Sunday, October 23, 2011

Commentary/Earnings week preview

Well, it has been awhile since I’ve posted (about 3 weeks) and before I begin, I just want to say thank you for whoever reads these, I hope you understand and get something out of them.

I have been quite busy with school, as to why I haven’t been writing, grades have not been where they need to be for the semester, been pretty anxious about that. Getting halfway through the semester already and having a 2.4 is not good news, but on the bright side there is nowhere to go but up from here. Just one more semester of these required classes then the real stuff comes, honestly cannot wait.

Lets look at the last three weeks in review: The Monday and Tuesday following my last post we saw some huge volume pushing the ES down from 1,130 to near 1,068 by Tue. AM, that seemed to me like a bit of capitulation, and a rally off of that was possible to take us back up to 1,100. Last hr of trade Tuedsay we rallied 40 handles to begin the 2 week long buying on no news (hope) to bring us to where we are now. We closed out Friday on the highs, right about 1,240; mind you NOTHING AT ALL has been resolved in Europe and we still have our own problems here. Unemployment still sucks, although we created jobs, the U6 is at all-time highs which is the real indicator. Thank you to the Federal Reserve for inflating all of these companies balance sheets over the past 2 yrs, we are reporting stellar earnings, probably somewhat of a contribution to run this thing up 180 handles in 2.5 weeks.

I keep stressing this, but we have seen no real signs of growth, keyword “green shoots” (yes I know that term was used Mar ’09) but literally until we get a handful of +300K Non-Farms and strong positive Philly Fed, Chicago PMI, Housing turns around, etc. we’re not going anywhere. I am a seller of any run up, including this one.

This does not mean I am a seller of every single stock, there are still value plays out there. Consumer staples and Utilities are what I am bullish on, people still need to eat and need electricity; the dividends they pay are also a plus. We have many companies that will be reporting this week, almost 1,000, but I want to focus on a few names I will be looking at. Before I get to that, how I see broad markets setting up and trades I have made.

I expect to give a little bit back from the run up we’ve seen. Closing below 1,240 and not hitting it intraday tells me we could be in for a rude awakening. I can see possibly one more squeeze up to 1,255 (Fibonacci #), but one can only juice a dry lemon for so long. I still like the 1,230 for resistance, so trade that. 1,200 or below definitely a possibility by the end of this week if we get a few bed reports and EU continues to disappoint.

Notice how we pushed up above 1,230 then pulled back then ran it up again, watch that because even though it broke resistance doesn’t mean it is a buying opp.

I made one trade in the past 2 weeks, and it has done quite well actually. American Airlines on the huge slam it had on Oct. 3rd on rumors of bankruptcy. I got in at $1.90 still holding on for now and has made it’s way back to $2.9.

Right now it is hanging around the 2.74 pivot, I’m looking for a little break to the upside, especially if we see a nice selloff in WTI this week. Unless they actually do file (In my opinion they are pretty safe) then seeing it drop below $2 again is unlikely.

Potential trades this week: [Monday] Manitowoc ($MTW), [Thursday] Bunge ($BG), [Friday] Dominion Resources

Manitowoc is a capitol goods service company that specializes in crane service and food service. “engineered lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. Foodservice is a manufacturer of commercial foodservice equipment serving the ice, beverage, refrigeration, food-preparation, and cooking needs of restaurants, convenience stores, hotels, healthcare, and institutional applications” (Google Finance). The food service part of the company interests me, people are starting to eat out more and food is a necessity. I can see with the reaction of Darden and other restaurant names they have rebounded quite well. The stock got killed in ’08 and has not really rebounded.

Looking at their past reports, they actually are not bad at all. Comparing March to June, they dug themselves out of a 52.4M deficit to make 2.7M, definitely a start. Revenue increased, though expenses also increased. I’m looking for a pop to above $10 on the report of better than expected earnings.

Bunge ($BG) is a global agricultural and food company The agricultural business is “involved in the purchase, storage, transport, processing and sale of agricultural commodities and commodity products. The sugar and bioenergy segment produces and sells sugar and ethanol derived from sugarcane, as well as energy derived from sugarcane bagasse, through operations in Brazil.” Like I mentioned above, I am bullish food and agriculture, I see this as a very strong growth stock as the world population continues to increase. From September of last year, their net income is up 30% while increasing revenue from 11.6B to 14.4B, though expenses were 2B more than expected which contributed to a large decline on their last release.

Above $BG, the median price target is $80 and with a p/e of 8 it is still very cheap based on valuation, I have a strong buy.

Last is Dominion Resources ($D), they produce and transport energy in 14 States. Dominion has and in my opinion will continue to do well due to demand for energy and utilities. The 3%+ yield is also very nice. They manages to cut expenses 400M q/q though revenues were a bit lighter. I would buy any large dip in this name (5% or more) they usually selloff on the report then jump right back up in a couple of days

That’s all this week guys, we are getting right into the middle of earnings season, look at the beaten down names with strong reports and make some $, I may also be getting in a few others this week but these are the big ones that caught my eye. All of my trades are done on my twitter (peter_eller10) so you can catch me there.

Good Luck Everyone!

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