3 Long And 4 Short Ideas For August – David Urban

August historically is one of the worst months for technology and precious metals stocks while financials tend to have a seasonal rally. Investors looking to pick up some quick alpha can play some odd cross currents during this seasonally weak month.

Long

Goldman Sachs (GS) – An earnings miss last quarter should deter investors from going long one of Wall Street’s premier names. Goldman’s earnings growth was very strong on a year-over-year basis. Year-to-date the firm is the leader in M&A and equity underwriting with a strong Tier 1 capital ratio. The recent selloff should be looked at as a buying opportunity.

Wells Fargo & Co. (WFC) – One of the stronger financials in a weak sector with strong Net Interest Margins and ROA when compared with peers. Credit quality continues to improve and its depth and breathe in US retail banking will allow Wells Fargo to lead when the sector turns.

Best Buy (BBY) – The leader in the big box electronics retail segment. Technically, we are putting in a triple bottom and with back-to-school season in full swing electronics sales should see an uptick. Best Buy’s dominant position in this retail segment will drive revenue and profit growth into the fall and Christmas buying season.

Short

Microsoft (MSFT) – The new Windows phones are right around the corner and there will be a massive retail push in an attempt to grab significant market share during the Christmas buying season. However, PC sales growth continues to sputter as tablets are making inroads and Online is bleeding red ink.

Intel (INTC) – Strong second quarter earnings masked significant portfolio weaknesses. Overall desktop sales are flat as smartphones and tablets begin to push out replacement cycles. Intel continues to miss the switch into smartphones and tablets.

Silver Wheaton (SLW) – This stock is everyone’s darling as the unique business plan has been copied by a few other companies. However, silver’s meteoric rise this year means that it becomes more difficult to sign contracts with mining companies to sell silver for $3.90 per share. The change in leadership this year has not brought new contracts and clarity for the future business plan. There are better values elsewhere in the streaming sector.

Silver Standard (SSRI) – Management has overcome problems at Pirquitas in Argentina, but questions concerning sovereign risk at San Luis in Peru have popped up. Technically, we are in the process of completing the right shoulder of a head and shoulders pattern so investors should be wary ahead of earnings.

http://seekingalpha.com/article/282730-3-long-and-4-short-ideas-for-august

Yesterday I discussed the possible down move as part of a larger wave in the silver market and credited Seeking Alpha contributor David Urban for some of the research. David has Silver Wheaton (SLW) and Silver Standard Resources (SSRI) as two short ideas for August. David, like myself also called for a reversal in the dollar in advance of it happening a few months back. He also correctly called for a rally in gold and the equity markets over the last two months when equities were at the lows.

Many tech plays are extended going into the month of August. After a debt ceiling hike is agreed upon, the market will likely rally off of the lows but will soon have to deal with poor economic data. The Nasdaq has outperformed the market so far, and technology may be a good area to look in to for shorting opportunities in the near term.

I like the call on financials for the month of August. Financials put in a bottom a few weeks ago and are currently off of the lows made throughout this past week. Bank of America (BAC) is sharply higher today after Harry Reid announced that his plan would make its way through the Senate. Citigroup (C), Wells Fargo (WFC), and Goldman Sachs (GS) have all staged a nice rally over the last week to two weeks and could potentially be putting in a higher low with today’s close.

Advertisements

Financials Rally Off Of Lows As Market Pauses

The banks had a big up day today thanks to the hangover from the news that The President may have found a debt deal that he believes is reputable. The S&P finished slightly negative but was lead by financials as they stand to benefit the most from a debt ceiling hike due to the fact that they are directly exposed to the derivates that would collapse because of it. Utilities were also higher but commodities and energy stocks lagged as many have been overbought, namely gold. Gold stands to lose the most from the debt deal because its main attraction at this current time is sovereign credit risk, which will subside, if only temporarily when Congress comes to an agreement.

Gold broke through yesterday’s low but had an impressive rally in the afternoon to close just slightly negative. The Fibonacci fan resistance at $156.50 (which translates to Friday’s high for spot gold) on the GLD has worked so far though I personally won’t take this for a short since it will most likely take 1-2 months for gold to bottom. I think the low for gold will be around $1475-$1495 depending on how fast it falls but once again, I won’t take the short because of the time factor. The debt ceiling hike should serve as a catalyst for a correction that takes us back to the 2008 trendline on the weekly chart.

Silver traded similar to gold and once again made a lower low but still managed to tough out a rally in the afternoon session. The rally took silver right into $39.50 which is the level that it failed to confirm above yesterday. Expect this to be short term resistance if there is continued pressure on the sector. There is also additional resistance at $41.

To quickly recap for those who haven’t seen this yet, the trendline on the chart above is where I believe silver is headed. This could play out over the next 2-3 months or perhaps even longer though I believe that it will happen sooner rather than later. In short, if silver trades into this trendline without consolidating, it will be a strong buy. Unrelated to the long term trends but also worth mentioning is that if silver closes negative for the week, it would also fail confirmation above the 20 MA.

The SPX had a pause day after yesterday’s big rally through the moving averages. The trading range today was only 7 points which may mean that the market is waiting for more news to find its direction though I have to favor the upside if volume remains suppressed and no significant news breaks. Again, the debt deal is key. I think that the agreement will be largely priced in, but I am expecting a large rally after the announcement that may last 2-3 days.

This, plus the technicals on the chart is why I am positioned long the market. I entered TNA at $82.16 and I am currently about $1 in the money. Short term resistance for the SPX is at $1333 while additional levels are at $1345 and $1359. I am generally expecting the market to reach $1345 within the next week or so and it is possible that it makes it back to $1359 shortly thereafter.

Financials had a strong day as the XLF rallied for a 1.14% gain. I was a day early in calling the bottom but the sector has since recovered and most bank stocks are sharply higher. Goldman Sachs (GS) was up 3.32% today and is now 5.5% off of yesterday’s low. JP Morgan (JPM) is 6% off of Monday’s low and Bank of America is 4.5% off of the lows. Resistance for XLF should be between $15.11 and $15.14 and I will most likely unload my FAS long into that level.

I am still holding the Aug 11 $38 Citigroup (C) call which is now up 27% from my entry of $1.16. I am looking for confirmation above $39 to exit so that the call will go another dollar in the money. I believe that this will happen over the next week so and once again, Citi, like the other banks, will surge if there is any positive news regarding the debt ceiling.

Financials Close Off Of The Lows To Make Possible Short Term Bottom

The S&P closed a few points above the even number level of 1300 which is typical of an options expiration week since whole even numbers are closely associated with strike prices, and what better level is there than one that ends with 00? I think the big story for the market’s activity next week will be the financial sector as many of the major banks were beaten down hard last week and are close to the lows of their respective charts. I will most likely play the long side of the financials next week for a short term bounce, and I believe that it is also possible that this translates into a rally in the overall market.

I have a short term level for the S&P at about 1306 which is a level that was tagged on Thursday and one that the market stayed above on Friday. This is by no means a major pivot but I think it may serve as minor support as the market consolidates off of the highs. Additionally, the 20 and 50 MA’s are beginning to scoop underneath the price activity and the 20 MA is already above 1306. This forces me to favor the upside and it is likely that the market is now putting in a higher low.

Using 1258 as the high and 1356 as the high, the market has made a 50% retrace of the Independence Day rally (1258+1356 = 2614/2 = 1307). The close yesterday was 1308 but the low of the day was at 1307.52, which is almost exactly 50% off of the high of 1356.

Bank of America has now pierced the $10 level on the chart and has made a bit of a bottoming tail on the daily. It sold right into this level without previously consolidating which means that it is valid for a long play as long as it stays above yesterday’s low of $9.88.

BAC has earnings on Tuesday so I don’t advise holding the stock into the announcement, however I’d still favor the upside as it has sold into earnings and is already at the bottom of the chart which tells me that any bad news has more or less been priced in already.

GS pierced $130 and has now made a higher low off of the bottom that was set in late June. This looks like a bullish setup for a long play, first target is the 20 MA, I would look for it to hit about $132.50.

Similar to the chart on GS, JPM has made a higher low after a nice double bottom. It closed negative on Friday but made a lengthy tail on the daily chart which suggests that a short term bottom is in as long as it stays above Friday’s lows. The target for a bounce should be about $42.

Probably the best chart so far is the XLF. Good series of higher lows and a possible bottoming tail from Friday’s action. Upside target is the pivot low of $15.34 which would also be a pierce of the 50 MA. There is nothing fancy on any of these charts and none of them should suggest anything more than a one to two day swing trade. For this reason, I like the FAS for added leverage to the possible bounce. Use XLF as a proxy for FAS since FAS is leveraged and does not accurately represent levels on the chart.

I am looking for a gap lower tomorrow that stays above the $14.73 low on XLF, if this happens I will most likely go long the FAS and possibly another sector ETF (maybe QLD, SSO, TNA) that represents the overall market depending on where the SPX ends up after the opening bell.

S&P Falls Through 1290 But Still No Sign Of Panic

***Hi everyone, I apologize for the length of today’s analysis but I had spent time on a commentary which wordpress somehow lost during the draft preview! Therefore, here is the shortened version of my market analysis as I do not have what I previously wrote and do not have the time to re-write it all again. Once again I apologize for the inconvenience, wordpress has been changing the format from simple and effective to complicated and inefficient!

If you have questions about this analysis specifically, please direct them to my email address listed in the about me section. Sorry for the rant, but I am throughly upset.***

________________________________________________________________________________________________

The market sold off heavily which is unusual for a Monday after a big week to the downside. Volume was thin which suggests that we are in for a short term bounce as we are well oversold after 4 consecutive down days. The MACD histogram is at a 3 month low which means that we are very overextended on the sell side.

The best way to play a potential bounce here are the financials as they have lead the market lower in this selloff. XLF is down 6% and FAS is down nearly 17% from the highs last week that were put in on Tuesday. Meanwhile the market has only lost 4% so a skilled trader can easily snag a solid 2-6% on a bounce in the next 2-3 days if they know how to nail their intraday pivots.

Ultimately, after this bounce, I’d be looking to short the market with downside targets on the SPY of 127 and 125.75. If you want to play options, buy the July expiry as the June expiry is all but in the hands of the institutions now as we are only just over a week away from the 17th.

Bernanke To Testify To Crisis Inquiry Panel

http://news.yahoo.com/s/ap/20100902/ap_on_bi_ge/us_financial_crisis_bernanke

bernanke polo

How can anyone disagree with this leisure polo?