rather volatile name, if you are able to get the timing and direction right with this stock, it could be a powerful option play.
Things in the market can change so quickly, but we must always adapt to what the current environment dictates. I especially like this filter because I think that there is a lot of potential in many of these names, and I advise you to check out the list of all 17 tickers. Good luck trading out there.