Pozen’s Friday Gain Could Be Reversed Quickly
PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. Stocks with low ratings have a tendency to underperform the market. For best results, enter short trades with a limit order 3-7% above the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.
SPDR S&P 500 ETF (NYSE: SPY) has been up for seven consecutive weeks, an unusually long winning streak. A pullback would be normal after a long winning streak. In High Probability Trading with Multiple Up & Down Days, we demonstrated that shorting stocks and ETFs after an extended winning streak can be profitable.
With the stock market being generally higher for the past two months, traders might find more opportunities on the short side. With a PowerRatings of 1, drug maker Pozen Incorporated (NASDAQ: POZN) could be an excellent trading candidate.
POZN climbed more than 14.5% on Friday after the company announced they will pay a special cash dividend of $1.75 because management believes they have a “surplus of corporate cash.” From an accounting perspective, the distribution will immediately reduce the value of the company by $1.75 and many companies see their stocks drop after such a large distribution.
Put options could provide an opportunity for traders to benefit from a decline in POZN. Traders could also short the stock. In the short-term, POZN is overbought with a PowerRatings of 1 and the stock should be considered a short candidate over $8.02.
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All data is as of the end of day on 11/22/2013.