PreMarket Prep Stock Of The Day: Generac

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

In a jam-packed morning of news, hurricane-related stocks were discussed in depth as Hurricane Laura made landfall in Louisiana. The leader of the pack in this grouping is Generac Holdings Inc. GNRC and is the PreMarket Prep Stock Of The Day.

Only A Fews Power Failures: When looking to invest in a stock for the long-term, a monthly chart can be very useful. In the case of Generac, it only has had two down months over the last 14 months. And you guessed it, those months were February and March.

Along these lines, its monthly low in March just happens to coincide near perfectly with its October 2019 low ($75.10).

Typical Trading Pattern: Over the years as hurricanes have become more prevalent, "hurricane issues" often follow a similar trader pattern. Although market conditions can be a factor, they usually rally as forecasts for the storms are projected, sometimes much worse than expected. Once landfall is actually made, these issues often will make a blowoff top.

Here We Go Again: As reports of Hurricane Laura began to make it into the mainstream media on a more frequent basis, Generac moved higher. In fact, Generac had moved from its Aug. 19 close ($181.20) to close Wednesday's session at $190.82.

To The Moon, Alice: As so often happens, someone gets real overzealous in pre-market trading and it takes an issue to an unsustainable level typically on low volume; In the case of Generac, trading to $195 on low volume just after 7 a.m. ET. That far exceeded its all-time high that was made on Monday at $192.53.

Sell The News: Co-host Dennis Dick, who is all too familiar with this pattern, took advantage of prior price behavior to capitalize on both the long and short side. When the issue was discussed on the show, it was trading at $194.

"Typically when the storm actually makes landfall, the stocks top," he said. "If you are coming in now and buying these stocks, you are late to the party."

Price Action In the Regular Session: After slightly lower open, it rallied but couldn't even reach Wednesday’s high ($192.28), only reaching $191.29 and sharply reversed course. It has continued to make new lows for the session with the current one standing at $184.75 as of 1:30 p.m. ET.

Posted In: hurricane LauraHurricanesLong IdeasShort IdeasTechnicalsTrading Ideas