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The Oxen Report: Can Large Slew of Economic Data Help Market Continue Rally?

The market has been having a great run over the past week, and we have been able to make a lot of great trades along with the movement. Today, however, the market appears ready to decline heading into a number of important economic announcements. Yesterday, our Short Sale of the Day did not work out to any avail. We missed our entry range by two cents in the morning in Tenet Healthcare Corp. (THC). The company dropped 5% intraday but our levels were just a bit too high. Our open position comes from Winnebago Industries (WGO), which is our Play of the Week. WGO has lost some ground since our entry at 11.25, but I am hoping for a big day from the company since they report tomorrow morning.

Let’s get started with two plays for today…

 

Buy Pick of the Day: Direxion Daily Real Estate Bear ETF (DRV)

Analysis: It appears that the answer to the title will be most likely not. We got some very poor news out of the housing market that is telling us what everyone was expecting and worse. Housing starts dropped 12% from last month and building permits dropped 6% after the housing tax credit expired in the month of April. May results were down from April. Further, it was worse than was expected as both hosing starts and permits came in below analyst expectations. The news quickly has driven futures down even further this morning. Core Producer Price Index stayed the same from last month, and most of the focus will be, therefore, on the housing data. Additionally, this morning FedEx reported weak 2010 FY outlook along with unexciting earnings, and the market looks ready to take some profits after a strong three out of four day run-up.

Therefore, we want to look towards an inverse housing ETF for our play of the day. Direxion Daily Real Estate Bear ETF (DRV) follows real estate REITs, but it is highly affected by housing starts and building permit news because most people associate it with the housing market. REITs will be weak if building permits are down because that means they are not building new properties. DRV has taken quite a stumble over the past week and a half, dropping over 25% in value. DRV has moved below its lower bollinger band, and it is heavily oversold on fast stochastics. The news, today, could propel this highly volatile stock much higher as the market sells off.

DRV is up pretty heavily at 3% this morning, but considering the drop it has had in seven trading sessions, this sort of reactionary gain seems normal. The question will be is will the market drop from the open. The answer is definitely not for sure yes, but it is hard to imagine it gaining any ground. Most stocks have taken lots of gains, and profit taking should be on the agenda. 

Industrial production at 9:15 AM and crude inventories will be important to continue a bearish line today, but DRV looks very solid to make some gains out of the gate. We want to buy right out of the open. I have set a range I think it can open in, but if it opens lower definitely buy. Much higher than the upper part of the range, and we have a  no play.

Entry: We are looking to get involved at 6.15 – 6.30.

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

Stop Loss: 3% on bottom of entry.

 

Short Sale of the Day: BHP Billiton Ltd. (BHP)

Analysis: BHP Billiton may be on its way down this morning after receiving  a downgrade from JP Morgan from neutral to under perform. The company has popped 20% over the past week and a half, moving to the top of its bollinger band and becoming heavily overbought. With the market looming down and the downgrade from JP Morgan, one would expect some large selling in pre-market and to open the day like other downgraded companies. Yet, BHP is down just over 1%, similar to the market. This should not last and represents a company with low value for the day and too little movement.

BHP was downgraded according to Marketwatch by JP Morgan because:

"the firm’s valuation (is) premium to peers and (has a) lack of operational and financial leverage to any one commodity. It also reflects the broker’s belief in a continuation of a bounceback for higher-beta stocks."

JP Morgan believes that BHP has made its move for 20%, holds high beta, and is time to snap back because the fundamentals are not there to sustain such prices over the long term. The company should not be as high as it is in pre-market. Part of the reason the company has been able to sustain gains is because it was up in London 0.6% as commodities were the leading sector in London this morning. The downgrade from JPM came, however, and the stock has dropped ever since. 

As the market loses value this morning, BHP presents a perfect short selling opportunity for us to take advantage of that has not had the proper movement. 

Entry: We are looking to short BHP starting at 66.45 – 66.65.

Exit: We are looking to cover for a 2-3% gain.

Stop Buy: 3% on top.

 

Good Investing,

David Ristau

This entry was posted on Wednesday, June 16th, 2010 at 8:47 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
    June 16th, 2010 at 9:18 am |     PermalinkIgnore this user

    Oxen Alert – Morning Levels, New Positions

    DRV – Our Buy Pick of the Day for today is looking pretty strong, but I think we can readjust down DRV to 6.10 – 6.25 this morning for our entry range.

    BHP – Our Short Sale of the Day range should be moved up. We are looking for an exit of 66.80 – 67.00. Anything higher is definitely a short sale out of the gate. We can proceed lower all the way to 66.50 without much concern.

    Check out my analysis, exit, and more on these two positions!

  2. millstone99
    June 16th, 2010 at 10:48 am | PermalinkIgnore this user

    Bought at 6.10, sold at 6.21. Just wish I’d waited 10 minutes and bought at 6.03.

  3. jromeha
    June 16th, 2010 at 11:10 am | PermalinkIgnore this user

    D – you’ve been doing awesome man! Havent been able to follow most of the trades lately but kudos nonetheless! On a sad note – Touchdown Jesus burned to the ground!! Im stationed at WPAFB so I pass by that thing on my trips to Jungle Jims and stuff. That thing was HUGE!

  4. David Ristau
    June 16th, 2010 at 12:02 pm | PermalinkIgnore this user

    Mill - 

    Hey you made money though…be happy!

    Jro -

    Thanks! I cannot believe that burned down. That thing was crazy and huge. Strange it got hit by lightning…

  5. David Ristau
    June 16th, 2010 at 12:08 pm | PermalinkIgnore this user

    Position Update -

    DRV – We made a nice 2% on this one. Got involved at 6.10 and were out at 6.22 at just after 10:30. 

    BHP – I opened my position at 67.20 this morning, and I was looking to exit 65.86 and below. It gained about 1% as the market fell this morning before rallying. We are down about 0.75% right now. I am going to continue to hold, but unless the market dives…we are stuck.

  6. RussianQ
    June 16th, 2010 at 12:29 pm | PermalinkIgnore this user

    David
    Would be really nice to get your mail alerts when you are exiting trades, I’ve missed the DRV trade unfortunately.

  7. jamesdstark
    June 16th, 2010 at 12:53 pm | PermalinkIgnore this user

    How did you time it just right to get out at the current day high of 6.22? Do you recommend not holding either of these through close and taking losses if necessary? 

  8. David Ristau
    June 16th, 2010 at 1:10 pm | PermalinkIgnore this user

    Russian -

    Yes I can do that.

    James -

    It was not about timing just limits. I put a limit on my exit at 2% above my entry of 6.10 … 6.22. When it hit that it sold. You can program your trades to do the same thing. You just have to know what kind of exit you want. They are just simple daytrades…better to exit than chase. 

  9. kinkistyle
    June 16th, 2010 at 1:19 pm | PermalinkIgnore this user

    Great call on DRV!
    Options Exp. is a tough week to short , but I am with you that BHP is overextended — as are many stocks.  Next Monday might finally see some pullbacks.

  10. David Ristau
    June 16th, 2010 at 1:21 pm | PermalinkIgnore this user

    So,

    Winnebago has not had the kind of movement that I had been hoping for thus far. If you haven’t got into it yet, then you can play it as an Overnight Trade because it should have 4-6% movement on earnings at least…and it hasn’t happened yet. If you are holding WGO for a Weekly Play or picking it up for an Overnight Trade, I am looking to exit right away in the morning.

    Here was my original post if you didn’t see it on WGO that can now be an Overnight Trade.

    The Oxen Report: Play of the Week

    Over the past few weeks, we have had some pretty good success with our Plays of the Week. I am hoping that this week we will have another successful one. It is a slow week in earnings, which is usually what I use to help propel my weekly picks. Therefore, as a preface, I am going out more on a limb this week with my Play of the Week. I think it is a great play, and it matches the criteria I use. Yet, it is definitely still a riskier play simply because of the problems this industry has had. 

    Let’s get into it…

     

    Play of the Week: Winnebago Industries Inc. (WGO)

    Analysis: One of the industries most hurt by the recession was recreational vehicles and large motorized vehicles, in general. Most consumers have throughout the recession tried to avoid a large amount of big-ticket purchases due to the uncertainty in the economy and job market. One of the industry’s leaders, Winnebago Industries Inc. (WGO), lost nearly half of its market value since the beginning of 2007. The company, from the end of fiscal year 2007 to 2009, lost nearly 75% of its revenue, moving from just over $800 million to just over $200 million. The company had profits of just over $40 million in 2007. While in 2009, the company settled for a loss of $78 million. The last few years have been rough on the industry certainly, but it may be time for the RV industry to start making money again.

    In Q2 of 2010, the company reported its first profit since 2008. The company just got by with a $760,000 profit, but it was definitely a great sign for the company that recovery is on the way. The company is projected for this quarter to hit a profit per share of 0.04. Over the past two quarters, however, the company has produced surprise earnings, and a third one could be on its way for a number of reasons. Last quarter’s turn to profit and 120%+ surprise profits is definitely going to give this company some buzz over the coming week, and I expect it will grab some buyers that will help move this into our weekly 4-6% gain range.

    WGO, for this year, has revenue estimates over $400 million, nearly doubling their revenue from one year ago. The increase in consumer spending and slow recovery is being seen most directly in a company like WGO. Some of the numbers from Q2’s report are outstanding. The company made a 247% increase on revenue from Q2 2009 to 2010. The drive in this increase was from motor home unit deliveries. The company, additionally, is selling most of their motor homes in the Class A category, which are the smaller motor homes that allow the company to have large production and efficiency. Operating income was still at a loss, but it improved $18 million from one year ago. The company increased its revenues through the first six months of fiscal 2010 year 89%.

    The following comment from the Chairman and CEO Bob Olson gives a nice overview of how things are going:

    "We are pleased to see a continued trend of sequential growth in revenues and gross profit. After hitting our lowest shipment levels in decades during the second quarter last year, we have seen improvement in revenues and gross profit each quarter since that time. We also saw a sequential increase in dealer inventory this past quarter for the first time in two years as we increased our production levels to satisfy our sales order backlog. While we are encouraged with these improvements, the economic outlook remains uncertain and we believe retail sales will be the key driver to sustain our recovery and for continued growth going forward."

    Olson mentions the backlog, which is extremely important to any company that takes orders before production or has orders that are being filled. The backlog is a great measure of future success for construction companies, large motorized vehicle makers, and cargo companies. WGO’s backlog at the end of Q2 2010 was 1,159 motor homes, which is an increase of 246% at the same time in 2009. That backlog means that orders are coming in at very strong rates, and it will help the company to produce more and more revenue moving forward. As a whole, companies have all been seeing rising revenue rates, and it is no different in the RV industry. The difference is that this industry has so much to recover…

    The industry, as a whole, has been doing very well. Coachmen, the bankrupt company, saw a 90% increase in their quarter-over-quarter net sales despite being bankrupt. Thor Industries, while having some accounting problems on previous reports, had an surprise EPS increase of 10%. The recreation companies, as a whole, are starting to see a nice pickup throughout the sector, and that should play into WGO throughout the week.

    When we do a weekly play, we want a company that can have reasons for expectations moving into the earnings rather than not having much expectations before earnings and then moving into earnings date we can buy right before and make large gains. The technicals are superb for this. WGO is well below the mid-50-point on RSI. It is oversold on slow stochastics, and it is riding its lower band. On fast stochastics, the stock is starting to see a lift off its oversold floor, which points to a short-term buyer interest starting to prop up.

    The market looks very healthy right now, and it is all pointing in the right direction towards a great week for Winnebago. 

    My final comment is that if you do not believe me…here is Robert W. Baird’s take:

    "Winnebago reported a smaller operating loss – suggesting lower breakeven levels than previously thought – a good sign. The backlog is robust (+246%), but better shipments reflect strong orders and inventory replenishment – not a recovery in retail (-2%). We raised our estimates to reflect lower breakeven levels and a good mix of diesel units, driving our price target to $15."

    Entry: We are looking to get involved at 11.20 – 11.30

    Exit: We are looking to gain 4-6%.

    Good Investing,

    David Ristau

  11. David Ristau
    June 16th, 2010 at 1:23 pm | PermalinkIgnore this user

    JamesD -

    I am going to revise what I said earlier, and I think BHP probably would be a good hold.

  12. millstone99
    June 16th, 2010 at 2:49 pm | PermalinkIgnore this user

    I am happy!

  13. David Ristau
    June 16th, 2010 at 3:28 pm | PermalinkIgnore this user

    Position Update Alert

    DRV – We were in and out for 2% this morning by 10:30 AM. If you are still holding, the stock has moved back up to nearly a 2% gain range…I would definitely take some profits as this market has been very bullish despite a pretty bleak day of news.

    BHP – I think this one will be a good hold. We are in the green with it, but I think it has a lot of room to the downside and not much positive news for it as of late. Downgrade and too much buying momentum…things looking toppy. Might be a nice hold for a bit here, but I know we can get a few percentage points.

    WGO – We are going to need a nice earnings report tomorrow morning to make on this one…it just has not been able to get anything going. The flat pace tells me that people are very unsure of the earnings report. I like our confidence, which has allowed us to get positioned in it before earnings. I think they are really going to be great on outlook.

     

    Good Investing!

  14. cclark3
    June 16th, 2010 at 3:35 pm | PermalinkIgnore this user

     DRV- In at 6.01 OUT at 6.22 in the recent jump. Should i re-enter before close, are you expecting a larger jump than that?

  15. David Ristau
    June 16th, 2010 at 3:46 pm | PermalinkIgnore this user

    Cclark -

    Nah it was just a 2-3% daytrade. Great job!

  16. millstone99
    June 16th, 2010 at 4:03 pm | PermalinkIgnore this user

    Will WGO release earnings pre-market?

  17. David Ristau
    June 16th, 2010 at 4:25 pm | PermalinkIgnore this user

    Mill -

    Yes tomorrow morning

  18. millstone99
    June 17th, 2010 at 9:23 am | PermalinkIgnore this user

    Oh what a beautiful morning… :)

  19. dbarakat
    June 17th, 2010 at 9:25 am | PermalinkIgnore this user

    WGO up 15% pre-market makes the sun shine a little brighter!

  20. millstone99
    June 17th, 2010 at 9:32 am | PermalinkIgnore this user

    Boo-yah! In at 11.08, out at 12.21. Is it okay to have a Scotch BEFORE breakfast? :)

  21. jamesdstark
    June 17th, 2010 at 9:29 pm | PermalinkIgnore this user

    David, thanks for your guidance. I follow most of your trades and I was in WGO early this week, 11.17 entry & 13.01 exit today for a great 16.47%. This would make up for DRV & BHP being small losers but managed to gain 1.8% & 0.68% so I can’t complain. I’m interested in JBL but didn’t catch the entry price today, hopefully I can get Friday or Monday. 

Dashboard

 Sector Performances (Today)

 Thermal Imaging
Construction0.68 %
 
Transportation0.59 %
 
Business Services0.40 %
 
Consumer Discretionary0.21 %
 
Consumer Staples0.20 %
 
Auto-Tires-Trucks0.16 %
 
Computer and Technology0.14 %
 
Oils-Energy0.09 %
 
Multi-Sector Conglomerate0.03 %
 
Retail-Wholesale-0.07 %
 
Industrial Products-0.09 %
 
Finance-0.13 %
 
Basic Materials-0.20 %
 
Utilities-0.28 %
 
Aerospace-0.66 %
 
Medical-0.93 %