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The Oxen Report: Market Looks to South Korea and Earnings for Direction

Hello folks. Hope you had a fabulous weekend. We did not have any picks to review from Friday, so we can get into the mix right now with some picks for today. I have two picks that I think will work well on a slow Monday of earnings and data. Additionally, I am looking at a long term play that can hopefully give us some similar results to the Family Dollar stint we had a couple weeks back.

Happy Monday and let’s get investing!

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

I am not too bullish about this market this morning. We have pretty much neutral earnings. Saw some a beat from Verizon and Corning that could give the market a little boost, but the Verizon beat was by 0.01, and the Corning beat was by 0.03. We saw a miss from from Radioshack, however, hitting EPS of 0.30 vs. 0.31. Additionally, we saw FairPoint Communications and CapMark Financial file for bankruptcy protection. There was no major data to give us much economic prowess, as well. The only truly positive note we saw was from overseas. South Korea announced that they are growing at their fastest rate in seven years. 

With that said, I am liking the prospects for Ultrashort Proshares Financial for this morning. The ETF is going to benefit from the CapMark Financial bankruptcy protection news. This should be a gentle reminder to investors that some areas of the financial world, such as corporate lending (a la CIT), are not out of the woods. On top of this, we saw that ING is going to split their stock and needs to raise more capitals, and HSBC Holdings got a downgrade this morning. 

I just do not see where the market is going to find its rally today. The market is still relatively overweighted, and I think needs to have some more pullback. SKF is in a great position to rally, especially since it is trading in the red in the pre-market. The market is going to definitely move backwards on the factors listed above, and an inverse ETF like SKF will benefit from that.

Technically, SKF is still oversold, undervalued, but its momentum is moving it back towards being bought up. The stock is sitting right in the middle of its bollinger bands, and it has some definite upward room. I would definitely be excited about these prospects. The only thing I would watch out for is a slight rally due to some earnings from Ameritrade, ETrade, and Visa tomorrow. Otherwise, this one looks pretty golden.

Entry: We are looking for 23.85 – 23.95

Exit: 2-3% on top of the entry.

Stop Loss: 3% on bottom.

Short Sale of the Day: Riverbed Technologies Inc. (RVBD)

With my position that the market is going to be seeking a pullback, I think that Riverbed Technologies may be a place to get a solid short sale in the market. RVBD got an upgrade this morning from Piper Jaffrey to "Overweight" after beating earnings last week. The stock saw a huge sell-off after earnings, dropping over 8% on Friday with its earnings report. The stock this morning is up over 4.5% in pre-market trading on the bounce back upwards.

Piper analyst says, "We believe the sell-off in RVBD shares following what should have been viewed as a very solid Q3 was unwarranted and has created an attractive entry point for growth focused investors. The concerns regarding enterprise weakness was likely overblown as we believe RVBD prioritized on the near-term opportunities in the Government vertical 
during Q3, but the pipeline in the enterprise vertical remains robust and will likely bounce back materially in Q4. We also believe the Government vertical will remain strong in Q4 given large deals in this space typically roll out over multiple quarters…We believe Riverbed’s Q4 revenue guidance of $104-$107M is relatively conservative and sets the stage for a potential beat and raise in the future. This guidance reflects 1.4 – 4.3% q/q growth and is well below historical Q4 growth rates." 

I agree with Piper for the longterm. Yet, I trade on a daily basis. When a stock jumps over 4% in pre-market trading, we should expect it to definitely see some profit taking. As investors sold off on Friday, a lot of people were wanting to sell off and saying if it bounces back I will sell off. What you are going to see is a double bottom in two days. The stock’s earnings were definitely not terrible, but investors pulled the stock back down after rallying over 15% the weeks going into earnings. The stock still has room to be sold off on fast stochastics and did not reach its lower band. I think we should be nervous about this.

I would expect some rallying to start the session before the main pullback.

Entry: We are looking for a short sale of 22.20 – 22.30

Exit: We are looking for a 2-3% exit on bottom.

Stop Buy: 3% on top of entry price.

Long Term Play: 

Coming later…

 

Good Luck and Good Investing!

David Ristau

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Comments


  1. David Ristau
    October 26th, 2009 at 9:30 am |     PermalinkIgnore this user

     Oxen Report Morning Levels

    SKF – This one is starting to really move up. I think we want to adjust up our entry to 23.95 – 24.05. The stock is definitely ready to make its move upwards, and we don’t want to have our entry range too high before the market opens in order to enter the ETF.

    RVBD – The stock has lost a lot of the momentum it had and has moved down a whole 1.5% from where it was earlier in the morning, but it bounced all the way back to 22.10. I think we leave the levels where they are even though this one might not reach it. 

    Good Investing!

  2. David Ristau
    October 26th, 2009 at 9:30 am | PermalinkIgnore this user

     Not sure why the comments were turned off earlier.

  3. David Ristau
    October 26th, 2009 at 9:47 am | PermalinkIgnore this user

    Oxen Report Entry/Exit

    SKF – We got into SKF at the beginning of the session at the even price of 24.00. The stock hit 23.97 as a low, which was close to our low part of the range at 23.95. We are now looking for an exit at 24.48 – 24.72. SKF has moved as high as 24.40, so we are getting close to the exit range we want but are still looking for more.

    RVBD – We got into this one for a short sale at 22.30. The stock is about 1% above that entry price with a short sale set at 22.97. The stock is jumping around a lot so we will keep an eye on this one. We want to get out at the lowest of 22.08, but we would hope for something around 21.86 – 21.64. The market has definitely rallied a lot higher than I thought it would this morning, and that has helped RVBD. 

    Good Investing

  4. Zuko775
    October 26th, 2009 at 11:34 am | PermalinkIgnore this user

    Good Job again David.  SKF jus pulled a 2.5% gain. Not to beat a dead horse on SRS, but I’ve been long in them for quite a while.  Can we expect a bullish sentimen there over the next 6 months.  Cap seemed to have no effect.  Please advise.

  5. David Ristau
    October 26th, 2009 at 12:15 pm | PermalinkIgnore this user

    Zuko – As far as SRS, we are going to see some real estate earnings after hours today and throughout the week. I think when we see these it will really give us a good feeling of SRS for the next couple months. Ones to watch are SL Green Realty, Plum Creek Timber, Boston Properties, CB Richard Ellis, and Duke Realty. I can’t really make a position till I see some of these REIT, commercial, and home builders’ earnings.

  6. David Ristau
    October 26th, 2009 at 12:33 pm | PermalinkIgnore this user

    Oxen Report Midday Message

    SKF – After a small scare in the morning, we are looking very pretty with SKF. We got in at 24.00, and we were able to get our 3% on the day for this one as it hit 24.72. The stock is still roaring up into the 25s currently. I think it has potential up to 25.20s if you are still holding, but I like 3%.

    RVBD – As the market has decayed, RVBD has too. With our entry of 22.30, we are looking for an exit of 21.86 – 21.64. We just missed a 2% exit as it hit 21.95, and the stock has rebounded back up. I think we are going to see a lot of resistance around that 22 level. I am not sure unless the market completely tanks that this one can hit what we want. Too much speculation coming in at that 22 level. I am going to exit my position next time it gets around 22.

    Thanks and Happy Investing!

  7. JRW III
    October 26th, 2009 at 3:15 pm | PermalinkIgnore this user

    David,
    Any feel about the close, or tomorrows open; this chart is not looking good.
    Thanks, J.R.

  8. David Ristau
    October 26th, 2009 at 3:33 pm | PermalinkIgnore this user

    Oxen Report Longer Trade

    Hey everyone. So, as promised, I have a longer term trade that I think you can all enjoy this week that you can buy today, especially with the market being down.

    Long Term Pick: Aetna Inc. (AET)

    I think Aetna is a great pick up at its current price with the company reporting earnings on Thursday. I expect that over the next two days this stock will definitely be able to rise in price. I am excited for the health care plan stocks this time around with UnitedHealth’s beat on last Tuesday. Aetna is a similar company to UNH, just smaller.

    I like this trade because Aetna is undervalued going into earnings, and I think that we should see the stock get some strong buying support at these levels. We want to get into today on the 3% discount the stock has come down today before Tuesday and Wednesday, which I am expecting to be green days. The stock is near its lower bollinger band, and it has been trading below its moving average for over two weeks. The stock is oversold on fast stochastics, but it is trending upwards on slow stochastics. I think this upwards trend shows that there is some interest in the stock, but it has not matriculated enough as of yet.

    Aetna is well below its 52 week high, and it has made strong runs into earnings in the past. Further, the United Health major beat on earnings should give other health care plan providers, such as Aetna reason to move upwards moving into earnings. That movement has not happened yet for Aetna, but it usually does not come until the days prior to the stock’s announcement. Aetna has a very similar P/E ratio to UNH, so expectations for earnings are very similar for the two companies. The 17% beat for United gave the stock a 4% one day boost for a stock with a beta close to 1.

    The downward momentum Aetna is experiencing cannot be met, and we have good reason to expect a turnaround. I would not recommend holding into earnings unless we don’t see any movement. My expectations are that we will though, so this should not be a problem.

    Enter as soon as possible.

    Happy Investing!

    David Ristau

  9. David Ristau
    October 26th, 2009 at 3:37 pm | PermalinkIgnore this user

    JRW – Close is going to be down for sure…nothing to spark market. Tomorrow, we are looking at some home and consumer confidence data that will have some minor influence. The real market makers for tomorrow will be US Steel’s earnings, a group of REITs’ earnings, TD Ameritrade, and expectations of ETrade and Visa in after hours for the financials. I think we will definitely need some strong earnings to get the market turned around. There aren’t a ton of big names, but if we have a majority of green earnings, then this market can definitely turn positive. We will position ourselves on our day trades accordingly.

  10. JRW III
    October 26th, 2009 at 3:47 pm | PermalinkIgnore this user

    Thanks David,
    I have 20K shares of TZA and a similar position in EDZ, both had full cover based on Phils 50/50 recomendation. I was looking for some confirmation of my charts, before I uncovered.

  11. soulfly
    October 26th, 2009 at 4:28 pm | PermalinkIgnore this user

     JRW, I day trade TNA/TZA as well.  If you want, send me an email at soulfly124 at yahoo dot com and ill share with you how I go about trading them.  You may find it valuable. 

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