When news related events cause a stock to open up or down, it is important to watch and see how shares trade within the first hour of trading. If shares can hold their opening gains ,this could be a good time to get involved. If the stock can't hold its opening gains or losses it is a sign to wait and see what happens before moving your money. (To begin with the basics, read Day Trading Strategies For Beginners.)
Let's have a look at some of the biggest percentage gainers and losers this morning.
Morgan Stanley Receives a $9 billion Investment
In another sign that the credit crisis is having an effect on virtually every major Wall Street firm. Morgan Stanley (NYSE:MS) announced that it had closed on a $9 billion equity investment deal with Mitsubishi UFJ Financial Group (NYSE:MTU). The deal would give Mitsubishi a 21% stake in Morgan Stanley. In addition the company would also get $1.2 billion in non-convertible preferred stock. What this shows is that despite all the concerns about the health of the major brokerages, the smart money is investing in the stronger ones while they are at a discount. Over time, these investments will pay off handsomely for those who have patience and take a long term focus. Shares of Morgan Stanley were up $3.64 at $13.94 with in the first hour of trading.
Limited to Buy Back up to $250 million in stock
Limited Brands (NYSE:LTD) announced today that it will buy back to $250 million in common stock. This is a significant development. While many other retailers are continuing to suffer, Limited Brands is buying back its own shares. This shows that Limited feels that its stock is undervalued. Second, it is a sign of financial strength because buybacks require the company to be liquid enough for this to take place. In the past five years, through buybacks and dividends, the company has generated nearly $7 billion in returns to shareholders. Shares of Limited were trading at $12.98 up 22 cents within the first hour of trading.
Sovereign in Acquisition Talks
Sovereign Bancorp (NYSE:SOV) announced that it is in talks to be acquired by Banco Santander (NYSE:STD). The price for Sovereign would be about $3.81 per share or $2.53 billion. What this shows is that there are massive acquisitions and mergers taking place as a result of the turmoil in the banking sector. Those banks with great businesses and good balance sheets are being taken over for a fraction of what they were once worth, and the acquirers are able to diversify their exposure to several key markets. Over the long run these acquisitions will prove to be wise investments that will help Banco Santander increase its overall bottom line. Shares of Sovereign Bancorp are trading at $3.73 down 9 cents within the first hour of trading on the news. (To learn how M&As and spinoffs boost investor profit, read Cashing In On Corporate Restructuring.)
As we can see, following news related events and watching how those stocks trade early in the day gives us an idea of where the stock is headed. Using this information you might find a good long or short position. However, this type of strategy requires investors to always be on the look out for new information coming out with the potential to significantly move a stock.