The Oxen Report: Market Looking to Extend Rally, Where to Turn?

November 3, 2009

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Monday was half good, half bad for us. Let’s start with the good. We recommended a great short sale on Ultrashort Proshares Housing and Real Estate ETF (SRS). We set our buy in range, in the Oxen Report Morning Levels alert, at 10.25 – 10.35 since the stock had risen in the morning, and I thought we could get the ETF at a solid premium. With that range, we were able to short sale at 10.34. We were looking for an exit at 10.03 – 10.13, and we got at 10.03 for a solid 3% gain. Our buy pick of the day was Arena Pharmaceuticals. We set our entry range in the Morning Levels Alerts at 3.39 – 3.44 and entered at 3.43. The stock decayed throughout the morning and traded completely flat most of the day. We got stopped out at 3.37, which was the price I adjusted our stop loss to in my Oxen Report Midday Message. We got 1/2, but let’s get 2/2 today.

Into the picks…

Buy Pick of the Day: Direxion Daily Energy Bear 3x ETF (ERY)

The market is not looking too strong today. Things are down in the futures after yesterday’s rally. While I think we got some truly great bullish fundamentals yesterday, it appears that this market is not ready for a bull run. What appears to be driving down futures is the lack of market moving news coupled with the fact that everything overseas was not impressed by Monday’s economically backed rally we saw. There were really no terribly major earnings or economic data pieces. The headlines we have are Johnson and Johnson cutting their workforce and Berkshire Hathaway making an acquisition of Burlington Northern.

Therefore, I think today is a day to turn our attention to the the oil markets. Oil is down this morning at the NYMEX below $78 a barrel on a strong dollar. Analysts are saying that oil is really at the mercy of the dollar. As it goes up, oil will fall.

"The strength of the dollar is probably the most important factor driving commodities in general and oil in particular," said Commerzbank commodities analyst Eugen Weinberg.

"Equity markets are down in Asia and Europe and there is a feeling that recent price increases may have been overdone, that despite the economic recovery, the current oil supply and demand situation probably does not justify the recent rise in prices."

As the market, I expect, will follow Europe and Asia by continuing to lose ground throughout the day, the price of oil will continue to fall as well. The merger news from Berkshire has done little to spark the market, and ERY is in a great position for a rally. The ETF has gained, as of late, but there is still some significant room to it upside.

The stock is still below its upper bollinger band, with room to grow all the way till 14 on the upside. The stock’s slow stochastics are trending towards overbought, however, the ETF is still in between the two extremes, meaning there are still plenty of investors on the sidelines. Finally, the stock is slightly undervalued on RSI. The technicals show that this puppy has a lot of room to move up still, even past its current rally.

My worry, however, now is that the futures have moved up a lot on this in pre-market, past my comfort zone. I do not like to recommend anything that you would have to buy at more than a 3% premium when the market opens. Therefore, I am going to keep the recommendation and a lower entry range. I do not want to be forced into this one at these levels. We may miss a huge rally, but it is a risk I am willing to take.

Entry: We are looking to get into this one at 12.75 – 12.85.

Exit: Looking for 2-3% on top of buy in price.

Stop Loss: 3% on bottom of entry.

Short Sale of the Day – None for Today

Good Luck and Happy Investing,

David Ristau