The Fed decision is tomorrow, and its a big meeting/speech/decision. The market needs to hear something that will make it rally or it will probably see a pretty sizable correction. On the other hand, good news should help us get out of this recent funk and give the market at least some temporary relief.
Its time to get together a list of stocks that would make great short candidates off this move and great buys. A lot is going to work if we get a trend-like move off the Fed announcement, but that move will be fairly volatile still…therefore it is a good idea to take weak stocks to short and strong stocks to buy even though both will work in both markets.
If we get an announcement of QE3, something positive, etc.:
Apple (AAPL) – Its sort of a no brainer, but Apple was propelling towards lofty price target of $450 – $500 earlier this summer after another stellar quarter. The company is holding up quite well with Steve Jobs’ departure, and it is a rock solid company. The company should be headed back to $450 – $500 in another bull trend. We believe the stock is worth well more than that. The company trades at just a 14.75 P/E, and it will be a great mover on positive news tomorrow. We do not see the company slowing down with Jobs gone, and it is a company with great products and a great future.
Position: Long stock, Sep17 400/410 Bull Call Spread
Oil – A QE3 will be very positive for oil prices as it will quickly drop the price of the dollar, and it will allow oil to most likely retake the $90 line and move higher off that line as well. We believe the upside on oil is better than the downside on disappointment as the commodity has some pretty strong support at the $80 line. With the Libya situation looking to be figured out for now and the only major headwind to oil being a demand issue, oil seems fairly stable in the $80 area. Yet, this announcement would add some definite support through the dollar move solely.
Position: Long Ultra Proshares DJ-UBS Oil ETF (UCO), USO Oct 36/37 Bull Call Spread
CF Industries (CF) – The company has improved drastically in the month of August, increasing 12% in the month. The company had a stellar earnings report, and they have been getting a lot of love from analysts this month. Further, they have been a safety play during the crisis as they have provided a place where money is not being lost. Buyers continue to buy and sellers do not exist as the stock continues higher. Now, the stock has consolidated right on the $175 line, and with the bollinger bands consolidating around that line, a breakout is ready to come either to the upside or downside.
Position: Long CF, Sep17 185/190 Bull Call Spread
Oracle (ORCL) – Oracle is one of our Buy-rated covered companies, and we believe the stock is worth north of $40. ORCL has been wrongly dogged during this latest market pullback, giving up more than 20% during this downturn despite having a beta of 1.13 and coming off another good quarter. The company had a great initial reaction to earnings, but it has hit headwinds for the rest of the summer. We see ORCL as a stock poised to pop on some good news from Ben, and we are looking at them as place to trade with intentions of ORCL retaking the $30 line.
Position: Long ORCL
What if we do not get what we want and breakdown even further:
Winnebago (WGO) – The RV industry is definitely suffering right now as the economy cannot support such big-ticket items with large continuous inputs (gasoline). Winnebago has seen weakness in earnings, and it really never had much of a recovery in their fundamentals during the large bull market of 2010. The company is getting to some pretty weak levels and a break below 6 would be a death sentence for WGO. The company should be shorted on any weakness tomorrow and can be taken off in parts as the stock moves to an inevitable $5 line.
Position: Short WGO
Concur Technologies (CNQR) – The company recovered over the past week on very light volume and nothing fundamentally changing for the company. They have been dropping since May after a series of disappointing earnings reports and severe overvaluation. With a P/E of over 300, we expect this company to be whacked hard on a further downtrend in the market. The stock has had several strong sell-offs over the past four months, and we see any super overvalued stocks as candidates to see major short interest if we continue in a downtrend.
Position: Short CNQR.
SuccessFactors (SFSF) – Another cloud company with cloud-like valuations sitting at a nearly 200 future P/E ratio. The company is barely profitable, and the growth expectations for that profitability is not good. By the time they do get profitable, the cloud bubble should be popped. SFSF is worth much less than their asking price, and we see very little upside for them even in a great market. They have not been able to mount any rallies with the general market, and their downward movements have been very violent. They would be a great short candidate.
Position: Short SFSF.
Good Investing,
The Oxen Group
