Good morning to all. Tuesday is looking to be an interesting day in the markets as it looks to extend to its fifth day of gains. Retail sales, however, are the big ticket item this morning as well as a general overvaluation of many stocks that would tend to suggest some profit taking may be in order. Currently, we are in a Medium Term Short Sale of Lennar Corp. (LEN) and a Play of the Week in Savient Pharmaceuticals (SVNT). The FDA and Savient have not yet announced whether their drug Krystexxa has been approved or not, which will definitely move the stock.
Let’s get into some new plays for this morning…
Buy Pick of the Day: Direxion Daily Energy Bear ETF (ERY)
Analysis: The market is looking like it most likely will not be able to keep itself green today. Despite a solid report from the retail department, futures are already treading back into the red only twenty minutes after jumping into the green. Mostly, it appears that a lot of investors are just taking some gains off the table afraid that they may not get them later. With the loss of demand for buying, prices will decline in the short term. I would venture to guess that by midday, however, we are headed back upwards. One commodity that should see somewhat of a decline today is oil.
The oil market has been stuck in the 70s for quite some time, trading in a very tight range. The upward buffer appears to be around $78 while the lower is at $73. Oil moved close to $78 yesterday, but it appears to be on the way down today. A.png)
combination of weak economic data from Europe, mostly Germany, and a strengthening of the dollar are outweighing any supply issues from pipeline leaks, which may be priced into the oil price as of now.
"The economic conditions in the eurozone remain fragile, adding further pressure to the euro and thus to the U.S. dollar-dominated markets," said a report from Sucden Financial Research in London.
With oil looking down, we can take advantage of this opportunity to buy a volatile inverse ETF that will increase with oil’s downward movement as well as the market as a whole. Direxion’s Daily Energy Bear ETF (ERY) is a great way to day trade the changes in oil direction. The ETF has been quite beaten up as of late. Dropping from the high 50s at the beginning of the month, the ETF has lost just under 20% in value.
That loss is helping to make ERY even more attractive for a bounce as upward movement is topping out and losing momentum. ERY shows that in inverse fashion as the stock has moved very close to its lower bollinger band, is at 0 on fast stochastics (meaning that the stock is completely oversold), and RSI has dipped into the low 40s. All signs point to a definite decline in supply and demand should return.
We will want to get involved early as this market should move downward throughout the morning.
Entry: We are looking to enter ERY at 47.00 – 47.20.
Exit: We are looking to exit for a 2-3% gain.
Stop Loss: 3% on bottom.
Short Sale of the Day: Teradyne Inc. (TER)
Analysis: One of our earnings season favorites look to be a great short sale candidate on the day. Teradyne (TER) received a downgrade this morning from Oppenheimer to "Perform" from "Outperform." Since releasing its earnings on .png)
July 29, the stock dropped significantly after topping out but has seen a healthy 8% growth over the past week. Oppenheimer downgraded four companies in the semiconductor equipment sector due to what the company believes are weakening fundamentals for the sector that should result in a weak Q4 for these companies.
With that bearish news coming to the plate, TER looks poised to give up some of its gains its seen as of late. The stock’s movement upwards has made it very overvalued, and the downgrade, along with market looking down, should help to push this one down further. The target drop was very high from $17 to $10. Oppenheimer is now among a group of financial firms that are seeing the cyclical nature of semiconductors drop off in Q4 as global demand wanes.
TER has just hit its upper bollinger band and is heavily overvalued on RSI. The technicals line up that profit taking should occur despite any news. Now with the news from Oppenhiemer, it is a two-pronged bearish attack on the stock. I would think that investors will quickly flee TER once the market opens.
Get into TER early!
Entry: We are looking to enter TER at 9.90 – 10.00.
Exit: We are looking to cover for 2-3% gain on bottom.
Stop Buy: 3% on top.
Good Investing,
David Ristau
