When the news says one thing, but the market says somthing else, who do you believe? Here’s your trade on Monsanto (MON). (May 23, 2016)
MON
I want to look at Monsanto ( NYSE:MON ).The news came out this morning that Bayer is bidding $122.00 a share for Monsanto ( NYSE:MON ). This was a surprise bid, so the stock gapped up huge. I guess I’m talking about a trade, sure, short the stock here. Buy some calls against it, protect your upside, you’ll probably make a few bucks. But here’s the deal, the offer was up here. So why didn’t the stock run clear up here? Why didn’t it gap up to at least 120.00, maybe even a little bit below that, but isn’t that what arbitragers are going to do? They see a bid for122.00 that they’re quite certain is going to be done. So they’ll buy the stock underneath 122.00 and then take their little trade and that’s that. You do it with enough money and it works.
Well, can you see the problem with that? The problem is that if the sale doesn’t go through for whatever reason, I’m not going to offer conjecture I’m just looking at the chart. If the sale doesn’t go through then the smarty pants who bought the stock a 120.00, figuring they’ll make a quick $2.00 when the company’s acquired, suddenly at $120.00, that’s kind of looking like overpaying when the stock comes back down to $100.00, or close to it, whatever. So somebody, Bayer, is saying the valuation of this stock is up at $122.00. Obviously they think they would get a good deal if that was their offer. But the market doesn’t agree. For whatever reason the market, and there are many reasons for this, I’m just not going to go into them here. But for whatever reason the market doesn’t agree that this is a stock that should be trading at 120.00 or 122.00.
So why am I talking about this? I’m talking about this because when you see news you need to see confirmation from the stock. Here’s a little memo: If you’re seeing the news, you’re not the first one to get it. That’s why the call it news as opposed to a secret just between you and me. So when you see the news, it’s widely disseminated. You look at the stock price, the stock price already has all the reflected in it. So this 122.00 a share offer is already reflected in to the $106.00 price, right now it is. So you look at the 5-minute chart and you can see right off the bat, you’re looking to buy this stock. You think, “Oh my gosh, it’s opening at $108.00. I’m in. I can’t believe it, they’re offering 122.00. It’s opening at 108.00. Let me go make that money.” You don’t want to do that. You want to wait for confirmation. You don’t want to get it right at the bottom. Because if that’s the case then you’re kind of guessing.
You’ve literally had no confirmation that you’re going to be correct in buying this stock. In fact from this little green chart here, this little green candle where the close is lower than the open, still up a lot but wouldn’t that have been nice to buy on Friday? Where the close is lower than the open, that is all the confirmation you need that you DO NOT want to buy this stock. Yes the offer is 122.00, the stock opened here at 108.53. It closed on this 5-minute bar at 107.71, people aren’t buying this stock. So you stay away from it, and there it goes. Okay now, do you know when you want to buy this stock? I’ll tell you exactly when. When the stock trades back above the high here, 109.37. When the stock trades above 109.37. Until it does that let this thing settle in. Because for whatever reason people are getting a headache about Bayer’s 122.00 a share offer (sorry, I couldn’t resist that).
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