The Oxen Report: Monday Looks Higher, Will Home Sales Bring It Down?

November 23, 2009

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Hey Oxen Report readers. I apologize for missing Thursday and Friday. I am extremely ill with some kind of flu. It hasn’t gone away completely, so my mind is a little coo-coo. We left off on last Wednesday with the Buy Pick of the Day as SRS. We got involved in the stock at 8.65, which was recommended as an adjusted entry price in my Oxen Alert Morning Level. From that entry, we were looking for an exit of 8.82. We did not hit that exit price on Wednesday, however, it was hit on Thursday and Friday. Our Short Sale of the Day was ERX, which we got into at 47.30. We were looking for an exit of 46.45 or lower. We never got quite that low, so towards the end of the day we sold it at 46.83 for a 1% gain. Not a great day but not too terrible either.

Let’s get into today’s picks…

Buy Pick of the Day: Proshares Ultra/Ultrashort Real Estate (URE/SRS)

Monday mornings are always a tough day to predict because of the weekend. Today, we have really high futures and some good earnings. Things look good overseas, and it seems like everything is setting up for a big rally day. There is one major economic data point that could squash those dreams or carry them to the promise land. That point would be the National Assc. of Realtors’ information on the number of existing homes sold in the month of October. The data will be key to housing, which has seen a number of misses in the past few releases. My inclination is to just say buy SRS again, but it has had such a run up the last two sessions that it is appearing a bit overvalued in the short term. What’s a person to do…

The market has URE opening up around 3% and SRS down around 3%. This is obviously not where we would want to buy URE, typically. The catch for today is that if the existing home sales are bad we want to buy SRS right away at any price we can get. For URE, we won’t want to buy it up unless the ETF has moved down going into the report, and we can get it for 2% on top of Friday’s close. The stock is already overvalued and overbought, so it won’t be able to gain much if it doesn’t come down at least some from its current levels.

SRS even with Thursday and Friday gains, still is pretty undervalued and underbought. I could understand one’s inclination to buy SRS, especially considering that all of the October home data, thus far, has missed expectations. Existing home sales are supposed to build on September, but the pattern is saying that October was not a good month for housing.

We want to set up two screens for the trade and be ready to go with either one (given the restrictions) at 10:00 AM, when the existing home sales report will be released.

Good luck!

Entry: We are looking to enter either URE or SRS on the release of the Existing Home Sales data. If the existing homes sold was at or greater than 5.7 milion, we want to buy URE. If the reverse is true, we want to buy SRS.

Exit: We are looking for 2-3% gains.

Stop Loss: 3% on bottom.

Short Sale of the Day: Solarfun Power Holdings Inc. (SOLF)

Our short sale of the day is going to be once again in the solar sector. The sector, as a whole, has done extremely well this earnings season. The stocks reflect that. SOLF has seen over 30% in just under two weeks. This is my favorite stock to play in the solar sector because of its crazy volatility, which is perfect for our trades. Today, SOLF is sitting on a pre-market gain of over 4% due to some really solid earnings that came from LDK Solar this morning. The company beat estimates by 0.37, reporting an EPS of 0.27 when a loss of -0.10 was expected. Not only did the company buck a losing trend, but they made a nice gain. The stock is up almost 17% in pre-market trading. Don’t you wish you had bought that one Friday?

SOLF is following the trend and taking in the positive day to help it gain over 4% in pre-market to go on top of its already overly zealous 30+%. The stock is already sitting outside its upper bollinger band, which is a red alarm for a short sale, it is overbought on slow and fast stochastics, and its RSI is at ridiculously high levels. This is a technical short sale dream it would appear. Fundamentally, the stock deserves to go higher on LDK’s news. Yet, I don’t think it deserves to go this high.

The stock is most likely going to see a lot of sellers out of the gate, taking profits and leaving. There is just too much upward momentum. People won’t want to buy at these levels with these charts, creating an oversupply and dropping the price. Bring into that the short sellers, and we have ourselves a perfect short sale of the day. We want to be careful about any run up in the morning, so check the Morning Levels alert for entry point to best position ourselves to make a solid short sale.