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The Oxen Report – Can Oil Prices Fall, One Company’s Slow Death

Friday’s trading session is shaping up to be based on a light spattering of earnings and economic data. Thus far today, investors have not received a lot of signals about how the trading day will shape up. Two major retailers, JC Penney and Abercrombie & Fitch, did release earnings that were somewhat bullish, but futures are completely flat at the moment (8:00 AM) as investors way some key economic data. We will have to wait until we get the CPI data, as well as, industrial production numbers to decide where the market will open and what direction it will take from there.

On the earnings front, Abercrombie & Fitch Inc. (ANF) posted a EPS surprise despite 130% decline in profits, 30% decline in same store sales, and a 23% drop in revenue. The small earnings beat, which was configured by taking out a one-time charge related to closing down ANF’s Reuhl line of stores, has sparked some investor interest and sent the stock  up over 3% in pre-market trading. The only other earnings release on Friday morning came from JC Penney Stores (JCP), who also posted a better than expected EPS, breaking even at 0.00 while estimates were -0.01. JCP is up over 1% in pre-market trading.

Europe and Asia, unlike yesterday, are providing little guidance for the day as both groups of markets traded up on light news. The Eurozone, however, did announce a 7% drop in core prices in the EU countries, which was a higher than expected drop. Signs of deflation did not hamper a rally, which may be music to the ears of any bulls out there. European analysts said that they do not believe the deflation shows any long term notions of inflation vs. deflation.

8:35 AM Update: It appears that Core CPI, which excludes the change in prices of volatile energy and food, is right in line with estimates at -0.01% drop in prices. I think this news is honestly the best thing that could have happened. Too much decline threatens more deflation while an increase signals inflationary sell offs. Regular CPI, which includes energy and food prices, was completely unchanged.

On the news, futures have fallen off their earlier flat readings to slightly negative. It is really hard to say where this market is going on the day, but a lower open is in store. My gut is saying that some selling off should be in order today, but we still have to see some more data from industrial production and consumer sentiment.

Buy Pick of the Day: Ultrashort Proshares Oil and Gas (DUG)

Oil prices are going to rise or fall today, and as of 8:45 AM, I believe that oil prices will fall. There are a number of reasons for this position. One, futures are pointing to a lower open and down day. Secondly, there was no change in CPI, which signals no inflation. However, if the market gets very positive industrial production numbers at 9:15 AM, followed by a solid Michigan consumer sentiment index, then oil prices could possibly go against the fundamentals…again. However, today, I think it is less than likely.

Additionally, with the rally we had the past two days, oil has not had time to let the fact that inventories are rising in the USA as well as decreasing demand set into the prices, and without something to catalyze the Nymex, oil speculators may feel a lot of downward pressure. Futures, as of 9:00 AM, have dropped even lower than they were after the CPI data.

Further, oil is continually seen as the hedge to inflation. The CPI news this morning should give no reason for anyone to see inflation in the near future and thus no reason to rise oil prices. If industrial production or consumer sentiment come in weak or just at estimates then oil should be off to the races downwards.

I think playing Ultrashort Proshares Oil & Gas is a safe inverse play for today over Direxion’s ETF. This one is a bit less volatile, and with today’s uncertainity, we want to be in something less volatile. The pre-market trading for DUG is up slightly for 0.50%, but check back on morning levels and my later comments for better entry prices. This trade is in now way techincal, but because DUG has had such downward momentum, the upside for the ETF is very great if oil were to slip significantly.

Sell Pick of the Day: Blockbuster Inc. (BBI)

Blockbuster is now the dinosaur in the movie industry. What once was an industry leading company that massacred the mom and pop video store is now becoming closer and closer to its eventual demise. The neverending pain for Blockbuster continued last night as the company reported its latest quarterly earnings. The company narrowed its losses for Q2 2009, but the less bad losses did not beat the Wall St. estimates. Analysts were expecting an EPS of -0.12 while BBI hit an EPS of -0.19. The news has not been good for Blockbuster in pre-market trading, as it is down 18%. Revenue fell 22% and same-store sales fell nearly 18%.

Blockbuster continues to tap into a smaller and smaller market share each quarter as less and less investors look to the video store for their movie rental needs, and Blockbuster’s online video rentals has not lived up to the successes of Netflix. Also hurting BBI is the success of a cheaper vending rental machine called Red Box. In the long run, most investors believe Blockbuster cannot last unless it makes some sort of drastic change.

The reason why BBI is such an excellent short sale is that the stock has increased so greatly with the rest of the market. In one month, the stock’s price has gone up by close to 50%. While being a penny stock, the stock is volatile and has high beta. This is good for a short sale because it means that the stock is going to continue to decrease and not trade slightly down to sideways. I expect the bottom to fall out on this one.

A lot of the data coming out today really does not affect BBI, but if the market rallies it could help this stock find a bottom and rally from there. The stock is down significantly in pre-market trading, but it is moving around significantly. Check back for the morning levels alert for an entry and exit price and my comments later on to see where I put my entry.

This entry was posted on Friday, August 14th, 2009 at 8:15 am and is filed under Permissions, Uncategorized. You can leave a response, or trackback from your own site.

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Comments


  2. David Ristau
    August 14th, 2009 at 9:17 am | PermalinkIgnore this user

    Oldgoat – Should be able to see it as of 9:00 AM.

  3. David Ristau
    August 14th, 2009 at 9:24 am | PermalinkIgnore this user

    Oxen Report Morning Levels

    DUG – Industrial production did come in pretty positive, which is not good for DUG right off the bat. The ETF has dropped one penny into the negative on pre-market trading on the news. Futures were getting worse and worse going into the data, and I think it will only work as a short term squeeze.

    Entry: Based on this price and news, I think getting into DUG at 16.20 – 16.30 is a safe bet as it may lose some ground at the start of the session.

    Exit: With the industrial production numbers and unknown on consumer sentiment, I think we can only hope for a 2-3% gain. Therefore, we are looking for an exit at 16.52 – 16.68. Stop loss is set at 3%, so 15.72.

    BBI – The stock has come up from its previous lows to 0.72. I think around this area is a nice point to start the short sale, so getting in at the open is good with me.

    Cover: I think we can cover on a 3-4% gain off of our entry. Check back for that exact number.

    Good Investing!

  4. Rich_
    August 14th, 2009 at 9:54 am | PermalinkIgnore this user

    You called DUG well.
    I was late getting in at 16.50 and got out at 16.70.
    Made a little.  Thanks

  5. David Ristau
    August 14th, 2009 at 9:54 am | PermalinkIgnore this user

    Oxen Report Entries

    DUG -Opened a lot higher than I had expected, and it had no pull back. Let’s wait for an entry still based on what the Michigan Consumer Index says. If it is bad, pull the trigger right away. If it is good, let’s wait for a retracement to 16.40 – 16.45 before entering the stock.

    BBI – We got in right at the open at 0.73, and we were looking for an exit at 0.71 – 0.70, which it already hit. So, we covered at the 0.70 price just a few minutes into the session for a fantastic 4% short sale gain.

    Good Investing!

  6. David Ristau
    August 14th, 2009 at 9:57 am | PermalinkIgnore this user

    Okay Michigan Sentiment was bad, so I pulled the trigger at 16.68. If you got in earlier at the open, good for you.I missed my levels, but we are in now a 16.68. Looking for an exit of 17.01 – 17.18 for 2-3% gain.

    Stop loss is at 16.18.

    Good Investing!

  7. David Ristau
    August 14th, 2009 at 11:40 am | PermalinkIgnore this user

    Here is my portfolio update:

    http://www.philstockworld.com/2009/08/14/the-oxen-report-portfolio-update-buy-pick-port-to-480643-sell-pick-port-to-301238/

    Both accounts going up!!!

    Good Investing!

  8. David Ristau
    August 14th, 2009 at 12:59 pm | PermalinkIgnore this user

    Oxen Report Midday Message

    The market got trounced in the morning and has traded sideways from there. Both of our picks have already met their limits and been successful.

    DUG – We got in at 16.68 at 9:55 AM, and we were looking for an exit of 17.18 for a 3% gain. That high side of our exit range was luckily reached at 12:05 PM and is the high of the day for the stock. Can’t work much better than that.

    BBI – We entered the stock at 0.73 for a short sale, and we were looking for an exit at 0.70, which we reached right away at the beginning of the day just a couple minutes into the day for a 4% gain.

    Good day, and I hope you made some money. If you are still holding these positions, have any questions about them, or have any questions about any other securities, let me know.

    Good Investing!

  9. jere.wood
    August 14th, 2009 at 2:28 pm | PermalinkIgnore this user

    David,
    I am a new subscriber with some questions.
    The other day we were playing ERY and you say you held your shares to close at $18.20 so you made money since you got in early at $18.15.  I got stopped out at $17.90 so even though ERY recovered to $18.20 I lost $470.  So I am unclear about the stop loss.  Not sure why I stopped out and you apparently did not. 
    I did not get an email today when you pulled the trigger on DUG at 9:57 AM so I missed out completely so far.  I did get your other email updates, but of course the purchase memo was the most important.   I see your post here but should I expect emails or do I need to be watching this all the time? 
    I use Fidelity and the system said there were no shares available to short for BBI so I also missed out on that as well.  I will call them to find out how to short since I have never done that.
    Any suggestions for the rest of today?  Any hope for me?  What do you think about me buying DIG and hope for a stick save?
    Jere

  10. David Ristau
    August 14th, 2009 at 2:36 pm | PermalinkIgnore this user

    Jere – On ERY, I set my stop loss at 3% from my entry price. 3% of 18.15 is 17.60. The ETF never hit that lower level, so I never sold it, but I sell everything at the exit since all my recommendations are single day trades. That is why I made money.

    On the pulling the trigger. The only reason it changed was because DUG did not get at my initial entry levels, so I had to adjust them. I don’t send everything out as alerts. I make some comments that are not alerts. The thing is that all alerts, if you are signed up for them, are published on this page. I like to make quick comments throughout the day that don’t go out as alerts…so I would recommend checking back here from time to time. Typically, though, I enter the stock at the price I recommend, but in this case, I had to adjust it.

    Yeah on the short sales, some of the firms like Fidelty, Charles Schwab, and Ameritrade are harder to daytrade with because they are just geared for the longer investor. With those institutions, they have to have someone that owns BBI that is willing to let you short sell them to you. On a more daytrading friendly site like etrade or thinkorswim, it is a lot easier.

    For the rest of the day, I would not hope for a stick save. I think if you get into DUG it’ll be trading pretty sideways, and I fear next week will be a bit more selling than buying.

    Hope this helps.

    Let me know if you have any other questions…that is what I am here for.

    Good Investing!

  11. David Ristau
    August 16th, 2009 at 7:54 pm | PermalinkIgnore this user

    Oxen Report Friday/Weekly Recap

    Things were good for the picks on Friday as I sensed a selling day. Here is a recap of the stocks and a recap of the week.

    Buy Pick of the Day: Ultrashort Proshares Oil/Gas ETF (DUG)

    The oil markets got some great selling pressure following a week day in the markets. I did not believe oil had priced in the inventory news as of yet, as well as, the news from OPEC that they believed that world demand would fall. When we got some weak data, it looked like to me we would be off to the races. I did, however, set my entry price at a bit optimistically low just because I fear the bull market…as it has bit me in the butt before. So, I got into the stock at 16.68 at 9:55 AM after seeing the weakness in the Michigan Consumer Confidence Index. We were looking for an exit of 17.18 for a 3% gain. That high side of our exit range was luckily reached at 12:05 PM. So, it was a solid gain for our buy pick.

    Sell Pick of the Day: Blockbuster Inc.

    I wouldn’t normally have recommended Blockbuster because it had gapped so far down in pre-market. However, the stock started to make a quick move up about 8% in pre-market right before the open. What is that effect? A very quick snap back. The stock opened up at 0.73, and we were looking for an exit at 0.71-0.70. It hit that price just minutes later for a solid 4% gain. If you missed that exit, it hit into the 0.71 – 0.72 range again, which was a solid 2% gain. Typically, when we see a stock already gap down 10%, it will trade pretty flat. The combination of a penny stock and its quick movement back upwards just before the day’s open made it a perfect short sale.

    Weekly Recap

    I didn’t have any weekly stocks, but I do have results on the week’s movement in my buy pick portfolio and short sale portfolio.

    The Buy Pick portfolio started on Monday morning at $4792.88. We ended the week at $4838.92. That was a weekly gain of just 0.96%. It was a weak week, but the first three picks of the week were not my best. The account, however, is at its highest level ever now.

    The Short Sale portfolio started on Monday morning at $2986.10. We ended the week at $3012.38. That was a weekly gain of 0.88%. Again, it was not my best week of performance, but the account is back into the positive.

     

    As a note, I will have some weekly picks coming out later tonight for your perusal. Hope you enjoy them, and good luck this week!

    Good Investing!

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