H J Mann

With Merrill’s down day today, it is getting very close to setting up a nice short-term trade. When Merrill took in overseas investment in December, the overseas investors received the right to purchase Merrill stock at $48. In the market carnage that was early January, The stock got as low as $47.50 intra-day, and then immediately bounced higher into the mid $50’s.

Take this in contrast to BofA’s right to buy Countrywide at $18, and how Countrywide absolutely plummeted through that floor. If you owned Countrywide above $18, this was an obvious signal to sell and wait for another opportunity. Likewise, an investor in Merrill can use the $47 range as a bottom, and any meaningful move below this level as a sign to sell and reset.

I previously wrote about this trade on my blog on January 9th. On that day, Merrill hit the aforementioned intraday low of $47.50. Within a week, the stock was at $55. It immediately dipped again to the high $40s, and again within days was at $58. It has yet to get above the $59+ it was trading at the day Thain accepted the CEO position. In short, this range has been strangely predictable.

Also, for a longer term investment: even at the current price, you can clearly see the limited downside of a few dollars, and there is wide agreement that the future upside is huge. A Citi analyst issued comments this week saying that shares could double in a year or so. Either play could be a good one. 

Disclosure: As of publication, I am long MER, though positions are subject to change at any moment. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.

Tags: Business And Life //