2 Stocks That Could Rally After Next Week's Fed Meeting

NKTR usually bounces after a Fed rate hike

Managing Editor
Sep 19, 2018 at 3:11 PM
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The Federal Open Market Committee (FOMC) will begin its two-day policy-setting meeting next Tuesday, Sept. 25, with Fed highly expected to announce its third interest rate hike of 2018 on Wednesday, Sept. 26. This could be good news for medical equipment maker ABIOMED, Inc. (NASDAQ:ABMD) and biopharmaceutical stock Nektar Therapeutics (NASDAQ:NKTR), if history is any guide.

ABIOMED Stock Best to Own After Fed Meetings

Below are the 25 best S&P 500 stocks to own the week after a Fed meeting, per analysis from Schaeffer's Senior Quantitative Analyst Rocky White. The data looks back to 2015, and measures one-week performances after the past 29 Fed meetings.

Best SPX Stocks Fed Meeting

ABIOMED stock has gained an average of 2.81% the week after a Fed meeting -- the biggest of any name on our list. The equity was higher one week later 79% of the time. 

Today, ABMD stock is down 0.4% to trade at $375.27. Since racing to a record high of $450.93 back on June 20, the equity has shed 17%. Nevertheless, the shares have still nearly doubled in 2018, and appear to have found support near their 120-day moving average.

Although options volume has been light on an absolute basis, there has been an unusual preference toward long calls over puts in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows ABMD with a 10-day call put volume ratio of 2.58, which ranks in the 75th percentile of its annual range. Overall, total open interest on ABIOMED of 25,543 contracts is a 52-week peak.

NKTR Could See Tailwinds Into October

Below are the 25 best S&P 500 stocks to own after a Fed rate hike, per analysis from White. The data looks back to 2015, and measures one-week performances after the past seven rate increases from the central bank.

Best SPX Stocks After Rate Hike

As you can see, Nektar Therapeutics has been the number one stock to own a week after a Fed rate hike. NKTR shares have averaged a one-week return of 9.25%, with 86% of the returns positive.

A move of similar proportion would put NKTR back above its year-to-date breakeven level. At last check, the stock was down 2.6% to trade at $56.84, on track to close below its 80-day moving average for the first time in nearly a month and pacing toward a third straight weekly loss. Nevertheless, the security still boasts a nearly 160% lead in the past 12 months.

Short sellers have been headed for the exits, and continued covering could fuel the drug stock's rally. Short interest fell in the two most recent reporting periods, yet the 15.66 million shares still sold short still represents 10% of NKTR's total available float, and nearly two week's worth of pent-up buying power, at the average pace of trading.

The security could also benefit from an unwinding of pessimism in the options pits. Data from the ISE, CBOE, and PHLX shows NKTR with a 10-day put/call volume ratio of 2.85, which ranks in the 100th percentile of its annual range.

Meanwhile, the stock has regularly made bigger moves than what the options market was expecting over the past year, going by its Schaeffer's Volatility Scorecard (SVS) of 100 -- the highest reading possible. This indicates NKTR has been a worthwhile target for premium buyers.

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