The markets will be centering on what could be the start of a trade war (that I highly unadvise) between the USA and China. On Friday, the USA imposed tariffs on China’s imported tires, which President Barack Obama approved on Friday as a way to stop the loss of American jobs because the cheap tires are threatening American-made tires in an unfair way. China, however, has now accused the USA of violating WTO regulations and wants to convene a WTO meeting on the matter. The USA, however, says they were acting behind a part of China’s WTO membership that says that the USA may raise tariffs to slow Chinese imports to allow America’s industries to adjust. The situation is brewing into what could soon be an Entertainment Tonight special on he said, she said.
The wars, however, have had an impact on the marketplace. All of Asia and Europe are mostly down expect for China’s Shanghai Composite. The unrest and unease of the global marketplace is reflecting poorly in the markets today. All European markets are down over 1%. This story is able to really capture these markets as very little major economic data, earnings, or other leading stories are capturing the market’s attention.
Today is also the one year anniversary of the demise of Lehman Brothers, which is cited as the focal point and beginning of the financial crash. President Obama will be addressing the nation on what the government has done to try and stabilize and strengthen financial institutions. According to an AP Poll released today, though, 7 out of every 10 American do not believe that the government has taken the proper steps to prevent another meltdown.
The Lehman news, the poll, and the USA’s situation with China all are negatively impacting the market’s futures, which are down pretty significantly. The Dow Jones’ futures are down 60 points as of 8:00 AM, while the NASDAQ’s are down 12 points.
The only good news I see is that oil prices are dropping because of a stronger dollar. Oil dropped in Asia overnight and is down in early trading on the NYMEX. This won’t improve the markets, but a lower oil price is good for most Americans and many businesses (besides energy producers).
Additionally, the market did get upgrades on a number of institutions this morning. The major one was a Credit Suisse upgrade of UPS and a Citigroup upgrade of E*Trade Financial. Soleil, however, downgraded First Solar as the weakness in the solar industry continues to persist and grow increasingly alarming.
Show me the money!
Buy Pick of the Day: E*Trade Financial Corp. (ETFC)
It has been a long time since E*Trade has gotten any kind of good or bullish news that investors can really get behind. Today, Citigroup announced that it was upgrading E*Trade to a Buy, with a target price of $2.30 per share. That number was up from the previous $1.50 per share price. The company has raised 
capital recently through a debt exchange, and it has strengthened the company’s balance sheet greatly. This is a reason to believe the company is in much better shape financially. Additionally, the company has some interest from TD Ameritrade and Charles Schwab for its $2.7 billion in accounts.
At the same time, the company is up over 9% in pre-market trading. Never ever buy a stock that is up 9% in pre-market trading. Even if it goes up, most of the time these stocks are going to be exactly flat or move downwards, sometimes with a lot of momentum. With the market set to drop this morning as seen in the futures, ETFC should come down off these highs, and it creates the ability for day traders to jump into the stock.
A company that typically gets an upgrade is not as significant as E*Trade because of its lack of financial prowess that the company has had of recent. The stock has seen some nice movement over the past few weeks and is trading near a higher bollinger band, but at the same time, the stock is neutral on stochastics. This means that a lot of buyers are on the sideline and the stock may be ready for a significant breakout, which would be catalyzed by this news. Profit taking is going to happen right away, but a short squeeze should follow later in the day, which is where the real money will be made in this stock.
We are going to need to watch these morning levels very closely to play this one and buy on a pullback. Check back on my alerts for more direction.
Short Sale of the Day: Yingli Green Energy Co. (YGE)
Yingli Green looks to be a terrific short sale for Monday coming on a downgrade from First Solar. In the solar sector, First Solar is king and has
significant power in the movement of the market. At the same time, YGE is one of the soundest solar institutions out there. On Thursday, YGE was upgraded by Collin Stewart as the analysis firm said that the company should see a major rebound in Q3 demand that will help the company’s earnings come out much better than Q2. This help propel the company’s stock price that was already on an upswing above its upper bollinger band.
In the long run, YGE does look sound and tempting and is probably a great pick up going into earnings, but today, the stock is a great short sale. With the news on First Solar’s downgrade, it has all the solar stocks down over 2.5% across the board. This comes at a time when solar stocks, for the most part, have been making a recovery after significant drops during a very weak solar earnings season. YGE, especially, had made some significant recent movement, up over 30% in the past two weeks.
That type of momentum cannot be sustained as buyers soon become sellers at a certain topping out point, which has been hit. The First Solar news, thus, acts as a major reason to sell off the stock and as more sellers enter the market the price will begin to drop for YGE.
Even worse for YGE is that the situation comes on a day when the market is looking very weak. Futures have come up ever so slightly in pre-market trading, but a worldwide pullback and WTO threat has the markets reeling. The expectations of a down day threaten YGE’s ability to move upwards today.
Good Investing,
David Ristau
