Author Archives: Scalper1
Market Lab Report – Premarket Pulse 4/6/16
Major averages fell on higher volume. The most recent Fed meeting minutes are due out today at 2 pm ET. The main thrust of the minutes will probably be lathered by Fed Chair Janet Yellen’s dovish tone, despite any dissenting views. Will the earnings season upon us make a huge difference in terms of market direction? In the last two earnings reporting seasons, the markets displayed a bit of schizophrenic behavior, tanking in January ’16, but then trending higher in October ’15. It seems the larger issues at play remain the tug-o-war between easy money polices at major central banks which propel markets higher vs. the recessionary ills of the global economy which push markets lower. Indeed, these two issues were behind the major moves in October ’15 and January ’16. Meanwhile, it is imperative that investors not become overly enamored with strong price action and instead seek to sell into strength. The example of Silicon Motion (SIMO), which we first put on as a pocket pivot on March 1st at 33.98, reached a peak of 39.98 last Thursday for a total gain of over 17%. Despite the strong upside move last Thursday on heavy buying volume, that turned out to be a climactic short-term peak, and the stock has since declined and given up over half of those gains. This illustrates why investors should seek to sell into 10% or greater upside moves when they have them. Maintaining tight stops and looking to take 10-15% or better gains when they present themselves is the only way to make progress in this difficult market. We continue to advise investors to abide by this approach.
Allergan Extends Losses As Pfizer Scraps Merger Over Inversion Rules
Pfizer ( PFE ) and Allergan ( AGN ) confirmedWednesday morning that they are ending their $160 billion merger agreement after the U.S. Treasury unveiled new rules to curb tax inversion deals Monday. Ireland-based Allergan slid 1.9% in pre-market trading on the stock market today . Shares plunged 14.8% Tuesday to 236.55, hitting the lowest levels since late 2014, amid concerns that the new rules imperiled the deal. Pfizer rose 1.2% before the open after gaining 2.1% to 31.36 on Tuesday. “Pfizer Inc. today announced that the merger agreement between Pfizer and Allergan plc has been terminated by mutual agreement of the companies,” the drug giant said in a statement . “The decision was driven by the actions announced by the U.S. Department of Treasury on April 4, 2016, which the companies concluded qualified as an “Adverse Tax Law Change” under the merger agreement.” U.S. companies have a strong incentive to redomicile overseas to reduce their exposure to America’s unusually high corporate tax rates and global reach. Pfizer’s board reported voted to scrap the deal given that there would no longer be tax benefits. The new rules appeared to single out the Pfizer-Allergan deal, though the companies were not named specifically. The Treasury targeted “serial inverters” and Allergan has a history of inversion deals. Allergan is run from New Jersey, but has its official headquarters in Dublin. Pfizer will pay $150 million in merger-related expenses. Pfizer CEO Ian Reed said the drug giant may go ahead with a corporate split: “We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016” The Obama administration has become more aggressive going after big mergers. The Justice Department is expected to sue to block the Halliburton ( HAL )– Baker Hughes ( BHI ) deal, perhaps as early as this week. Baker Hughes shares fell 5.1% on Tuesday while Halliburton climbed 1.2%. Meanwhile, the FTC is in the midst of a court battle seeking to block Staples ( SPLS ) from buying office supplies rival Office Depot ( ODP ).