Yesterday, we started a new trend with long term investing strategies on a five-year front. I gave you an overview of Big Lots Inc. (BIG) five-year valuation. The stock is currently overvalued, but if it came down to around $33, it would be fair vauled. We have no open positions at the time.
Let’s get into today’s market…
Buy Pick of the Day: Direxion Daily Oil and Gas ETF Bear 3x (ERY)
Analysis: The market is looking to suffer a major set back today as we had two extremely negative pieces of infomation released this morning. One, Greece is back with news that they are not sure the "bailout" the EU was looking to provide will be strong enough to sustain them. That fear was weighing on the market before the 8:30 AM release of the Unemployment Jobless Claims, with futures down 41 points on the Dow. At 8:30 AM, we were given the even more unfortunate news that jobless claims continue to rise. Today, the report announced that another 460,000 Americans have entered unemployment claims, beating the estimates of 433,000. Both pieces of news are not good for our investing friends – that’s us.
For that reason, I have chosen an ETF that I think can really rise on today’s news. ERY has been kicked around over the past month with the sustained rise of oil price up to over $85 a barrel. Today, oil prices are looking to sink along with the market. Oil was down 75 cents as of 8:45 AM, but when the market opens and we get going, I think that number will continue dwindle. More importantly, the market, as a whole, is going to be moving downwards. Futures have continued to decline this morning, and yesterday’s drop should continue today. Yet, I would expect to be even further.
ERY has dropped over 10% in the past month as oil prices have risen, but the two day market downturn has put ERY back on the path upwards. I look for that to continue. The ETF is undervalued, oversold, and near its lower bollinger band. The technicals on any ETF are hard to gage with the market being very important, but what they do show us is how overvalued the market is currently. It really has made a lot of movement to the upside, and we should expect healthy pullbacks on fundamentally bad days.
I think getting into ERY early will be very profitable, and I expect it to make a nice move. Don’t pay for more than 2% above yesterday’s close, however.
Good luck!
Entry: We are looking to enter at 9.75 – 9.85.
Exit: We are looking for a 2-3% gain on the day.
Stop Loss: 3% on bottom.
Short Sale of the Day: Pier 1 Imports Inc. (PIR)
Analysis: Here is a company that has no business, whatsoever, being in the green in pre-market trading. Pier 1 Imports Inc. (PIR) released their quarterly earnings this morning. They were not impressive at all. The company missed estimates by a penny, reporting earnings of 0.30 EPS vs. the expected 0.31. Investors are getting excited about increased margins and a strong March for PIR and buying into the stock in pre-market. Furniture retailers of the same sort, Bed Bath and Beyond (BBBY) and Williams-Sonoma (WSM), have both had nice quarters and beeen a surprise as home owners reenter the home furnishings market to revamp homes as the market turns.
The issue, however, I see with this is that if things really are great in this department and WSM and BBBY had 16.2% and 17.8% earnings beats, respectively, this quarter. The company was in the green in the company’s FY Q4, which helps when comparing to the loss seen in Q4 of FY 2008. The company is expected to be doing much better like it is, however. The company was expected to be doing better than it is doing. These earnings are not a surprise in that companies like PIR and WSM and BBBY are back.
The earnings should be taken very poorly in fact. The stock has risen 10% in the past week moving into earnings. The company is definitely overvalued in the short term, and these earnings were priced into the stock. The fact that earnings were actually not as strong as hoped for is a red flag. I fully expect, especially with the market, that when things open up, PIR will get a quick pop and fall down. The company has moved too far, too fast and cannot continue this run it is on to the upside. Even if the market was not falling, I still would believe this is a good short sale. It is a company that did not meet expectations, and it should be sold off.
Get in after the pop, which I have tried to price into my entry range and watch it move to the bottom.
Entry: We are looking to enter at 7.50 – 7.60.
Exit: 2-3% cover from entry.
Stop Buy: 3% on top of entry price.
Good Investing,
David Ristau
