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The Oxen Report – Retail Revving Market, Can the Bears Stop Hibernating?

Yesterday, we had a fantastic rally, but the question will be can it continue today. The big announcements are in the retail sector, the job reports, and some key earnings that will shape the day. However, more and more, I am hesitating on the fundamentals as the market continues to trade on sentiment. I will do my best to lay out the fundamentals here and what they mean, but its any guess where we are going now.

To start, futures are up very sharply going into the trading day on a number of bullish indicators, with the Dow currently up almost 100 points (8:00 AM). The extended excitement about the Fed report is definitely fueling some of the higher prices, but the real fuel so far this morning is coming from a fresh batch of positive earnings from a new sector, retail and Europe’s better than expected contraction. Germany and France in Q2 of 2009 even swung to gains. This global news has been very positive for the futures. However, the market is completely ignoring the fact that foreclosures rose 7% in the month of July to record levels. Europe’s success and earnings are overpowering this small, tiny snafou.

On the earnings front, three key retailers in three different sectors all reported positive earnings surprises. Wal-Mart Stores led the way earning an EPS of 0.88, beating the estimates of 0.85, as well as, boosting their yearly outlook. On the department store front, Kohl’s slightly beat earnings estimates with an EPS of 0.75 compared to 0.74. Specialty stores got a nice boost, as Urban Outfitters surpassed earnings expectations, posting an EPS of 0.29 while analysts had expected an EPS of 0.26. The company saw its revenue increase, which is a very positive number, as well. The three companies definitely gave a nice shot in the arm to the retail sector, but we will still have to see retail sales do in the release at 8:30 AM before we start to party!

Oil rose throughout the rest of the world on Thursday’s trading on the positive news from the IEA about increasing oil consumption and demand, but we will have to wait to see the new data on retail sales and jobless claims before taking any position on which way oil may go.

If the market opened right now (the time is 8:20 AM), I would be very bullish and recommend really any retail stock. However, we really need to see the retail sales and jobless claims before making any decision. If they are really off, it may make for some great short sales as the market might turn negative on the day.

8:33 AM Update: Retail sales fall more than expected. Retail sales, even including inflated Cash for Clunkered automakers, fell 0.1%. Without the retail market was down 0.6%. Additionally, jobless claims rose more than expected, with 558,000 new claims last week. That was 14,000 higher than expected results.

This is all very bad for the market. I have not gotten the up to minute futures data yet, but going into the Dow was up 104 points and Nasdaq was up close to 19 points.

Short time?

Buy Pick of the Day: Ultrashort Proshares Financials

Futures dropped 40 points after the report came out. Today is suddenly going from looking very positive to negative. So, we want to position ourselves in such a way that we can benefit if the market turns red. The market should begin to come under selling pressure with the bad economic data that sort of neutralizes the earnings report. The rise in unemployment also axes the positive thoughts people were starting to have about the fact that unemployment was making a turn around. With how much the market jumped yesterday, some profit taking on this news should be a must for investors.

With the results on the retail sales, compared to the earnings report, it will be very interesting to see where retail goes on the day. It may be buoyed by good earnings and see neutral ground as investors get stock specific. So let’s avoid that section.

Instead, I think its time to enter the much overweighted and overbought  financial sector via Ultrashort ProShares Financials (SKF).

Financials, as a whole, have benefitted unbelievably from the recent market gains, some gaining as much as 100% in a month. The sector is very overbought, and it made things even more overweight with yesterday’s gains. SKF appears in the pre-market to be down 2.5%. There is really no reason to believe that this will not change around unless investors just ignore completely any fundamentals in the market…as they love to do. I think, however, the lowered price is great for a cheap entry on what could be a very large day for the ETF.

SKF has lost 40% in the past month, and the stock is completely oversold and near its lower bollinger band. The market is a technical nightmare, but what the chart shows us is that this is momentum that eventually will be broken. We can still be in a bull market, but profits will be taken. Today, with this news, you have to believe SKF is ready for a move up even if it opens lower.

Sell Pick of the Day: Maidenform Brands (MFB)

What a solid quarter for the maker of women’s clothing. The long term prospects for this company are very solid, but the company may be the most overvalued retail stock in the entire sector. The stock, yesterday, jumped 7% on 24% EPS surprise and solid outlook. However, the company jumped outside of its upper bollinger band. This is a red flag to any investor of a stock that is going to have a pullback. With the retail report, this gives the stock a catalyst to move back today, even with the solid earnings from other retailers.

The stock has jumped 25% in one month alone. It is just too much, too fast, and the stock is looking for a heavy technical pullback. The technicals are definitely not the market’s friend, but in this case, we should all be looking for a pullback on the stock. Another reason I look a pullback is that Maidenform’s rival, Warnaco Group Inc., who is a women’s retailer missed estimates. This should not have an overwhelming affect, but coupled with the retail sales disappointment, it should give more reason to pull the trigger.

In the long run, on any pullback of 5%, I would recommend this as a buy. The way to trade the market, though, with a solid stock like this is buy and hold for these gains, short back down, and rebuy again.

Entry: I recommend entering at the start of the day, as I don’t think the stock will have much gapping up or down, and it should trend down from there.

Exit: Pulling the plug and covering on 2-3% gains from entry at the open is a solid but safe play. Stop loss of 3% is recommended on the top side.


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  1. David Ristau

    Oxen Report Morning Levels Update

    SKF – Let’s look at entering the stock at 28.35 – 28.40 levels, based on current prices that we are seeing in pre-market trading. Watch between 9:30 AM – 10:00 AM for exact entry price. I say this just in case the stock opens at 28.50, and it makes a move up from there. This thing could quickly run up, but getting the stock at a 2.5% discount from yesterday’s close on today’s data should be a bargain. The only reason we are seeing SKF down like this is because of the Hank Paulson news that came out, which should really lose momentum on general market sentiment.

    On the exit, we are looking for 2-3% exit from those 28.35 – 28.40 levels with a stop loss on the bottom of 3%.

    MFB – No pre-market trading, but I still feel confident on entering right at the day’s open.

    Good Investing!

  2. David Ristau

    Okay so SKF opened right at my level – 28.35. We are now looking for an exit  at 28.91 – 29.20 for 2-3%. Stop loss we have is at 27.50.

    MFB opened at 15.31. Looking for it to move down to 15.11 to cover for 2% all the way down to 14.85 for 3%. Stop loss is set at 15.75.

    Those are my entry and exits.

    David

  3. gatsby1965

    Who is the man!!!
    Nice call on SKF.
    TR

  4. oldgoat

     I sold at 29.25. Would you buy in again today? And if so what price?

  5. David Ristau

    Gatsby – Thank you.

    Oldgoat – Yeah. I mean if it gets down to 28.50 range again, why not buy in. The market is waiting for those business inventories and natural gas storage. If they are both bullish, then I might buy back in closer to 28.25 range, if it dipped that low. If they are bearish, jump back in for sure at 28.50 – 28.65 levels.

  6. Kwan

    nicely done – that was a quick 10% on the Sept 29s (tricky entry though, because the spreads were generally pretty wide with only small windows where it traded with only a dime difference)

  7. David Ristau

    Kwan – Thanks. Glad you could make some nice profits.

  8. RMM

    David: now closed my PAAS with 1.3 % gain.

  9. David Ristau

    RMM – Awesome job on your resilience. It is a lot better than mine. Glad it worked out for you in the end.

  10. RMM

    David: man, I should have taken the gain on LDK yesterday, now its down a lot. need a rebuilding strategy.

  11. David Ristau

    Oxen Report  – Midday Message

    SKF – Well, the ETF worked very well on this morning’s pullback, and we met our upper exit range at 29.20 on the entry of 28.35. Hit that 29.20 for an exit around 10:00 AM. The stock has pulled all the way back to our entry price now as the market has rallied off the morning sell off, which is astounding. I think getting in at this 28.35 – 28.40 level is not terrible, but I am not sure it has a ton of upward movement. Additionally, I would fear a larger mid to late afternoon rally, even though there are no fundamentals for it.

    MFB – The stock worked well. We got in at 15.31 and were looking for an exit 15.11 for a 2% gain. The stock bottomed at 15.10, so we were able to get that 2% exit. The stock, however, has rallied with the rest of the market, and it is sitting almost 1.5% above our entry price. If you missed the exit, I would sit tight. I don’t think the stock has a lot of upward momentum left, especially because of its low volume. At the same time, I don’t think it is going to move back down. You may be stuck in it overnight. The charts are clamoring for a pullback on this one though,but if it can’t happen today…when?

    Good Investing!

  12. David Ristau

    RMM – The longer I look at the earnings and the prospects…the worse I feel about it. I sold my positions. The company did not make me feel very good with their conference call. Gains may be a long way off for this one. We might restructure by hedging position at around 9. It may get some boosts coming in next week as we move into important earnings from Yingli Green and Solarfun. However, you may be better off just taking the loss and moving on.

  13. David Ristau

    The Oxen Gamble of the Day

    I have decided to indefinitely suspend this trade. Too much money lost for everyone, and too many misses. I am going to just stick to what I do better with The Oxen Report picking system. If you have any questions, comments, or concerns about any earnings or any stocks direction going into the next day, I would be happy to give them a looking over and give my two cents.

    Thank you and Good Investing.

  14. Pharmboy

    David – loved the gamble of the day.  AND You noted it was one!  Earnings are a bitch, do I normally stay away as I am mostly on the wrong side of the trade….hence, I only participated in the LDK play with an option, but survived ok.  Thanks, and keep up the good trade ideas.

  15. David Ristau

    Pharm – yeah it was definitely exciting, but I think it was doing more harm than good.

  16. swellcat

    David – loved the gamble of the day.
     
    Ditto — A mature, intelligent player doesn’t beeotch at the croupier when the dice don’t go the player’s way . . . even if it’s (gasp) two or three rolls in row.

  17. David Ristau

    Haha so you guys want me to keep it up?

    How about this:

    If you want me to do the Gamble, tell me here. If I get what I feel like is enough support I will continue to try to find some things that I like for gambles. If not, we will scrap it, and I will try to introduce a new idea. I was thinking something like a seminar alert. Basically, each day I would take a stock that seems to be doing something nobody thought it would do or could have people suggest to me something crazy going on. I would go in and do an hour or so if breaking it down and try and teach everyone, including myself, a little something about the market.

    Let me know which you like better.

    David

  18. linhong0h

    David,
    Even I’m down $722 on PRXL (still holding since it’s in my 401K account. Can’t get the money 30 years later), I still like it. I made stupid mistake myself by taking too big of a position (relatvie to my other trade).
    So yes, continue to give us the Gamble idea :) (and we should do our own dd/moneymanagement.

  19. susan8231

    David, I’d like you to keep the gamble.  I haven’t been following very long but have 2 winners and 2 losers.  You clearly identify these picks as gambles so buyer beware!

  20. Rich_

    I like the "Gamble" too.  We saw another member concerned that it was called a gamble, so if that is an issue with others, you could call it the the "high risk play".  It didn’t bother me.
    My only concern would be if it takes you away from investigating the other plays with less risk.
    Thanks for your research.

  21. Rich_

    My son in law works for Fluor company (FLR).  He believes the company is cash heavy with very little debt.  They are also getting many contracts generated from the military escalations in the middle east.  They’re also hiring more people.
    This may be more of a long term investment, but I would appreciate your take on it, if you have time.

  22. David Ristau

    Rich – Yeah this is a solid company.I think anything involved with government contracts is very solid for the next 3-4 years. We aren’t leaving the Middle East anytime soon. The company is off its 52 week highs by close to 40%, so it definitely has some very lucrative long term return prospects. In six months, though, the stock has nearly doubled from lows, and while that trend should continue, my guess, though, is that you can wait for some type of 5% pullback to the lower 50s range to enter. These levels are just a bit too high for my liking. One thing I really like though about any great company is they continually beating EPS estimates, and Fluor done so quarter after quarter. They will definitely be hurt by any end of conflicts in the Middle East, but I think by the end of the year this stock could be up to 65 points maybe more. Good find.

  23. David Ristau

    Oxen Report Daily Recap

    It was a good day, overall, for the stock picking experience. The market surprised me by rallying off of 5 crucial pieces of fundamentally weak news that came out this mornin. I guess I should not be surprised because the last time the market traded on fundamentals it was plummeting into a dark, dark abyss.

    Buy Pick of the Day: Ultrashort Proshares Financials (SKF)

    One of the sectors that has been really leading the rally over the past couple weeks has been the financial sector. These stocks have been very strong after being beaten down so heavily among the credit crisis, especially the smaller, regional banks. On the other hand, when a sector gets that overvalued, in the short term, one has to expect profit taking to occur on any signs of weakness. Those jumping into these stocks have seen solid 20 – 25% gains. When those gains disappear due to weak economics or a weak market, it should start a chain reaction of short term selling. That is not happening in a prolonged manner like I would think it would. While SKF did work for us, it did not finish as well as I thought it would. As people jumped out of the financials, today, there was another investor there to replace him/her to keep demand high. That is really a bullish, bullish sign of the times.

    For SKF, we entered the stock right at the beginning of the session because it hit the level I liked of 28.35. From there, we were able to exit on the high side of our 3% range with an exit at 29.20.

    Sell Pick of the Day: Maidenform Brands Inc. (MFB)

    Again, here is a stock that rallied very well and made some great gains on the day. The key to day trading, however, is with entry and exit. On this stock, we hit the nail on the head. I wanted to enter right at the beginning of the day because I knew it was an overvalued stock that would probably be a slight gap up on the positive earnings. With the retail sales, however, being slammed, downward pressure would be created to bring MFB off its highs. The entry price we accepted was 15.31, and we were able to sneak out on the low side of our exit range at 15.11 for a 2% gain. This stock was a success because of understanding what the stock will do that we can control in the morning.

    Tomorrow’s Agenda

    For TGIF, the market will be looking for more key retail earnings to help drive the market, as well as, economic data. Further, we will see once again if the rally can continue on sentimental trading. Will the fundamentals catch up with the market? The key economic data coming out is the Core and regular Consumer Price Index. These two indicators measure the change in price of goods and services. It is a key indicator to show inflation and deflation. The market is looking for prices to have deflated slightly. I think it will be very bad (HA…can that even happen) for the markets if deflation is worse than expected. On the flip side, too much inflation is not good either. In many ways, therefore, I think unless it is heavily one way or the other, this is a mute point. We also have some industrial production data for the month of July and the Michigan Consumer Sentiment Index, which both can move the market.

    On the earnings front, the key and only earnings come from Abercrombie and JC Penney. These two will help continue a rally for retail, but I think they will have to be extremely bullish to really send the sector forward. Good earnings, though, will be good for the general market

    Economic Data:  8:30 AM – Core CPI and CPI, 9:15 AM – Capacity Utilization Rate and Industrial Production, 9:55 AM – Michigan Consumer Sentiment Index

    Earnings: See above.

    Still trying to decide on the Gamble of the Day’s future. Any more comments on it would be much appreciated.

    Good Investing!

  24. dstillwe

    you should keep doing it – but call it some other than "gamble" – it diminishes the analysis and makes this seem like a poker room.  steal an idea from proshares or another etf and maybe call "3xRisk Play"  or "UltraLongShot"… that would be cool – and funny

  25. dstillwe

    you should keep doing it – but call it some other than "gamble" – it diminishes the analysis and makes this seem like a poker room.  steal an idea from proshares or another etf and maybe call "3xRisk Play"  or "UltraLongShot"… that would be cool – and funny

  26. swellcat

    DR: Your posts are the some of the most literate and thus, easiest to read, on the site.  Think you meant "moot" rather than "mute" above, though.
    Other GoD alternate names if you need them: High Beta Play, Spec(ulative) Pick, Risk Capital Corner.
    You could also insert a little disclaimer template with each call: "Speculative capital subject to loss," "Do not invest more than you can afford to lose," "This play intended for a small, speculative portion of a portfolio," whatever, etc.  (People, being what they are, will still beeotch, though.)

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