Despite the shortened trading week, overall market volatility should remain high this week with the release of various economic data.

On Tuesday, the Federal Reserve Bank of New York releases its Empire State Manufacturing Survey, a monthly survey of manufactures in New York State. On Wednesday, both building-permit and housing-start numbers for the month of January will be announced. Wednesday also sees the release of the minutes Federal Open Market Committee's latest interest rate meeting. On Thursday, we'll get the initial jobless claims number for January and the Producer Price Index, which measures changes in prices received by domestic producers for their output. On Friday, we get the core Consumer Price Index, which measures changes in prices paid by consumers.

Couple all of this with several important earnings announcements and the inherent volatility historically associated with options expiration week, and you could see large intraday swings.

That is why I set up this week’s Rocket Stocks portfolio, with the goal of capturing some volatility.

Let’s look back and see how last week’s ideas fared:

Patriot Coal (PCX): Finished the week down 10% despite being up as much as 15% on Tuesday. For the fourth quarter of 2008, Patriot said it earned $65.2 million, or 85 cents per share. The company lost $57.7 million, or $2.17 per share, in the same period of 2007. Revenue rose to $541 million in the fourth quarter, from $254.2 million a year earlier, largely from the acquisition of Magnum Coal.

Nvidia (NVDA): Finished the week down 15% after the quarter's revenue sank 60%, from $1.2 billion a year earlier to $481.1 million, about $10 million shy of analysts’ expectations.

XL Capital (XL): Finished the week up a whopping 40% after posting a revised book value of $16 per share and a combined ratio of 89.4% in the latest quarter, an improvement from the 93.3% ratio a year earlier. This is the second quarter in a row that XL Capital has gapped higher by more than 50% (last quarter it moved higher 80% intraday) based on a restated book value that is almost four times the current price of the stock.

CB Richard Ellis Group (CBG): Finished the week down 10% despite being up as much as 30% at one point on Wednesday. For the fourth quarter of 2008, CB Richard Ellis said net income fell 95% to $6.5 million, or 3 cents per share, from $122.4 million, or 54 cents per share, in 2007's fourth quarter. Revenue fell to $1.3 billion from $1.8 billion in the year-ago period, the company said in Tuesday's earnings report.

On to this week’s Rocket Stocks portfolio.

Walter Industries (WLT): As Chinese and Indian demand for coal remains relatively robust despite the economic recession, Walter Industries, which is down more than 60% from its 52-week high of $115 per share. could get an earnings pop. With the stock at about $19, I would buy the stock and sell the upside $20 calls for 70 cents, creating a net-long position at $18.30.

Chesapeake Energy (CHK): The largest natural gas producer in the U.S. could move higher on rumors surrounding an additional land sale to BP (BP), coupled with earnings clarity.

Transocean (RIG): Transocean’s earnings are particularly interesting despite the substantial drop in crude oil prices, as deepwater day rates for oil rigs are still north of $500,000 per day. I expect a decent quarter with weak guidance, so a trader may want to consider the following: Buy shares of Transocean at $57 flat and sell the $60 calls for 60 cents. This income-generating strategy generally works well for earnings trades.

To find the snapbacks and potential breakouts on a regular basis, check out these Stockpickr portfolios, which I use in my own research each week:

Always check the Biggest Percentage Losers, a list of stocks that lost big the day before, because they can snap back hard.

When you check this list on Stockpickr, you can see which stocks are owned by the quality hedge funds and mutual funds. Pay attention to those. The funds will be buying at the lower prices and likely supporting the stock.

Ditto for the 52-week-low list. You must check the above two lists every day if you hope to find volatile stocks that can snap back

Stocks Rising on Unusual Volume: These are potential breakout plays.

Stocks With Unusual Options Activity: Perhaps someone knows something?

Latest Activist Situations: These are stocks that hedge funds are accumulating shares of and demanding change in. Believe me, these hedge funds piggyback each other. And once they start rocking the boat, things happen quickly. This should be on the must-view list.

One final place to frequent is the Answers section on Stockpickr, where ideas such as those presented in this article are thrown around daily. And you can further discuss your ideas and share opinions in Stockpickr's Member Forums section.

Posted on Feb. 17, 2009


Who's on Stockpickr Answers next? Every trading day on Stockpickr Answers, investing professionals respond to questions posed by members of the Stockpickr community. This week's pro lineup includes Dan Fitzpatrick and David Peltier. For this week's full schedule, visit Stockpickr.com.