Heading into week, the market looks top heavy. Our trend charts are mildly positive, but the rise has been on increasingly tiring legs. Much like a runner that has sprinted to the front of the pack in a long race and is tiring towards the finish line, we see the indexes huffing and puffing too.
For the last three weeks we have seen our momentum indicators lose strength. Although the momentum indicators are still in positive territory, the drop-off concerns us. Six up weeks in a row is quite an accomplishment. With our market leadership model slipping a bit, we can see gravity kicking in fairly soon; the what goes up must come down thing.
Earnings thrust into full swing this week with 516 companies that we follow set bring home their report cards. Are “A”s or “F”s going to dominate? The answer will determine if the indexes can move through technical analysis roadblocks and keep us moving up or test the bottom limits once again.
With all these companies reporting we have some many possibilities to choose from for this weeks’ trading earnings pick. Plus, we have a lot of pressure on us as we have received a slew of emails commenting on the accuracy of our trading earnings picks so far this year. A funny thing happened on the way to finding this week’s trading earnings pick, not one makes us completely comfortable. Can you believe that? Five hundred and sixty one to choose from and not 1 standout?
So we are going to try and err on the side of caution and put together a trading earnings trade that can make money no matter which direction the stock moves. We are counting on the stock mentioned below living up to its recent history of popping or dropping big following its quarterly checkup.
Millicom International Cellular SA (MICC) is set to report earnings after the market closes on Tuesday, April 21st (MICC earnings webcast). Millicom International Cellular S.A. is a global telecommunications group with mobile telephony operations in 16 countries in Asia, Latin America and Africa. It also operates cable and broadband businesses in five countries in Central America. The Group’s mobile operations have a combined population under license of approximately 291 million people.
According to the analysts following MICC , the global telecommunications company is expected to earn $1.29 for its 1st quarter. We expect Millicom to announce earnings that will miss investors’ and analysts’ expectations.
The direction of the surprise is not all that important to us. We just want MICC to continue its streak of aggressive price moves around its earnings reports. Five of its last 6 reports have seen Millicom’s stock rise or fall at least 15%. That’s a $6 move on a stock that closed at $42.77 on Friday.
If Millicom’s stock price follows its recent homerun or strikeout performance following Tuesday’s earnings announcement; we would suggest investors consider an option straddle. An option straddle is created when investors purchase an equal number of call options and put options. The May 45 call options were last offered at $2.70 and the last April 40 put options offered at $2.55, both could probably be had for less.
If MICC’s post earnings stock performance is anything close to the last couple, option straddle investors will profit handsomely. The worst case scenario is they report and nothing happens, in which case we would sell both the call options and put options right away to limit losses.
We will have more trading earnings picks for our subscribers as the week moves along.
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