Friday’s trading session is shaping up to be based on a light spattering of earnings and economic data. Thus far today, investors have not received a lot of signals about how the trading day will shape up. Two major retailers, JC Penney and Abercrombie & Fitch, did release earnings that were somewhat bullish, but futures are completely flat at the moment (8:00 AM) as investors way some key economic data. We will have to wait until we get the CPI data, as well as, industrial production numbers to decide where the market will open and what direction it will take from there.
On the earnings front, Abercrombie & Fitch Inc. (ANF) posted a EPS surprise despite 130% decline in profits, 30% decline in same store sales, and a 23% drop in revenue. The small earnings beat, which was configured by taking out a one-time charge related to closing down ANF’s Reuhl line of stores, has sparked some investor interest and sent the stock up over 3% in pre-market trading. The only other earnings release on Friday morning came from JC Penney Stores (JCP), who also posted a better than expected EPS, breaking even at 0.00 while estimates were -0.01. JCP is up over 1% in pre-market trading.
Europe and Asia, unlike yesterday, are providing little guidance for the day as both groups of markets traded up on light news. The Eurozone, however, did announce a 7% drop in core prices in the EU countries, which was a higher than expected drop. Signs of deflation did not hamper a rally, which may be music to the ears of any bulls out there. European analysts said that they do not believe the deflation shows any long term notions of inflation vs. deflation.
8:35 AM Update: It appears that Core CPI, which excludes the change in prices of volatile energy and food, is right in line with estimates at -0.01% drop in prices. I think this news is honestly the best thing that could have happened. Too much decline threatens more deflation while an increase signals inflationary sell offs. Regular CPI, which includes energy and 
food prices, was completely unchanged.
On the news, futures have fallen off their earlier flat readings to slightly negative. It is really hard to say where this market is going on the day, but a lower open is in store. My gut is saying that some selling off should be in order today, but we still have to see some more data from industrial production and consumer sentiment.
Buy Pick of the Day: Ultrashort Proshares Oil and Gas (DUG)
Oil prices are going to rise or fall today, and as of 8:45 AM, I believe that oil prices will fall. There are a number of reasons for this position. One, futures are pointing to a lower open and down day. Secondly, there was no change in CPI, which signals no inflation. However, if the market gets very positive industrial production numbers at 9:15 AM, followed by a solid Michigan consumer sentiment index, then oil prices could possibly go against the fundamentals…again. However, today, I think it is less than likely.
Additionally, with the rally we had the past two days, oil has not had time to let the fact that inventories are rising in the USA as well as decreasing demand set into the prices, and without something to catalyze the Nymex, oil speculators may feel a lot of downward pressure. Futures, as of 9:00 AM, have dropped even lower than they were after the CPI data.
Further, oil is continually seen as the hedge to inflation. The CPI news this morning should give no reason for anyone to see inflation in the near future and thus no reason to rise oil prices. If industrial production or consumer sentiment come in weak or just at estimates then oil should be off to the races downwards.
I think playing Ultrashort Proshares Oil & Gas is a safe inverse play for today over Direxion’s ETF. This one is a bit less volatile, and with today’s uncertainity, we want to be in something less volatile. The pre-market trading for DUG is up slightly for 0.50%, but check back on morning levels and my later comments for better entry prices. This trade is in now way techincal, but because DUG has had such downward momentum, the upside for the ETF is very great if oil were to slip significantly.
Sell Pick of the Day: Blockbuster Inc. (BBI)
Blockbuster is now the dinosaur in the movie industry. What once was an industry leading company that massacred the mom and pop video store is now becoming closer and closer to its eventual demise. The neverending pain for Blockbuster continued last night as the company reported its latest quarterly earnings. The company narrowed its losses for Q2 2009, but the less bad losses did not beat the Wall St. estimates. Analysts were expecting an EPS of -0.12 while BBI hit an EPS of -0.19. The news has not been good for Blockbuster in pre-market trading, as it is down 18%. Revenue fell 22% and same-store sales fell nearly 18%. 
Blockbuster continues to tap into a smaller and smaller market share each quarter as less and less investors look to the video store for their movie rental needs, and Blockbuster’s online video rentals has not lived up to the successes of Netflix. Also hurting BBI is the success of a cheaper vending rental machine called Red Box. In the long run, most investors believe Blockbuster cannot last unless it makes some sort of drastic change.
The reason why BBI is such an excellent short sale is that the stock has increased so greatly with the rest of the market. In one month, the stock’s price has gone up by close to 50%. While being a penny stock, the stock is volatile and has high beta. This is good for a short sale because it means that the stock is going to continue to decrease and not trade slightly down to sideways. I expect the bottom to fall out on this one.
A lot of the data coming out today really does not affect BBI, but if the market rallies it could help this stock find a bottom and rally from there. The stock is down significantly in pre-market trading, but it is moving around significantly. Check back for the morning levels alert for an entry and exit price and my comments later on to see where I put my entry.
