Yeah for Bernanke! Sorry about the lateness of my post today. I recently made a big move to Central Time, and I am getting a little adjusted to the time difference.
Anyways, let us get into the thick of it. Bernanke getting reappointed to the second term. This is definitely great for the economy, in my opinion, but I am not sure that it does all that much for stocks in the short term. It may pump the market a few extra points, but that is it. The big news we have today is the CB Consumer Confidence report coming out at 10 AM. We also have two home price indexes on the data front and a manufacturing index, but they should have less importance on the market today.
The futures are up higher, with the Dow gaining close to 60 points and the Nasdaq 7 in pre-market trading. I think this is mostly some quick emotion buying on the Bernanke news. There as of now is not really a driving force for that. Typically, one would say lower oil prices is good for a majority of stocks, and oil is down. However, it has been typical as of late that the two follow one another.
The biggest reason I am being cautious is we saw China slip 2.6% today, and the rest of the world follow it into the red. I think this higher open is setting us up for a quick pullback. Yesterday, we saw light volume and rising short interest, and Bernanke coming back is not going to be able to raise enough volume.
On some good news, Burger King reported better than expected earnings and Staples met expectations of analysts. BKC is up over 4% in pre-market trading, while Staples is down 2%.
So what to play on a day like today. I think we might be able to turn our attention to the oil markets.
Buy Pick of the Day: Ultrashort Proshares Oil and Gas ETF (DUG)
This ETF, which plays as the inverse to the oil market, may be just the sweet pick up for today’s session. Oil fell in Asia, and the Brent Crude is down in Europe, as well. This was part of a larger pullback in China and the rest of the globe. Oil seems to be in this $65 – $75 range until it gets some sort of catalyst. Bernanke is not one of them. Consumer confidence could move it higher if its spectacular, but where are the fundamentals. We have a large supply of oil coming in, and a lot is just sitting in storage. Hurricane Bill did not affect any offshore drilling, and we are seeing the highest unemployment in years.
Oil at the $70-plus level remain potentially vulnerable because there is little constructive fundamental support, inventories are high and global demand remains weak," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
These prices should not be sustained, and they have not even in the recovery, thus far. Oil dropped some yesterday, but it was so late in the day that it didn’t have time to move DUG. Today, however, we are going to be able to get at a discounted price since it is down 1.25% in pre-market trading. As the market sees oil pullback and hopefully the rest of the market with it, DUG should be a very solid play. The stock is at its lowest point ever in its history, but today is a good day for it to bounce back.
Technically, on fast stochastics, the ETF gets in this 15-18 range has bounced back up. That corresponds with oil bumping up to $75 per barrel and back to $65. We are going to be able to get in at a discounted price on a day when I think we are going to see a continuation of the pull back that started yesterday.
Sell Pick of the Day: Staples Inc. (SPLS)
Staples earnings, overall, were a disappointment. Staples is supposed to be the leader of the school, office, and paper supplies for the country, but its earnings were just right at expectations. The company saw a 38% drop in its profit saw high unemployment and cut backs made by companies produce a dent in their ability to sell some of their bigger ticket items. The company saw a decline in their sales of 14%. The company took a one-time loss on their acquistion of Corporate Express Inc., and the way the earnings played out, Corporate Express appears to have been a strong acquistion. The company helped them bring international sales up a lot. So, that is definitely good for the long term.
What I don’t like about this stock, however, is that Staples has been getting pumped up a bit going into earnings. Additionally, the company is the industry leader. What they say about their ability to sell items is typically true for the rest of the industry, so shorts in Office Max (OMX) and Office Depot (ODP) would probably be decent plays. Staples, however, over the past week moved 5% higher. Not all of it on earnings anticipation, but that quick movement up has presented a perfect short sale with the disappointing earnings. The stock should see a pullback.
It is down already 2.66% in pre-market trading, but I still like this one because its technicals are showing it is right a turning point to move backwards or upwards. Today, it is the start of some downward momentum.
Check my morning levels alert for entry/exit suggestions.
Good Investing,
David Ristau
