Hey all. So, Monday turned out to be a pretty fantastic trading day for us. We had our Buy Pick of the Day as Aeropostale Inc. (ARO). At our Midday Message alert, I recommended holding this one overnight since we had not gotten the movement on our 31.50 buy price I had wanted to see. I was looking for an exit of 32.13 – 32.44. We got that range today and were able to exit at 32.13 for a 2% gain. Our Short Sale of the Day was a dandy. We shorted Direxion Daily Energy Bear ETF (ERY). We got into the ETF in the morning at 11.85 and covered at 11.51 just an hour or so into the day. A good 2/2 over the past two days. Wednesday looks to be interesting with unemployment numbers on their way.
Let’s see where we can make some money…
Buy Pick of the Day: Ultrashort Proshares Oil/Gas ETF (DUG)
Analysis: Oil prices look to be on their way down today. The American Petroleum Institute released news that crude supplies were up 2.9 million barrels over the past week, which was much higher than the 1.2 million drop that was expected by analysts. That is setting up crude to drop in price, moving into the crude inventories announcement at 10:30 AM from the Energy Information Administration. Things are not looking too great for crude today, yet DUG has not had the price fluctuation to reflect the oil inventory report.
"The API report suggests that there are still surprisingly high levels of U.S. inventories," said analysts at Sucden Research in London. "This, along with a forecast of mild temperatures in the U.S. for December, could push crude oil prices in a correction lower."
If this is the case, taking some positions in DUG is a must today. The stock is definitely undervalued as of now. Typically, moving into the inventory report, the market will play it one way or the other just before the report’s release. Today, I think we can expect the market to be moving down and expectations to be for higher inventories. The market, overall, is pretty neutral, but I am expecting it to lose some ground after the open. Unemployment numbers from ADP came in worse than expected with 169,000 non-farming employees losing their jobs in the month of November, worse than the 140,000 expected. It was an improvement from the month prior, which was above 190,000. For that reason, the market is still neutral. Going into the day, though, don’t expect it to last.
Technically, DUG has been in a pretty tight range over the past month, but it has seen a small dip over the last week, dropping about 5%. The stock has become relatively undervalued on RSI, has a lot of room towards its upper bollinger band, and is slightly underbought. The ETF is definitely in a position to make some movement to its upside, but it is also definitely capable of more decay. I think the prior is set up.
Just watch those 10:30 AM reports and sell off if they are not what we expected.
Entry: We are looking for an entry of 12.45 – 12.55.
Exit: We are looking for an exit of 2-3%.
Stop Loss: 3% below entry.
Short Sale of the Day: RF Micro Devices Inc. (RFMD)
Analysis: I do not think this is a green day for the markets. Yesterday, we had a solid run up that should not be able to be maintained with the unemployment news, crude problems, and toppiness of the market. Therefore, for our short sale, we want to look for stocks that are opening much higher than the market is and expect them to lose their value throughout the day.
One of these such stocks is RF Micro Devices. The company is a radio component and semicondcutor manufacturer. The stock is up above 4% in pre-market trading, which is already a significant increase for any stock. On top of this, RFMD has already jumped just under 20% over the past month. This means the stock is already significantly overvalued, and it is adding more, which is setting this one up for a great short. With the market moving down, we should expect some short interest to start building and profit taking to occur.
RFMD is up on an upgrade the company received from UBS. The company is less risky, says UBS, after some deleveraging and increased cash flow. The stock was rated a buy by the company. The broker said comments from handset manufacturers "indicate continued strength in demand, with no signs of any inventory build."
Over the long term, RFMD may be a solid play. Today, however, the stock is going to face some tough pressure on the upside. The stock was already right at its upper bollinger band at 4.75, and the stock is close to 5 this morning. The stock RSI was well above 50 and the stock was significantly overbought. With the market’s futures continuing to drop and things looking like they may move down today. This appears to be a perfect short sale.
Entry: We are looking for an entry at 4.90 – 5.00.
Exit: Looking to cover for 2-3% gain.
Stop Buy: 3% on top of entry.
Good Luck and Good Investing,
David Ristau
