Yesterday, we had some pretty strong success with our Short Sale of the Day pick Ultrashort Proshares Financials (SKF). We got into the ETF right out of the gates at 24.10, after adjusting our entry price in my Morning Levels Alert since we saw that the ETF was increasing in price rapidly in the morning. We were quickly turn that entry into a 3% profit, selling at the more profitable part of our range at 23.38. On the other side, we did not close our position in our Buy Pick of the Day Isil Corp. (ISIL). We wanted to play ISIL based on the expectations that it would rally moving into earnings, but it did not happen. The stock traded flat all day near our entry of 13.98. We decided in the afternoon to hold onto the stock. The earnings came out at expectations with a strong forecast, and the stock is set to open slightly up from our entry point. We will continue to hold this one.
On to Thursday…..
Buy Pick of the Day: Direxion Daily Bear Oil and Energy ETF (ERY)
I am not looking at the market on extremely bullish terms today. While I do think we saw some good numbers from a number of companies reporting earnings this morning, there were so many that no one can stand out. What does stand out is that initial jobless claims were at 531,000 this past week, which is above the expectation of 518,000 and well above last week’s 514,000. The data, which came out at 8:30 AM, has shifted back futures. At 8:15 AM, the Dow was up 20 points, and then at 8:31 AM we were down to just 11 points up. The S&P and Nasdaq, now are in the red, and the Dow is holding a slight gain.
The fall in futures signals to me that we will open in the red and have a selling frenzy. Therefore, we can make money by inverting the market our favor by picking up a bearish ETF, such as ERY. I like ERY because of how high the price of oil has gotten. The price is starting to drop today, down below $81 a barrel on the NYMEX. Falling oil prices and a red market is a great day for ERY. The price of oil is falling due to a lot of the market feeling that $80 per barrel is just way too expensive, comments from Energy Sec. Steven Chu, and the technical aspect of this one being way overvalued.
The good thing about this is that ERY is coming in at a major discount. The ETF is only slightly up because of the green futures. Most of the inverse ETFs are in the red, but due to a lot of these ETFs being directly impacted by earnings numbers, it is hard to tell their future. With ERY, we just want oil to continue to fall. It does not have much to rally on, so this should not be an extremely difficult task.
If ERY can start going, it could be a very nice day for the ETF. In the past three weeks, the stock has fallen in value nearly 30%. Yet, things are starting to look up for the ETF. The stock is oversold, undervalued, and was riding its lower bollinger band. As the market has started to show weakness, the stock’s stochastics have actually crossed and are starting to move towards the bought range. This means that buyers are starting to get back into the ETF. With this undervalue, we can expect a lot of significant movement for the ETF.
Entry: We are looking for an entry of 10.65 – 10.75.
Exit: We are looking for 2-4% on top of ERY.
Stop Loss: 3% on bottom of entry.
Short Sale of the Day: Fifth Third Bancorp (FITB)
Unfortunately for FITB, the company reported some pretty weak earnings on the day, missing its earnings estimates, reporting a quarterly loss $159 million vs. last year’s $81 million loss. The company’s EPS was at -0.20, while the estimates were at -0.17. The company was hurt by real estate and construction loan losses and high credit costs. In a time when most regional financials have been doing well, this hurts FITB. The stock is already showing a 1.75% decline in pre-market trading, but the stock is pretty volatile and probably has more to decline.
Thestreet.com reported, "the bank charged off $756 million worth of loans it doesn’t expect to be repaid, while nonperforming loans climbed to 3.75% of Fifth Third’s loan book vs. 3.17% the previous quarter. Problems relate largely to the bank’s troubled commercial loans, while its consumer assets appear to have started to stabilize."
Ouch. One bright spot was that the company believes this is the end of these write offs and credit costs. They will start to decline in the Q4. Over the long haul, FITB is an undervalued stock. In the short term, it has room to the downside, and I expect it to start moving towards that lower bollinger band. The stock is slightly overvalued and overbought. That neutrality, though, means that a lot of investors are going to wait to see what happens. With a quickly growing short interest coming into FITB, it will probably move to the downside fairly quickly.
We don’t want to get into the stock if it is opening more than 2.25 – 2.5% down, but at this 1.5% level, the stock still has a lot more room to work down to its lower resistance range, which is at the 9.10 – 9.20 level. That would still be movement of 6-7% from its opening price at pre-market trading. If the market turns sour like I am expecting, this only further accentuates this movement.
Entry: We are liking 10.05 – 10.15 for our entry.
Exit: Looking to cover with 2-3% movement to the bottom.
Stop Buy: 3% on top of buy in price.
Good Luck and Good Investing!
David Ristau
