I won’t do a rundown of how things went on Friday because my last post was a recap of the entire week. We still have one open position, with a short sale of Nu Skin Enterprises Inc. (NUS). We opened our position of NUS at 21.34, and we are waiting for it to pullback today. We were at just even on Friday, so we are going to continue to hold onto this. Let’s get into today’s plays on a quiet day in the markets. The markets are looking up for today on the earnings season news. The real movement is going to be based on investors feelings about the market before they are announced, so let’s look for some of those slippers.
Buy Pick of the Day: Domino’s Pizza Inc. (DPZ)
I rarely get behind the restaurant business in my investing, but I like the option Domino’s is presenting today before its Q3 earnings season. The company, last quarter, reported quarterly earnings that were down 22%, but they were furt by a stronger dollar, even though same-store sales rose 4.1%. The company beat estimates on earnings and revenues, with 0.21 EPS. The company is expected to earn 0.15 EPS, beating one year ago earnings with 0.13. I, personally, think this will be easily beat. Domino’s is the pizza place, out of the major chains, that should most benefit from a weaker economy, comparatively, due to its value prices.
The company releases their earnings tomorrow morning, and the company has a lot of room to its upside on the technicals and has not seen a buy up in pre-market trading above 2%. It is currently up just 1.8%. The stock has jumped a little under 10% in the past couple sessions, but it still has momentum. The stock has just crossed to the upside on slow stochastics, and it should not experience a lot of resistance until the 9.40 – 9.50 level. At the current 9.05 buy price, there is still a lot of buying opportunities.
The market has rallied significantly, and we do have to be scared of a pullback. I don’t see that happening, however, until we do see some weak earnings, which will not happen today. I don’t expect a huge rally with a semi-flat market as investors wait for signals, but as we get closer to the close, those companies reporting are going to see a lot of buying up as investors remember the solid Q2 earnings.
Futures are up about 50 points right now, so we can probably expect a small pullback in the morning, so we don’t want to jump into DPZ right away. We will, however, want to get in on a small movement downwards because this thing should get some buying pretty quickly after the open.
Entry: We are looking for an entry at 8.95 – 9.05.
Exit: We are looking for an exit of 2-3% on top of buy in price.
Stop Loss: 3% on bottom.
Short Sale of the Day: Brocade Communication Systems Inc. (BRCD)
Brocade is a definite short sale for the day. Overvalued, overbought, downgrade, and outside its upper bollinger band. Oppenheimer & Co. downgraded BRCD from an "Outperform" to "Perform" level. The company commented that they don’t see the data storage and data center firm getting a buyer anytime soon and do not think they will be able to beat Q3 expectations. The company, last week, was reported to have a buyer for the company, which sent the stock soaring almost 25%. Now, with Oppenheimer commenting that they do not have a buyer, the stock should be shooting back to the 7.50 level from its current 9.50 levels.
MSN reported, "Hewlett-Packard Co.’s existing offerings would overlap too much with Brocade’s, he said, adding that IBM Corp. isn’t likely to jump back into the hardware business, Oracle Corp. has publicly denied interest, Juniper Networks Inc. would find such an acquisition "too big to swallow" and Dell Inc. is busy with its $3.9 billion buyout of Perot Systems Corp."
Oppenheimer urged investors to take profits, and I urge a short sale. This one is going to get a nice reverse squeeze with extreme buyer interest coming into the stock. The stock is extremely overvalued, above the 75 threshold, which is a red alarm for a short sale. The stock is overbought on stochastics, and it moved outside of its upper bollinger band on Friday. This is all a sign of downward movement to come.
If the market shows an weakness it will only strengthen this one, but I think even with a positive day, Brocade should be coming down. The stock, however, is only down a nickel in pre-market trading. At these levels, we have a PERFECT buying opportunity. Be sure to check back at the Morning Levels Alert for an adjusted earnings because this one could start to fall quickly.
Entry: Currently, I like a 9.30 – 9.40 entry place.
Exit: 2-3% cover on bottom of entry point.
Stop Buy: 3% on top of entry.
Good Luck Today and Happy Investing,
David Ristau
IN PROGRESS
