TGIF! Hope everyone had a great week and is looking forward to the weekend. I moved from Cincinnati, OH (my hometown for many years) to my new home of Chicago, IL. This weekend will be filled with unpacking, organizing, rearranging, and lots of other stuff. Anyways, yesterday, we had a successful day. We got involved with the inverse oil ETF Direxion Daily Energy Bear ETF (ERY). This ETF was a good play as the oil market dropped hard in the morning. We got involved at 9.80, which was our adjusted entry per my Morning Levels Alerts and we were able to exit at 10.00 for a 2% gain. We were hoping for a bit more, but 2% is better than nothing. Our Short Sale of the Day with Gildan Activewear Inc. (GIL) became a no play when I adjusted the entry range down with the Morning Levels Alert; however, I did rerecommend the trade at 31, and some were able to make a nice move off of that.
We want to sell JCP to start the morning, and we will be taking a loss on this one. The trade did not work in our favor due to some bad retail earnings from the department store sector that I was not expecting.
Let’s get into the final plays of the week…
Buy Pick of the Day: Ultrashort Proshares Real Estate (SRS)
Analysis: The market is definitely looking to open down, and futures continue to grow worse this morning even after a retail sales surprise from the automobile sector. Retail sales rose 0.4% in the month of April, which was less than March but better than the expected 0.2%. The issue was that core retail sales missed estimates of 0.5%, hitting 0.4%, and they are probably more important. Additionally, the market is being driven down by growing fears in Europe that they have over…what do you know…debt building. The European and Asian markets tanked as a whole. The European markets are all down 1.5% – 2%; while the Asian markets all dropped over 1%. It is not good in the world, and fears are building in the American markets.
We want to take advantage of those fears with a solid inverse buy followed up by a sexy short sale. With the market looking pretty bleak this morning, we want to take advantage of the bad news with a volatile ETF. Among the inverse ETFs, the one that appears to be getting the most overlook due to its lowest gains in pre-market trading is Ultrashort Proshares Real Estate (SRS). The ETF has only moved up a bit over 1.5% in pre-market trading, while most of its colleagues are up 2-3%. This means that the ETF has not gotten the move it deserves as of yet. Further, there is nothing really holding it back. Therefore, it presents a great buying opportunity.
Nothing coming out of the REIT sector really sparks any interest that would have any negative impact on SRS. It is one of those lone ETFs that really follows the market movement. While I do worry that the market is getting ahead of itself in pre-market, I think SRS represents the non-getting-ahead-of-itself that other inverses do not. When an ETF is already up 3%, it does not have much room to move anymore, but SRS has a lot of buying potential.
Further, its technicals are lovely. It is not overbought at all; in fact, the ETF is oversold. It is on the lower side of the RSI, and it is near its lower bollinger band. SRS is in a perfect position to make a move to the upside if the market continues its downward trend. I do not see much pushing it up to start the day, and I think we can make a quick gain with SRS.
Get into SRS fast in the morning and make some money!
Entry: We are looking for an entry of 25.30 – 25.40.
Exit: Sell on a 2-3% gain.
Stop Loss: 3% on bottom.
Short Sale of the Day: Take Two Interactive Inc. (TTWO)
Analysis: I am very pumped about the Short Sale of the Day in Take Two Interactive Inc. (TTWO). This company makes a slew of video games for Playstation and XBOX consoles. Currently, their biggest seller is the Grand Theft Auto lines and Civilization games. The company, however, may be facing a major selloff today after news was released yesterday that video game sales dropped 26% in the month of April. While TTWO does not have a major seller on the market right now as it awaits the release of Red Dead Redemption and Mafia II, the company is in the video game industry, and the market is falling.
The news was released that software sales dropped 22% and console game sales dropped 26% from one year ago, which was shocking to many analysts. Most analysts were expecting for sales to meet those of one year ago, rather than drop. Analysts expect Gamestop and Activision to take the brunt of the hit, but that does not mean that TTWO will not be affected. The market is looking very bleak, the gaming industry is hurting, and TTWO is the most overvalued gaming stock currently.
That is right. The technicals show TTWO as oversold on stochastics, overvalued on RSI, and near its upper bollinger band. While the other giants in ATVI and Electronic Arts (ERTS) are moving near the bottom of their bollinger bands, TTWO is doing very well for itself. That will most likely change today.
We want to get into this one right at the start of the market opening. I think a 10.90 – 11.00 entry will be best to position us to make a nice run off the short sale.
Entry: We are looking to short sale in the range of 10.90 – 11.00.
Exit: We would like to cover for a 2-3% gain.
Stop Loss: 3% on top.
Good Investing,
David Ristau
