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The Oxen Report: Tough Start to the Week for the Markets, Can the Euro Turn It Around?

Hope everyone had a great weekend. Friday was a good day for The Oxen Report. We were not able to get into SRS, our Buy Pick of the Day, because I had set the entry a bit too low. Some of you were able to play it still as the stock rose over 5% intraday. At the same time, we were able to also get a nice play out of our Short Sale of the Day, Take Two Interactive Inc. (TTWO), which fell on news that the video game industry’s sales were down. The market is a tough read this morning, however. Asian markets are flailing, while Europe is having a slight rebound today. This morning I have one short sale/put for us to think about for trading. Later in the day, I will have a new alert that I am starting called The Daily Musing as well as my Play of the Week, which will also be released as an Oxen Alert.

Let’s analyze the Short Sale for today…

 

Short Sale of the Day: Ultrashort Proshares Euro (EUO)

Analysis: Monday is always the toughest day for me because of the lack of economic data that is released, lack of earnings reports, and lack of general consensus on where the market is going. Futures are down this morning in pre-market trading. As of 8:33 AM, the Dow was down 34 points. Some of the big news on the day is that Lowe’s beat earnings, but the company missed estimates on outlook (as I commented last week, earnings don’t seem to do it alone anymore…companies need to have outlook as well). There is some small M&A buzz around some pharmaceutical acquisitions, and the Euro hit its lowest point in four years but has rebounded since. Oil is up slightly. That is a lot of varying news without much direction. I wanted to hone on one of these stories for a play for us.

I found that the best play may actually be in the Euro. Today, the Euro hit its four year low…bad. On the flip side, the Euro has moved up from the low of $1.2337. Further, the European markets are starting to improve despite the Euro’s woes, which might be a catalyst to start getting the Euro going again. A stronger dollar is not good for oil or businesses in the USA that do any overseas exchange whatsoever. The Euro has hopefully hit a bottom, and I think that we should start to see a rebound of the Euro. Why? 

For one, the $1 trillion loan that the EU received should be the first bit of help amid the debt crisis, but further, Germany is leading the way for these nations to reform their markets under the German system of balanced budget. German Chancellor Angela Merkel believes that a balanced budget is the only way to prevent another crisis. The package should calm some fears that were out there in the short time, and it would appear help move the Euro back up. The ETF Ultrashort Proshares Euro (EUO) has benefitted from the recent 12% drop in the Euro, moving up itself nearly the same amount. 

At the same time, however, the EUO signals that the 12% drop was extremely fast and probably too fast. The ETF is at its upper bollinger band, it is heavily overbought, and it is almost over 75 on the Relative Strength Index (which is a red flag for short selling).

This play may develop past this single day because I do think that while problems obviously are very severe and remain in Europe. For the next few days, fears are subsiding, and the European market may see some bounce back to stocks, which will help lead the Euro higher. As that happens, EUO will fall significantly. 

We want to get ourselves positioned in it today because we can get it at such a premium for a short sale, and this movement will start today. 

Entry: We are looking for entry in the 25.80 – 25.90 range.

Exit: We are looking to exit on a 2-3% gain.

 

Good Investing,

David Ristau

This entry was posted on Monday, May 17th, 2010 at 8:54 am and is filed under Uncategorized. You can leave a response, or trackback from your own site.

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Comments



  1. David Ristau
    May 17th, 2010 at 9:23 am | PermalinkIgnore this user

    Oxen Alert – New Post and Morning Levels

    Hey all,

    I have a new post available on Short Selling an inverse ETF for the Euro (EUO) that is now available on my page with analysis, entry, and exit. Please read here. This play may develop into a longer play because the ETF does not move in big chunks each day, and I think the Euro is bound for a slower recovery than a quick one. Either way, I think it is a money maker. 

    Also, later today, I am going to have a new daily alert that I am starting today called The Daily Musing that you should check out. Additionally, I am going to have my Play of the Week available as an Oxen Alert.

    I am available all day for questions and comments. Please post!

     

    EUO - On the morning levels, we are going to adjust this one down to 24.65 – 24.75 as the ETF has started to slip some.

     

    Good Investing,

    David Ristau

  2. yipcarl
    May 17th, 2010 at 10:08 am | PermalinkIgnore this user

    In at 24.59 at the open..  Are we anticipating this to be a slow mover and possibly be a hold for a day or more? As you say this play may develop past today…

  3. David Ristau
    May 17th, 2010 at 10:15 am | PermalinkIgnore this user

    Yip -

    Yeah that is how I am looking at it. This one may take a little bit longer to develop. Good entry, I am in at 24.65. I will keep you updated.

  4. David Ristau
    May 17th, 2010 at 10:21 am | PermalinkIgnore this user

    Oxen Alert – Entry/Exit   

    EUO – We are in at 24.65 right at the bottom of our adjusted entry range that I discussed in the Morning Levels Alert. We are looking for an exit of 24.15 – 23.91 for a 2-3% exit.

    Play is getting better as Euro continues to grow stronger. It is 1.2386 now. Low again was 1.2377.

  5. yipcarl
    May 17th, 2010 at 10:25 am | PermalinkIgnore this user

    24.15-23.91 is our stop loss?  I thought since this is a short fund we are long EUO?

  6. yipcarl
    May 17th, 2010 at 10:26 am | PermalinkIgnore this user

    Oh duh… MOnday morning cobwebs…  LOL.  We are supposed to be short the EUO!!! I’ll just make a few pennys and flip it!!! haha LOVE IT WHEN A MISTAKE WORKS OUT!

  7. yipcarl
    May 17th, 2010 at 10:29 am | PermalinkIgnore this user

    Now I’m short at 23.64..  Mondays are tough for me too!!!!  Sorry about the confusion it was clear that is my bad.

  8. David Ristau
    May 17th, 2010 at 10:35 am | PermalinkIgnore this user

    Yip -

    All good man. Easy mistake to have made.

  9. David Ristau
    May 17th, 2010 at 10:44 am | PermalinkIgnore this user

    Latest on Euro:

    Current Price (EUR/USD) – 1.2371


    Investors fear that with many governments groaning under the weight of huge deficits, the debt of weaker nations that use the euro currency will have to be restructured, deeply lowering the value of their bonds. That would hit European financial institutions hard, and may ricochet through the global banking system.

    Bourses and bank shares in Europe plunged on Friday because of these fears, with Wall Street following suit. Shares were also down in Tokyo and Australia in early trading on Monday.

    “This bailout wasn’t done to help the Greeks; it was done to help the French and German banks,” said Niall Ferguson, an economic historian at Harvard. “They’ve poured some water on the fire, but the fire has not gone out.”

    The European rescue plan, totaling 750 billion euros, is intended to head off the risk of default but would vastly increase borrowing. That could hamstring Europe’s nascent recovery.

    Indeed, it was too much debt that caused the problem in the first place: a new report by the International Monetary Fund warns that “high levels of public indebtedness could weigh on economic growth for years.”

    The world’s budget deficit as a percentage of gross domestic product now stands at 6 percent, up from just 0.3 percent before the financial crisis. If public debt is not lowered back to precrisis levels, the I.M.F. report said, growth in advanced economies could decline by half a percentage point annually.

    To be sure, not all of the trends are negative. A lower euro will actually make European exports — be it German automobiles or Italian leather — more affordable and more competitive around the world. And Greece, Spain and Portugal took the first steps last week toward enacting austerity measures that would reduce their budget deficits.

    Those steps were not enough to prevent a flare-up in money market funds, a crucial but little-noticed corner of the financial system in which American investors provide more than $500 billion in short-term loans to help European banks finance their daily operations.

    The cash comes from conservative funds that hold the savings of big American corporations and individual American consumers.

    So far, the proposed rescue package has failed to ease worries at these funds, which have cut back on loans to European banks and are demanding higher rates and quicker repayment.

    “More people are making the yes or no decision to pull out of the market and keep their money closer to home,” said Lou Crandall, the chief economist of Wrightson ICAP, a money market research firm.

    Initially, it was Greek and Portuguese banks that got the cold shoulder from American lenders. But over the last two weeks big banks in Spain, Ireland and Italy have struggled to secure short-term funds from the United States as the anxiety has spread.

     

    Does this sound reminiscent of the Asian Financial Crisis?

  10. yipcarl
    May 17th, 2010 at 10:46 am | PermalinkIgnore this user

    I assume you’ll give the EUO maybe 25.20 room to breath……I feel like a wider stop on this one might be in order but that could be lack of stop loss discipline talking! 

  11. David Ristau
    May 17th, 2010 at 10:47 am | PermalinkIgnore this user

    Yip - 

    I am looking at a stop loss of around 25.40. 3% on top of my entry of 23.65.

  12. yipcarl
    May 17th, 2010 at 10:48 am | PermalinkIgnore this user

    Yea I like it a little wider on this one(generally I’m closer to 2%), I’ll take that stop as well….

  13. David Ristau
    May 17th, 2010 at 11:19 am | PermalinkIgnore this user
    Oxen Alert – Daily Musing: The Eery Similarities of the Asian Financial Crisis and EU
     
    In 1997, the Asian Financial Crisis rocked the world as Thailand, Indonesia, and South Korea all defaulted on important loans and created a crisis throughout Southeastern Asia that affected Malaysia, the Philippines, and others. The crisis began due to short term loans that banks were giving to these developing nations that had quick turnaround time. These were lucrative investments for banks, and they were great ways for these Asian nations to have cash on hand for developmental projects.
     
    The Asian nations had begun using high interest rates to attract these investments with high interest rates that, at the time, attracted nearly half of all capital inflow to developing nations. These interest rates were attractive to foreign investors because they could get a high rate of return on short term loans. This made the economies of these nations extremely debt laden and dependent on continued loans from foreign investors. The Asian nations were the supposed miracles of the IMF and World Bank, who had overseen this process and made recommendations to these nations about growth.
     
    Yet, the increase in GDP was having was not due to an overall rise in productivity but simply the added capital investments. Therefore, as time went by, these nations grew an "economic bubble" much like the American housing market and possibly the developing nations of Europe. The economy was really not doing as well as everyone thought and when the money started to dwindle, Thailand was the first victim. Thailand, in the early summer of 1997, used Singaporian investments to help keep the baht, the Thai currency afloat. It was a slow death, and in July, Thailand devalued the baht, requiring quick assistance from the IMF to come in and assist the nation with large loans. Soon, the Philippines and Indonesia devalued their currencies. Later Malaysia would follow suit. The devaluation of Thailand had sent a ripple effect through the entire investment world, and these Asian nations were no longer seeing the same investments they had earlier. 
     
    The crisis had severe effects on all these economies that have taken years to untangle.
     
    If you have been reading any of the news about the Greece crisis, you are already starting to understand why I see such eerily similar characteristics between that crisis and this one. 
     
    As was stated in the New York Times article, Fears Intensify That Euro Crisis Could Snowball:
     
    For Europe’s banks, the problems are twofold. Short-term borrowing costs are rising, which could lead institutions to cut back on new loans and call in old ones, crimping economic growth.
     
    At the same time, seemingly safe institutions in more solid economies like France and Germany hold vast amounts of bonds from their more shaky neighbors, like Spain, Portugal and Greece.
     
    Investors fear that with many governments groaning under the weight of huge deficits, the debt of weaker nations that use the euro currency will have to be restructured, deeply lowering the value of their bonds. That would hit European financial institutions hard, and may ricochet through the global banking system.

     

    The crisis could spread from Greece in the same way that the Asian Financial crisis spread. Greece has severe debt crisis that came onto the scene this year. The country has too much debt and is at great risk of defaulting. They froze wages, made pay cuts, made tax increases, made new taxes, cut bonuses, among other initiatives to attempt to balance their budget. In April, the country gets emergency loans from the EU. In May, the country gets emergency loans from the IMF. The issue with the Greece economy is similar to Thailand. The country had a lot of foreign capital that has disappeared amidst the financial crisis. As those investments disappeared, the crisis unfolded.

    The issue now, though, is that if other nations at the same level as Greece in the EU, such as Bulgaria, Spain, Portugal, and Romania may be at risk of having similar effects. The interlocking of the EU, however, could even make the crisis even worse than the Asian financial crisis as many developed nations have investments in these nations and vice versa.

    Is an Asian Financial Crisis unfolding? I hope not. I would love to hear your opinions on the matter and what you think about the crisis. 

  14. yipcarl
    May 17th, 2010 at 11:33 am | PermalinkIgnore this user

    My opinion is quite simple and it doesn’t follow the advice… Be an optimist, everyone loves and optimist even when they are wrong……
    I think the contagion is not isolated and that everything is correlated.  I think we are in no more than the 3rd inning that will culminate in a global financial collapse.  As we know there are trillions of debt all over the wold that is in default trouble.  There is no reason to believe this can be stopped without much bigger issues coming to light. .  The mountain of debt is too high.  I think we are in for a rude rude awakening.  I find it odd the Mayan Calender predictions seem to be culminating about the time I think we’re going to be in very very bad straights.. 2012.  For the record I don’t see the world ending that day, 22 of December 2012, I just find it odd this impending global collapse(IMHO) is culminating at the same time. 

    Things are not good and this dead cat bounce we are having in the US is going to end badly.  This time next year I believe we see the Dow at 5000 and the SP500 at 500.  Crazy I know but this is what I think.

  15. David Ristau
    May 17th, 2010 at 11:37 am | PermalinkIgnore this user

    Yip -

    I am an optimist too. I do think this issue could have some severe effects for the EU, but I would like to think that these guys can figure it out. We will just have to see.

  16. yipcarl
    May 17th, 2010 at 11:39 am | PermalinkIgnore this user

    Either way I think it’s going to be a fascinating time.  I don’t at all worry, I’ll just wait and see and deal with things as they come.

  17. David Ristau
    May 17th, 2010 at 12:02 pm | PermalinkIgnore this user

    EUO – Starting to get a bit more expensive as market tanks…We have stop loss at 25.40. Like I said, I think this one could take a little bit longer to develop. It wouldn’t hurt to DD at this price level and hedge our position.

  18. David Ristau
    May 17th, 2010 at 12:07 pm | PermalinkIgnore this user

    Oxen Alert – Midday Message

    The market has tanked for sure today. The Euro hitting a four year low has sparked selling off as well ass oil selling off. There is really no great news out there to help strengthen the market or Euro. Fears are slow to subside, but the European markets’ recovery today was the first good sign.

    EUO – We are down about 1.25% right no as EUO cannot break that 25 price mark. The market’s downturn has helped prop up this ETF. We are still holding, and I am not too worried about this one right now. I thought it would take some time to develop, and we will have to wait for it to come down. We have stop loss at 25.40.

    Current Postion: HOLD

  19. yipcarl
    May 17th, 2010 at 12:22 pm | PermalinkIgnore this user

    I’m with you, DD…

  20. David Ristau
    May 17th, 2010 at 1:43 pm | PermalinkIgnore this user

    EUO back down…

    Working on Week Play

  21. yipcarl
    May 17th, 2010 at 1:57 pm | PermalinkIgnore this user

    Looks weak…errr strong.  Good for us, you may have picked the bottom for now.  It almost seems like if it does start moving back up it may move for a couple days or weeks.  I like getting in and out, back in cash, but I can see this one playing out to a 10% gain over the next week if this is a temp bottom…
    Do you trade Phil’s option strategies and your regular longs/shorts?  I trade options but not these strategies and Scottrade, where I do most of my trading doesn’t allow me to sell puts or calls.  I need to open an account at TOS.  I have a tradestation and IB account but I don’t like them much per say.

    Look forward to reading your play of the week. 

  22. David Ristau
    May 17th, 2010 at 2:26 pm | PermalinkIgnore this user

    Oxen Alert – Play of the Week

     

    Play of the Week: Aeropostale Inc. (ARO)

    Analysis: Last week, we had a pretty poor Play of the Week unfortunately. The department store results were not what we were expecting, but the department store fiasco has set the bar low for specialty stores. Aeropostale reports earnings on Thursday evening. They are projected to have earnings with an EPS of 0.46 and revenue of just over $460 million. One year ago, the company reported earnings with an EPS of 0.33. The company looks poised to improve on earnings from one year ago and the stock should have a nice week if the market can get itself rolling again. 

    For one, Aeropostale will benefit from the buzz around specialty stores that have similarities to ARO. Reporting tomorrow morning is Abercrombie and Fitch (ANF) and later this week is Hot Topic Inc. (HOTT) and The Buckle Inc. (BKE). While ANF is not expected to have a terribly great quarter, HOTT has been on fire and should balance ANF. Abercrombie’s bar has been set very low after the company had a pretty solid first three months of sales, and a beat from them would only go to further the position of Aeropostale.

    The first three quarters was not only good for ANF. The first three quarters were exceptional for Aeropostale. The company saw its same-store sales rise 19% in the month of March, 7% in February, and 6% in January. The company even rose its outlook in April after reporting March sales from 39 cents per share to 44. The company is going to record some record profits in this quarter for sure, but analysts have definitely improved the EPS estimates. I don’t think many will expect a large beat, but the analysts were only expecting an 11% sales rise in March when the company hit 19%. 

    The thing about ARO is that the company did not see a ton of improvement from the March results, only gaining about 8% over a three week period. Since that high the  stock has lost over 12% over the past three weeks. Right now, the stock is undervalued, near its lower bollinger band, and oversold. Going into earnings with the type of results this company has had, we have to get involved and take advantage of what I expect to be a nice run up moving into earnings. Of all teen retailers, ARO has seen the greatest sales increase over the past three quarters, and that counts for something. Earnings growth over the past two quarters has been nearly 45%. This quarter, we are looking at around 35 – 40% growth in the slow Q1 of retail. This is still relatively strong.

    Another good sign from the company is that the company has seen a rise in analyst ratings. Goldman Sachs retail analyst Michelle Tan gave the company an upgrade in March after its last earnings. Yet, she warned that its going to be hard for the company to continue to have such successes. I don’t agree with her entirely. ARO has defined itself as the ANF and American Eagle (AEO) alternative that is cheaper. Those two companies would have to entirely redefine themselves to be like ARO. The company is definitely benefitting from the recession economy with cheaper clothing and establishing its brand name and loyal shoppers.

    I am excited about the week ahead for a successful stock that is undervalued right now. We should get involved ASAP.

    Entry: We should look to get involved at 27.90 – 28.00.

    Exit: We are looking for 4-6% for the week, but we will continue to reevaluate throughout the week.

    Stop Loss: None at this point.

     

    Good Investing,

    David Ristau

  23. yipcarl
    May 17th, 2010 at 2:47 pm | PermalinkIgnore this user

    Holy Mack!  Look at ARO!  Too bad you didn’t get this post out 20 minutes earlier!!! Good call AGAIN!
    Missed entry of course but wow look at this puppy go!!

  24. yipcarl
    May 17th, 2010 at 3:08 pm | PermalinkIgnore this user

    David….
     
    I guess you will hold overnight…  I’m not sure i"m comfortable to hang onto the EUR overnight…… I may cover before close..
     
    You going to hold til your stop hits or profit target hits?

  25. David Ristau
    May 17th, 2010 at 3:10 pm | PermalinkIgnore this user

    Yip -

    I am going to continue to hold this one. I like where we are going. Unless it gets to 24.15 by the end of the day. A big stick…you never know…

  26. yipcarl
    May 17th, 2010 at 3:16 pm | PermalinkIgnore this user

    haha.   I just hate to be unable to get out after hours.. If the Eur legs down overnight we’re stuck in it till the market opens tomorrow meaning it can open up on the other side of our stop right? …Unless I’m missing something..

  27. David Ristau
    May 17th, 2010 at 3:19 pm | PermalinkIgnore this user

    Yip -

    I mean yes it can, but I don’t think it will. That would be a huge loss for an ETF that doesn’t move that much. I am confident in the Euro for a couple days here. In the long run…not sure. If you don’t feel comfy you should get out though. You don’t want to ever be in an investment you don’t like.

    Wish we could get some more people to be over here chatting…everyone is obsessed with Phil…haha

  28. yipcarl
    May 17th, 2010 at 4:08 pm | PermalinkIgnore this user

    David,
    I was going to say the same thing?  Where the heck is everyone, you are on the money buddy, I’m really impressed with you.  I was told by the guy who helped sign me up Greg P.  (He’s another story seems he’s there to drive people away)  He told me there were 500 people signed up?  It doesn’t seem like there is 50 signed up?!   It seems only a handful of people are even asking Phil questions?  Where is everyone?  I’ve only been here a week but you guys seem like you should be busting at the seams because of your good advice…
    I’m holding EUO…
     
    Do you do complex option trades?

  29. David Ristau
    May 17th, 2010 at 4:21 pm | PermalinkIgnore this user

     Yip -

    Phil does all the options trading. I do all the stock trading. Andrew does some swing trading. We all have our specialties. A lot of members are on here that don’t post. A lot of other members do not have the premium membership where they can leave messages. 

  30. yipcarl
    May 17th, 2010 at 6:32 pm | PermalinkIgnore this user

    Got it… We’ll I’m not complaining less people isn’t bad for me!

  31. yipcarl
    May 17th, 2010 at 6:44 pm | PermalinkIgnore this user

    See I didn’t know that was your roles.  It’s kind of a maze for a new guy as not that much is explained and one has to fish around.  Reading all the posts is the only way I know to learn. Many times the old posts are more of the same and don’t clear things up for me.  I didn’t know about Andrew at all.  Who is OP trader trader?  I keep getting emails from them about their positions but when I go to their tab on the site it’s a spreadsheet and pretty vague.  As far as Andrew I guess he’s had nothing since I joined last week.  I’m really happy though don’t get me wrong…

  32. diamond
    May 17th, 2010 at 10:19 pm | PermalinkIgnore this user

    yipcarl – Optrader’s board for this week:
     
    http://www.philstockworld.com/2010/05/16/swing-trading-portfolio-week-of-may-17th-2010/
     
    In future:
    Go to links near top of any page and click on "Optrader"
    Then click on link: "most recent post"
    Then scroll down to week you want to read (current week is on top).
    On this week’s post, scroll down board to current day and time …

  33. fuzz
    May 18th, 2010 at 3:39 pm | PermalinkIgnore this user

    Picked up a bit of ARO, let’s see where it takes us :) Hopefully market cooperates at least some.

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