Weekly Outlook: It was yet another flat day for the market as a lack of headlines did not allow for much movement as light volume continues to be the story of the day. Today's major headline that gave early weakness was weak guidance from Lowe's (NYSE:LOW). The company did not give the same strong guidance as Home Depot (NYSE:HD). Data was limited today, but some early weakness in the euro also did not help the markets. The market is awaiting some major headlines later in the week with the FOMC Minutes to be released as well as GDP information from the U.K. and Germany. The most important headline may be the manufacturing numbers from the HSBC Flash Manufacturing PMI as China has been weak in growth as of late.
Going into tomorrow, we get some data from Japan and a light day of earnings tomorrow, so we are expecting another quiet day, but that does not mean there are not trading opportunities out there. Here are five trades we like right now:
Stocks To Trade:
We like the looks of Caterpillar (NYSE:CAT) for an early earnings trade as well as Fastenal (NASDAQ:FAST) and Lennar (NYSE:LEN) long while we like the looks of Monster (NASDAQ:MNST) and Safeway (NYSE:SWY) for shorts.
CAT has made very good moves over the past eight years from late August to the October earnings report. The company has moved up 7/8 time periods, but we have seen within 3/8 of those times a drop in that timeframe of 10%. So, we like selling the 82.50/80 bull put spread for the Oct20 options based on this data and the fundamentals looking solid for this earnings season. The company is expected to report 33% growth in earnings as well as 10% growth in revenue. It should be a strong quarter and downside should be limited. Wait to enter the bull put spread on weakness.
For longs, we like FAST and LEN right now. Lennar made a nice pullback today after a recent 52-week high and has a lot of strength heading into its mid-September earnings report. The company is expecting 100% earnings growth, and we like for the stock to increase in value from here. It has held 29 since its last earnings report gapped up to 29, and that line is a nice place to sell puts. Going long the stock is also not a bad idea as it should get a bump from housing data due out Thursday. FAST looks good for a trade from here. The company has an excellent upward moving wedge, and we believe that it will be able to continue to follow its upward trendline. The company had amazing earnings on July 12th, and the company also will benefit from housing strength on Thursday.
On the flipside, we like hedging those longs with shorts in MNST and SWY. Monster has a lot of weakness right now embracing the stock. The company was just recently subpoenaed for an advertisement set it ran as well as it just reported fairly weak earnings. What has been moving the stock - extremely light volume and a small stock buyback plan. The company also received lowered expectations from us after its most recent round of earnings, and we believe it has headline risk with its latest lawsuit. The company completed a bear flag on Friday and upside appears limited from here. SWY and the entire grocery sector are at a weak spot right now with margins being squeezed and growth limited. SWY is in a strong downward price channel that is showing no signs of relenting at this point. We believe the company should be shorted on strength as growth is expected to slow more this year and money is moving out of these companies.
The market should move fairly flat again tomorrow. The major news tomorrow will be the Japanese All Industry Activity report as well as some earnings for the US. Atlanta Fed President Lockhart gives a speech tomorrow as well that should give some movement to the market, but its really a light day again as all wait for FOMC minutes. The earnings to watch for that can impact this market and give it some direction are Urban Outfitters (NASDAQ:URBN) tonight as well as Best Buy (NYSE:BBY) tomorrow morning. The BBY report actually should be hotly watched as all are expecting some more information about the company's potential to go private. Once again, though, it will be a flat day overall with different stocks seeing more volatile movements on light volume.
Oxen Group Moves/Holdings:
We had a great day in the market as we closed two longs in Apple (NASDAQ:AAPL) from our Extended Value Portfolio for 13% and 19% gains. We also closed the rest of our Fusion-IO (NYSE:FIO) position for a 40% gain from that portfolio. We had to take a small loss on puts we had in our Options Portfolio for Eli Lilly (NYSE:LLY), however. We added the above bull put spread in LEN to Earnings Alpha, added a short in MNST to Short-Term Equity, and added a bear call spread in SWY to Options.
We have the following positions:
In our Short-Term Equity Portfolio we are long eBay (NASDAQ:EBAY), Dr. Pepper Snapple (NYSE:DPS), PPG (NYSE:PPG), Pepsico (NYSE:PEP), American Tower (NYSE:AMT). We are short Kroger, Omnicare (NYSE:OCR), Monster Beverage.
In our Earnings Alpha Portfolio, we are long Lennar, Ulta (NASDAQ:ULTA), Francesca's (NASDAQ:FRAN) and American Eagle Outfitters (NYSE:AEO). We are short Dell (NASDAQ:DELL). We have a reverse iron condor in Abercrombie & Fitch (NYSE:ANF).
Chart courtesy of finviz.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.