The Oxen Report – Earnings Have Little Change to Futures, Market Looks Flat
Hello all! Yesterday, we had a nice day with our picks. To start, we recommended a buy of Domino’s Pizza Inc. (DPZ). The company seemed undervalued going into the earnings report it released this morning, and it appeared to present a solid buying opportunity as investors would buy up the stock going into the earnings. We played that upswing, getting in in the morning at $9.00 per share. From that entry price, we were able to exit in the afternoon at 9.27 for a solid 3% gain. On the short sale side, we were looking for Brocade Communication (BRCD) to decrease in price after receiving a downgrade from Oppenheimer. The stock initially decreased almost to a 2% gain from our entry of 9.35, but the stock increased throughout the rest of the day. We were forced to sell at the end of the day for a 2% loss at 9.53. We will take the 1/2, and we were very close to 2/2. Hope you were able to make some money.
Let’s get to Tuesday!
Buy Pick of the Day: Ultrashort Proshares Real Estate (SRS)
The market does not look prepared to continue its rally today. With Johnson and Johnson slightly beating expectations and increasing profits 1%, investors do not appeared impressed. Futures are up only handful of points going into the start of the day. The market did not get much in way of economic data this morning, and the only major earnings mover was JNJ. The market seems to have priced in a lot of earnings hope in the past few sessions. How much more can that occur? Today, we may see some small pullbacks from various sectors as investors take a breather.
Futures have continued to decline, and it may be time to get into one of our inverse ETFs that can make us some money. An ETF we have not looked at in some time is Ultrashort Proshares Real Estate (SRS). Real estate has been relatively quiet over the past couple weeks, and the ETF has decreased some 10% in value. It has been relatively slow moving, and it looks ready for a breakout as the bollinger bands have squeezed very tight around the stock price. A good day of selling off could make this ETF pop.
What is the catalyst? The ETF is up over 1% in pre-market trading, and it may be not so much that there are solid fundamentals to point to today. Rather, we are looking for market trends. When the market increases for some 7/8 days, it is likely that at some point some profits should be taken. This is the case with the market today. Nothing spectacular is driving the market, and the stocks that are releasing earnings, for the most part, are overvalued and priced into a beat. Therefore, many investors will be content with what they got and walk away.
Technically, SRS is right in the middle of its bollinger bands, so it has potential to the upside and downside. The ETF, however, is undervalued, and on fast stochastics, the stock is showing it has moved into an oversold range that cannot be upheld. The stock is definitely undervalued and should be a place to buy.
Entry: I am not convinced that the stock won’t pullback slightly to being, so we are looking for $9.65 – $9.75 entry.
Exit: 2-3% on top of entry price.
Stop Loss: 3% on bottom.
Short Sale of the Day: Pacific Sunwear Inc. (PSUN)
When I was younger, I used to love to shop at Pacific Sunwear. Today, I love it for my short sale of the day. We have established why we think the market will decrease, and if it does happen, then a lot of stocks that are extremely overvalued are going to lose their market value. So, stocks that are even more extremely overvalued in pre-market trading, such as PSUN, should be red flags. The stock received an outstanding upgrade from FBR Capital that recommended PSUN as a buy with a new target price of $9 per share. The stock is currently at $6. The stock is up over 6% in pre-market on the news.
This is from Marketwatch.com, "Analyst Adrienne Tennant said the company’s product focus is returning to an emphasis on brands with sales staff improving attention to the customers, which could help convert traffic to sales. It also has opportunities to shut underperforming stores, the analyst said."
The stock, however, was already outside of its upper bollinger band…yesterday. Now, it is is so far outside its upper band that the stock is begging for profit taking. PSUN has increased 20% in the past two weeks, and I am not sure that momentum can be upheld. We continue to see market futures drifting lower and lower, and PSUN should end in the green. Yet, it will not be a 6% gain.
Therefore, with the stock extremely overvalued, outside its upper bollinger band, and even starting to look toppy on slow stochastics. PSUN looks to be a great choice for our short sale of the day.
Entry: I think we should look to get into this one from 6.60 – 6.70, which is a premium on the current price it is trading at in pre-market.
Exit: Looking for 2-4% on the exit range for a cover to the bottom.
Stop Buy: 3% on top of the entry price.
Good Luck Today and Good Investing,
David Ristau
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