The Oxen Report: Who Doesn’t Like Shiny Things, Oil Hurt by Positive Data?
For Tuesday, the market will be turning its attention to non-farm labor productivity results, as well as, unit labor costs, which are two important labor economic indicators. Other than that, however, pertinent news is pretty light this morning. The non-farm productivity results will show how productive labor was in the month of July, which is configured by dividing GDP by the hours worked in the month. If the number is positive year over year, it shows a healthy economy, whereas a negative number shows inflation. A beat here would help to provide the market that spark to rally, but a miss will continue to produce the selling the market saw yesterday. Both indicators are released at 8:30 AM.
9:00 AM Update: The labor productivity results were well above estimates and were the single highest monthly, year over year, increase the market has ever seen. The productivity results were 6.20% higher than one year ago. Unit labor costs, however, came in much less than expected missing estimates.
Futures are down slightly going into today’s session. At 8:00 AM, the Nasdaq is down 4 points, the S&P has shaved close to 4 points, and the Dow is down 11. Futures have come off positive numbers that were seen earlier today as the European markets have turned negative after following Asia to a positive morning.
One bright spot heading into the day were the Asian markets that saw bullish news from China about its labor, retail, and exports, which according to the government all improved exceptionally well in the month of July. The news helped to drive the Hang Seng up around 0.7%. Japan and South Korea’s markets were both doing well on the news, as well as, the decision to keep key interest rates steady, decided by both countries’ central bank.
There is not much coming through in way of earnings reporting this morning as the earnings season starts to cool off. One important earnings reporting I did see, however, was from Fossil Inc. The company saw its profits drop 34% in the latest quarter, but the company did beat estimates. There are a number of big name retailers releasing earnings throughout the end of the week, such as Kohl’s, Liz Claiborne, Macy’s, Urban Outfitters, and Wal-Mart. It is good to see the specialty retailer functioning well in the economic times.
The lack of market direction and valuable fundamental news has made the buy and sell of the day tough, but I was considering applying some of the Oxen Gamble of the Day logic to my Buy Pick of the Day in a more safe version.
Buy Pick of the Day: Pan American Silver Corp. (PAAS)
I noticed yesterday that nearly every company releasing earnings in after hours was up on the down day. Most of the companies were even up 3% or more. Typically, however, I have found that trying to play the earnings run is harder than most think, but since I started to perform the Oxen Gamble of the Day, I think my logic surrounding earnings has improved drastically. That is why I like Pan American Silver for today.
With the market not sure of what it wants to do, I like to play this earnings jump for today. PAAS has not been traded in pre-market yet today, so I cannot gauge where it is at just yet. One of the main reasons Pan American looks to be strong is how well gold companies have done this earnings season. PAAS is one of the only silver companies that trade on a major US index; therefore, it is hard to know exactly how well the earnings could be based on rivals. The gold companies have all done fairly well though. During these economic times, metals have raised to high prices, silver included. That should bode well for earnings.
Another reason I like PAAS is that it has, historically, performed well going into earnings. This year, the stock seems well placed to have a nice run going into the earnings report this afternoon. The stock has definitely been bought up over the past few weeks, but that follows a general market trend. The past week, however, the stock has been sold off and seen retrenchment. In fact, the company’s RSI Index has almost become neutral at 50. The company on fast stochastics, as well, has seen a lot of downward movement and selling with three straight negative days.
We don’t have any pre-market numbers yet on the stock, but I think buying at the open is probably a safe bet for this stock but check back on morning levels for entry and exit.
Short Sell Pick of the Day: Ultra Proshares Oil and Gas ETF (DIG)
Well, the two important economic indicators for the day just came through. Labor productivity was better than expected while labor costs were much worse than expected. However, everyone is going to be seeing those labor productivity results as bullish for the entire market. It does mean less people are holding up the GDP, which is sort of an underlying issue that will be brushed aside. However, futures are moving back to flat.
This should be good for the market, but I do not think it will help the oil industry. The oil market is up above 71 in pre-market trading on great news from Asia. However, the labor productivity results are bullish for the USD as it means our economy is growing much stronger and more productive. The stronger dollar means lower oil prices. A lower oil price means a weaker oil market and stocks.
To play that change, I want to look at shorting Ultra Proshares Oil and Gas ETF (DIG). The ETF follows the oil and gas 
market across oil shipping, drillers, refiners, and gasoline retail. It is well diversified, but it is highly affected by the price and demand for oil. With a stronger dollar weakening oil prices, I would look for DIG to drop off. The stock is up in pre-market, but it will lose those gains as the oil market pulls back on this economic data.
DIG has moved up with the rise in oil prices, but as the market has started to make some pullbacks, the ETF has moved slightly off highs over the past few months, and it appears ready for a pullback. On the single day trade, the selling pressure we are seeing on stochastics and the lowering RSI indicator means we could see the stock continue to sell off throughout the day as it has lots of room for downward movement.
Check back for morning levels for entry and exit as the oil prices are fluctuating significantly currently.
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