Hello folks. Hope you had a fabulous weekend. We did not have any picks to review from Friday, so we can get into the mix right now with some picks for today. I have two picks that I think will work well on a slow Monday of earnings and data. Additionally, I am looking at a long term play that can hopefully give us some similar results to the Family Dollar stint we had a couple weeks back.
Happy Monday and let’s get investing!
Buy Pick of the Day: Ultrashort Proshares Financial (SKF)
I am not too bullish about this market this morning. We have pretty much neutral earnings. Saw some a beat from Verizon and Corning that could give the market a little boost, but the Verizon beat was by 0.01, and the Corning beat was by 0.03. We saw a miss from from Radioshack, however, hitting EPS of 0.30 vs. 0.31. Additionally, we saw FairPoint Communications and CapMark Financial file for bankruptcy protection. There was no major data to give us much economic prowess, as well. The only truly positive note we saw was from overseas. South Korea announced that they are growing at their fastest rate in seven years.
With that said, I am liking the prospects for Ultrashort Proshares Financial for this morning. The ETF is going to benefit from the CapMark Financial bankruptcy protection news. This should be a gentle reminder to investors that some areas of the financial world, such as corporate lending (a la CIT), are not out of the woods. On top of this, we saw that ING is going to split their stock and needs to raise more capitals, and HSBC Holdings got a downgrade this morning.
I just do not see where the market is going to find its rally today. The market is still relatively overweighted, and I think needs to have some more pullback. SKF is in a great position to rally, especially since it is trading in the red in the pre-market. The market is going to definitely move backwards on the factors listed above, and an inverse ETF like SKF will benefit from that.
Technically, SKF is still oversold, undervalued, but its momentum is moving it back towards being bought up. The stock is sitting right in the middle of its bollinger bands, and it has some definite upward room. I would definitely be excited about these prospects. The only thing I would watch out for is a slight rally due to some earnings from Ameritrade, ETrade, and Visa tomorrow. Otherwise, this one looks pretty golden.
Entry: We are looking for 23.85 – 23.95
Exit: 2-3% on top of the entry.
Stop Loss: 3% on bottom.
Short Sale of the Day: Riverbed Technologies Inc. (RVBD)
With my position that the market is going to be seeking a pullback, I think that Riverbed Technologies may be a place to get a solid short sale in the market. RVBD got an upgrade this morning from Piper Jaffrey to "Overweight" after beating earnings last week. The stock saw a huge sell-off after earnings, dropping over 8% on Friday with its earnings report. The stock this morning is up over 4.5% in pre-market trading on the bounce back upwards.
Piper analyst says, "We believe the sell-off in RVBD shares following what should have been viewed as a very solid Q3 was unwarranted and has created an attractive entry point for growth focused investors. The concerns regarding enterprise weakness was likely overblown as we believe RVBD prioritized on the near-term opportunities in the Government vertical during Q3, but the pipeline in the enterprise vertical remains robust and will likely bounce back materially in Q4. We also believe the Government vertical will remain strong in Q4 given large deals in this space typically roll out over multiple quarters…We believe Riverbed’s Q4 revenue guidance of $104-$107M is relatively conservative and sets the stage for a potential beat and raise in the future. This guidance reflects 1.4 – 4.3% q/q growth and is well below historical Q4 growth rates."
I agree with Piper for the longterm. Yet, I trade on a daily basis. When a stock jumps over 4% in pre-market trading, we should expect it to definitely see some profit taking. As investors sold off on Friday, a lot of people were wanting to sell off and saying if it bounces back I will sell off. What you are going to see is a double bottom in two days. The stock’s earnings were definitely not terrible, but investors pulled the stock back down after rallying over 15% the weeks going into earnings. The stock still has room to be sold off on fast stochastics and did not reach its lower band. I think we should be nervous about this.
I would expect some rallying to start the session before the main pullback.
Entry: We are looking for a short sale of 22.20 – 22.30
Exit: We are looking for a 2-3% exit on bottom.
Stop Buy: 3% on top of entry price.
Long Term Play:
Coming later…
Good Luck and Good Investing!
David Ristau
