We are all eagerly awaiting the CPE Core Price Index and consumer spending reports to help give the market some further direction. However, even after they come out, my suspicions are that this will be a red day for the markets, but that is not to say it is not healthy. In after hours, we really saw very little bullish news, coupled with the Asian markets starting the day in the green and falling to red throughout the day.
The European markets opened slightl
y in the red and trailed away the rest of the day. This has brought American market futures down quite significantly, with the Dow’s opening looking down about 60 points. That will change once we see the CPE Core Price Index and consumer spending numbers. One driver that might pull the market lower are bad earnings. Some of the key companies, such as Pulte Homes (PHM), Centex (CTX), CVS Caremark (CVS), and UBS all reported weak earnings, with CVS just beating estimates by 0.01 after one time costs. Another key figure that will shape up the day is a higher dollar, which should bring down oil and gold prices, thus their respective markets. If those Core Price Index numbers are really positive, as well as, consumer spending, it may erase opening losses, but I am suspecting that it will not matter, similar to the way no one cared about the bullish housing starts one week ago and sold off into them. Investors are ready for profit taking.
Data Update 8:42 AM: Price Index came in at estimates, consumer spending up a bit more than expected at 0.4% rise in July, but income is down more than expected at -1.30% with estimates at -0.80%.
Buy of the Day: ERY
I like the oil markets chances of really bringing up this beaten down ETF. Direxion Daily Bear Energy & Oil ETF (ERY) plays a handful of oil drillers and oil producers and is highly influenced by the price of oil. As it goes down, ERY goes up. With the market being sold off on the higher dollar and things looking bearish on the day, ERY is a solid pick up for the day. It will obviously gap up, but it has potential to make a major move. There is really no major oil producers or miners that have earnings coming out today, and so, the market will be looking to oil prices and general market sentiment for direction. The ETF jumped nearly 5% one week ago on the first red day in some time. I think expecting similar results with current market conditions is not overly ambitious. Not to say that you or I can make 5%, due to the gaps. ERY is currently heavily oversold around the 0 rating for slow stochastics. This means that the downward pressure this ETF is experiencing is a red alarm to move back up. Additionally, it is undervalued on RSI and below its moving average over the past three months. All signs are pointing for some type of recovery or "breather" in the market that will push prices back down to let new buyers into the mix.
ERY should open up on a gap around 17.70 – 17.75, about 3% up, according to pre market numbers. Out of the gate, the stock will probably drop a little bit but not much. I would look for an entry around 17.60 – 17.65. On the gains, I am looking to get out of the ETF around 2-3%. I think once the stock hits 18 – 18.05, it is a nice sell place. If the ETF looks to trend higher than set some stops around these prices to ensure you get these gains and watch the stock carefully.
Short Sell Pick of the Day: DHI
I have been talking about this happening since the beginning of last week, and it looks like it is finally going to happen. The housing industry is going to pull back. Pulte Homes led the way missing estimates and reporting larger than expected losses with a nearly $190 million loss, as well as, -0.74 EPS. Analysts had expected -0.57 EPS. The biggest sham was Centex’s $80 million profit that was buoyed by a one time tax gain that when taken away gave the company a $320 million loss, exceeding estimates from analysts by over 120%. Then there was DR Horton. The company it seems from the headlines had great earnings and beat expectations. When we look into it, DHI missed analyst profit expectations by nearly 100%, posting an EPS of -0.45 when expectations were -0.23. This is the reason DHI should be the sell of the day. The company will most likely open in the positive or not as low as most other home builders. However, with how oversold and overvalued this market has become and the other builders terrible earnings, it should pull down this stock with it, especially as 
investors realize…earnings weren’t actually butterflies and candies. The one thing that does scare me is the pending home sales. My thoughts are that this market is ready for profit taking. Once that begins it will be a snowball effect that will pull down these 100% three week gains we are seeing. It appears, as well, that the economic data is mute. Price index met, personal income is down, personal spending went up.
I think that shorting DHI out of the gate is the way to go. The stock is looking down about 2% in pre market, but I think that number should come up slightly before the open. We are looking for 2-3%, so we want to look to sell as the stock nears 11.10 – 11.20. If the stock continues to dwindle below these points, we want to set some limits and watch it carefully.
