Hey all. So, yesterday I only had one play of the day, and we actually have moved it into a longer play because it was neutral throughout the day without much movement, and I still think it is very likely a great short sale. The pick was for Pepsi Bottling Group (PBG). I liked the stock as a short sale, in pre-market, but it moved down significantly from those prices when the market opened. We opened a position at 37.35, and the stock ended at 37.34. The most gain we had was around 0.75%. We are holding this one through, and so yesterday was 0/0. Yesterday was also the day to sell Family Dollar Stores Inc. unless you want to hold it through earnings, which come out this morning. We are up over 7% on Family Dollar as of now, and we will see where the earnings take us to as of tomorrow.
Alright, so let’s get into today’s picks.
Buy Pick of the Day: Direxion Daily Bull/Bear Oil and Gas ETF (ERX/ERY)
I have to start this post by saying I am not completely confident in which way the market is going today. At times like these is when I like to play a safer either/or pick. It is not genius, but it is safe. And since I can honestly say I am not really positive what is going to happen in the market today and with oil prices, I will wait for the crude inventory report. Futures are continuing to dwindle away as we get closer to the market open, and there has been and really won’t be much as far as data to change the fortunes. The question is whether or not a rally on nothing can continue to rally on bargain bin prices as many stocks over the past two days have rallied significantly. If crude prices rise, it could definitely continue to give the market the small amount of news it needs to rally. Otherwise, it will most likely help to spur what I would expect is a sell off.
The market will be helped by some solid earnings from Family Dollar Stores, Monsanto, Yum Brands, and Costco. All the companies beat analyst estimates, but many saw declines in revenue and did not come close to top line earnings. To help me know where the market is going, I like to view how the European and Asian markets, and another reason I would be worried about a sustained rally is that Europe opened up following positive optimism from American investors, but it could not sustain a rally.
Oil, overnight, got some help from the American Petroleum Industry as it showed that crude stocks fell from an outflow of crude oil, but the more important EIA’s crude inventories is going to have a larger influence on where oil is going. Right now the x3 Direxion ETFs only have about a 0.25% gain and 0.50% decline as of 8:45 AM. That is really low movement for the Direxions, and it helps to show that the market is being cautious with oil.
Therefore, we want to play this cautiousness by being ready for either report. If crude oil inventories rise by more than 2.8 million, we want to play ERY, the short ETF. If crude inventories increase by less than 2.8 M or decline at all, we want to play ERX. I think ERY will actually move to the green, but we will still want to wait for the report. Set up multiple screens to be able to action the trade we want right at 10:30 AM. Watch Marketwatch, theoxengroup.com/economiccalender, or CNBC for the inventory report.
Entry: 10:30 AM report will decide which stock we enter.
Exit: 2-3% on top.
Stop Loss: 3% on bottom of entry price.
Short Sale of the Day: Helen of Troy Ltd. (HELE)
Helen of Troy is a low volume consumer care product
maker that reported a beat in earnings this morning. Yahoo! However, the stock is up over 6% in pre-market trading, and it may be a bit toppy with a bit more mov
ement to the top. The stock has moved up to 21.25, and the 3-month bollinger band chart is showing resistance at the 21 price level. The market continues to lose its future values and dwindle away, and it will definitely affect HELE. Due to the low volume, this stock is going to see quick selling and a quick drop off.
While the earnings beat by 0.12 on analyst estimates, the company did not beat revenues but sales were up. The stock is definitely looking strong in the long term, but with a more than 10% movement in the past three days, earnings appeared to have been priced into the stock, and I would expect things to move south from a top on the day.
Finding that top is crucial, and it will be helped by where the market is going. My guess is that it will start fairly quickly after the market opens as investors start to take profits off the table they have made over the past few days as we get closer to some real economic data tomorrow.
Entry: Look for a short sale entry at 21.25 – 21.35
Exit: Looking for 2-3% on cover.
Stop Loss: 3% on top.
Good luck and Good Investing,
David Ristau
