Merrill appears to have the "Right Stuff" ~ purely from a technical
perspective for a range bound trade over the next 3-6 months.
The
low of the year at 37 was set a day before the Mar 18 FOMC meeting. The
assumption is that the higher lows on March 31 at 39 and the April low
at 42 will hold over the next several weeks and possibly the next
several months until downside risks increase in the markets again. This
is in part based on the markets outside up day response to its April 17
Q1 08 Earnings report signaling the stock price is now probably range
bound between the Dec 10-11 FOMC meeting high and the Mar 17-18 FOMC
meeting low. Yes, momentum is bearish and backfilling and tests of
39-42 is very possible over the near term. But, settling below the 40
strike looks to be a very low probability near term.
The outside up day on the April 17 08 earnings report is an
important bullish signal for market participants to consider, and
suggests the near term outlook has an upside bias against $39 ~ even if
there is downside backfilling near term. Yes, some of the pricing
action on this earnings report is merely "short covering." No, I do not
know if there is a large short position, or how the open short position
has been oscillating in the past 3-6 months. Nothing I am stating now
about the next 3-6 months is based on an "earnings related" short
covering rally. What I wish to point out is that it would not surprise
to seem backfill some of today's gains and this weeks gains over the
very short term. But, again the March 31st low at 39 should hold and
the April low at 42 should probably hold. Only below 39 would the
technical outlook suggest some new rot emerging in the financial sector
and specifically at Merrill.
The assessment is that MER's stock
price is range bound between the Dec 10-11 FOMC high at 63 and the
March 17-18 low at 37. Support above 37 has been identified at 39 and
42 already. Upside follow through to todays bullish signal suggest an
initial price target of the 2007 yr low and 3 month average at 50.50.
Should a few daily closes above the 2007 yr low at 50.50 occur, this
will probably shift the upside bias to challenge the 2008 yr high at
59.6 and the Dec fomc high around 63, where the downsloping one year
average will soon be sloping into.
A breakout to the upside
above the December 11 07 FOMC suggests MER is responding favorably to
the aggressive rate cuts and positively sloped yield curve. A breakout
below the March 18 FOMC would suggest MER is not responding well to the
rate cuts and positively sloped yield curve, presumably because new
stresses in the economy and financial markets are emerging.