Discounting George And Al
Too close to call? Shares in tobacco
and pharmaceutical companies, two industries that stand to benefit from a
Bush presidential victory, rallied Wednesday.Â
The intermediate-term momentum trader
trades breakouts that hopefully extend into trends. The only certainty about the
presidential standoff is uncertainty, which spells volatility. Trade sound base
breakouts on high volume. Steer clear of volatile, reversal-prone trades.
A win for Republican presidential
nominee George W. Bush would be considered bullish for tobacco stocks. Vice
President Al Gore is viewed as more likely to continue the Clinton
Administration’s hostile policy toward the tobacco industry.Â
Philip Morris
(
MO |
Quote |
Chart |
News |
PowerRating) rose 1 7/16 to
36 11/16. Volume expanded 44% above the stock’s usual trade as averaged over the
past 50 sessions. R.J. Reynolds Tobacco Holdings
(
RJR |
Quote |
Chart |
News |
PowerRating) closed up 1 5/16 to 36
5/16 on more than double average volume. But notice that RJR ran into
selling pressure to close in the bottom half of the day’s range.
Pharmaceutical companies
have backed Bush’s strictly private-sector plan for prescription drug insurance
coverage for the elderly over Gore’s prescription drug benefit plan, which would
include price restrictions on drugs.
Merck
(
MRK |
Quote |
Chart |
News |
PowerRating) moved ahead 3 15/16 to
90 13/16 on twice its usual trade. This stock is obviously extended and
vulnerable to profit-taking. I suspect Merck has been discounting a Bush victory
for the past two weeks. Pfizer
(
PFE |
Quote |
Chart |
News |
PowerRating) closed up 9/16 to 45 3/8.
Schering-Plough
(
SGP |
Quote |
Chart |
News |
PowerRating) ended up 13/16 to 51 7/8.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.