Welcome back everyone! We had some winners this past Friday with Ultrashort Proshares Oil and Gas ETF (DUG). We took the ETF because we saw the oil prices too overvalued and were expecting a pull back in the oil markets. We were right, getting in DUG in the morning at 12.10. We exited at the high of the day for our 2% exit range at 12.34. The oil markets ended in the green, but the morning movement downwards allowed us to get out for a solid gain. On the short sale side, we did not get into our Citigroup Inc. (C) because the stock never got to our entry range that we had wanted. So we got the solid 1/1 on the day.
Let’s get into making some money…
Buy Pick of the Day: Ultrashort Proshares Real Estate ETF (SRS)
The play on earnings looks fascinating. You have a lot of beats and a lot of sectors looking strong after a slew of pretty solid earnings this morning. Out of 50 major companies reporting earnings this morning, only eight were in the red missing earnings. I, however, want to turn my attention to the economic data being released today. We have important housing market pieces of data being released at 8:30 AM that I think should definitely be able to influence the market and the housing sector, as a whole. With futures up only around 30 points, I think the market is definitely wanting to rally. Yet, it doesn’t seem to have the same drive. Yesterday, Apple drove it, but names like Pfizer, Caterpillar, and even Coca-Cola cannot drive an entire market. We will need some good data to keep this drive.
The data came out worse than expected. There were 570,000 new building permits issued in the month of September, which is a decrease from August’s 0.58M. The number was also below the 590,000 expected. The housing starts, in the same vein, were down from August to 0.59M starts vs. the expected and August reading of 610,000 starts. For that reason, we are going to go with a play on SRS. Both the Ultra and Ultrashort Proshares Real Estate ETFs, going into the 8:30 announcement were only on about a 2% spread with URE up 1% and SRS down 1%. The news should, therefore, push SRS up and hopefully give it a strong rallying point.
CAT does pose a threat to an inverse housing ETF, but SRS is representative of a mostly commercial and commercial housing ETF. Construction service companies are not directly represented. No housing companies did report earnings today, so this news is definitely going to be the largest impact for SRS. Further, we saw the Core PPI and PPI numbers come in weaker than expected (actually negative), which is showing a deflationary process in the month of September. This will not be good for the market.
Technically, SRS looks to be in very strong shape. If it can get a rally going, then it will definitely have some capabilities of having a pretty strong day. The ETF has been very range bound, but it is undervalued, oversold, and closer to its lower bollinger band. The housing industry has been very quiet for the past few weeks, so it is no surprise that the ETF has not had much movement. The stock has dropped a little under 10% in a time when many inverse ETFs have seen drops of 15-20%.
Since the news came out, the futures have jumped up into the green. We will, therefore, expect it to continue a slight run up into the open. We don’t want to pay too much for this one, so we will set a range that is where we want to buy. If it does not get there, then we will be okay with not having wasted an opportunity.
Entry: I like getting into SRS at 9.48 – 9.58. This will give us a solid price to get in on the way up.
Exit: We want to get 2-3% before exiting.
Stop Loss: 3% on bottom.
No short sale today due to some time constraints.
Good Luck and Good Investing!
David Ristau
