Good Thursday. The market is looking good pre-retail sales, which are slated to be released at 8:30 AM. We had a successful day on Wednesday. On Monday, we got involved with our Play of the Week in The Men’s Wearhouse Inc. (MW) at 18.55. We were looking to exit for a 4 – 6% gain and got out at 19.44 yesterday for a 4.5% gain. The company reported very good earnings last night, beating estimates with a 0.26 EPS vs. the expected 0.14. We also got involved yesterday with an investment in National Semiconductor Corp. (NSM). We bought into this stock as a two-day trade at 13.35. We are looking to exit on 4-6% gains through tomorrow; however, I am going to lower that exit range to 3-5% due to the stock’s tumble yesterday afternoon.
And if you thought the iPad was useless, check out the chart on the left.
Things are shaping up for a nice day in the markets, so let’s get to it…
Buy Pick of the Day: Ultra Proshares Oil and Gas ETF (DIG)
Analysis: Oil has a lot of reasons to improve today. For one, the crude inventories released yesterday showed another decline in inventories. This means that either supplies or being lowered by oil companies (hmm…BP) or that demand is rising. Either way, economically-speaking, it should increase the price of oil in the short term. This morning, the International Energy Agency (IEA) improved its global outlook for oil demand this year, believing that the recovery is coming faster to Europe and the world than expected.
Oil was also helptd by an extremely strong trading month from China in May, which saw a 49% increase in exports from one year ago. This figure was much higher than the mid-30s projection. It helped the Chinese markets put together a nice day. As economies begin to recover, the demand for oil will begin to re-increase, and it will drive the price back upwards. Oil has been slowly creeping back up, but it still could move all the way up to $80 per barrel before seeing another wall.
The market, as a whole, is looking quite strong today, which should also help oil price and the Ultra Proshares Oil and Gas ETF (DIG). This ETF has been battered over the last month and a half, but it should get a big boost if oil prices increase. Additionally, the ETF should be helped by BP’s recovery this morning. The stock is up nearly 10% in pre-market, which is helping to fuel some of DIG’s holdings like Exxon (XOM) and Conoco (COP).
DIG’s technicals also give weight to the reason why this ETF could have a huge day. The fund has lost just under 25% since the beginning of May. It is undervalued and oversold. It is right at the lower band, and it has tons of potential to the upside. If the market can really get moving and move on some of this great economic news we have today, then DIG could move a lot.
Entry: We are looking to get involved at 27.40 – 27.55.
Exit: We are looking for a 2-3% gain.
Stop Loss: 3% on bottom.
Short Sale of the Day: A-Power Energy Generation Systems Ltd. (APWR)
Analysis: It is hard to recommend much of a short sale in this environment. China is looking strong, the Euro is rebounding, economic data was pretty strong, and the market is looking up. Yet, even with all that great news, some stocks just are too overvalued and do not deserve to be where they are trading this morning. One of these is A-Power Energy. I almost chose this for an Overnight Trade, but unfortunately, I did not. The stock is up over 11% in pre-market trading on less than flattering quarterly news. The company missed estimates after subtracting a one-time gain, hitting an EPS of 0.05 vs. expectations at 0.22.
The company, which makes wind turbines and electric grids, did make a nice forecasting of the future, improved on last year’s numbers, and made an EPS of 0.64 if a one-time gain of an acquisition of a solar company is included in the numbers. The company, though, is not as heroic as seems. The company only truly made a small $200,000 increase in profits from one-year ago.
The stock has risen very high, very fast, and we all know what that means – it is going to be sold off. The stock’s upper limits are in the 8.30 – 8.40 range, and it is opening just below that to start the day. I think it will get a small pop to start things off before falling victim to some short-term selling. We want to enter on that wave down and take advantage of the short-term prospects.
Futures have been falling since a high in the 80s after 8:30 AM, and it appears the market may open with a downward swing rather than up. This would help to move APWR in the direction that we want as well.
Get in early and good luck. If it opens above our range, enter for sure.
Entry: We are looking to short at 8.35 – 8.45.
Exit: We are looking to cover for a 2-3% gain.
Stop Buy: 3% on top of entry.
Good Investing,
David Ristau
