In the middle of all this bailout and will they or won’t they pass it hoopla, another bubble might have quietly popped: OIL. When oil was running rampant it was covered 24/7 by our concerned press. Today there is hardly a peep.
During our weekly ETF Screener analysis, we noticed one oil related ETF chart after another displaying a major sell signal, the short-term moving averages crossing under the longer-term averages. We realize oil is down nearly $50 from its highs, but the stocks in these sectors are acting like they expect much lower prices to come. When a bubble pops, as we have seen twice this decade with tech and housing, things can get real ugly. It’s not ugly for oil yet.
Aggressive investors looking to profit from a further deterioration in black gold’s price should invest in ProShares Short Oil & Gas (DDG) or for twice the fun ProShares Ultra Short Oil & Gas (DUG) as it returns 2 times the opposite of the Dow Jones Oil & Gas index; meaning both of these ETFs rise when oil goes down.
If the bailout passes in the house today, as we expect it will, oil could recover a bit on hopes the credit problems are behind us and the economy will slingshot. We are not so confident the intended consequences will be the final outcome.
We haven’t read the bill, but from we have read and heard there is nothing directly acting to stem the genesis of this problem, falling home prices. If real estate values continue to decline, more and more American’s will find their loan balance to be greater than their home’s price. The more folks that find themselves upside down in their loans, the lower, we are afraid, prices are going to go. If prime borrowers start to become a major problem too, we ain’t seen nothing yet.
AeroVironment, Inc. (AVAV) is set to report earnings After the market closes this afternoon. AeroVironment, Inc. engages in the design, development, and production of unmanned aircraft systems and energy technologies for various industries and governmental agencies..
AVAV is expected to earn a profit of 27 cents for its 2nd quarter. We expect the defense/alternative energy company to announce earnings that will beat investors’ and analysts’ expectations. Aero has had no problem handling consensus estimates surpassing the expected numbers for 7 straight quarters.
Management says to expect the company to grow around 20-25% during the year. That means a forward P/E of 22.64 is in-line. With a PEG ratio of 1.36 and no debt to speak of, AVAV has the financial flexibility to continue rewarding shareholders. Despite the market sucking portfolios dry, Aero is up more than 30% in the last year.
AVAV has the potential combustible combination of positive earnings announcement and a growing short position. Forbes recently noted that Aero’s short position has grown by more than 45% since November 21st. A solid earnings announcement could ignite a short-squeeze fire.
According to our technical analysis, this stock is poised to move following earnings. As you will see on the chart, the stock currently stands on two inflection points. We have a triangle formation and the MACD lines resting on one another. In both cases something has to give. Aero has a history of strong performance following its quarterly performance. Let’s hope 8 is magic and management gives the right answers this afternoon.
Suggested Stop: $26.96
National Semiconductor (NSM) is set to report earnings After the market closes Monday, December 8. National Semiconductor Corporation is a semiconductor company that engages in the design, development, manufacture, and marketing of semiconductor products, primarily analog and mixed-signal integrated circuits.
NSM is expected to earn a profit of 21 cents for its 2nd quarter. We expect the tech company to announce earnings that will miss investors’ and analysts’ expectations as we believe the environment for chipmakers is tougher than most expect.
According to Semiconductor Industry Association, “The slowdown in worldwide semiconductor sales that became evident in September continued in October.” SIA President George Scalise said “the worldwide financial turmoil is expected to continue to impact demand for semiconductors as we enter 2009. For 2009 PC unit shipments are forecast to decline by 5% and cell phone unit shipments are projected to be down by 9%.” Cell phones and PCs account for roughly 60% of the chip market.
Recently AMD reported earnings that were bad, even by AMD’s standards. They lowered their revenue expectations for the next quarter by 25%. AMD said its dampened outlook is “due to weaker-than-expected demand across all geographies.” STMicroelectronics warned that its revenues and earnings will be lower going forward. The company said the guidance “reflects the well-known weaknesses in the industry, across most geographies and market segments, and, in particular, in wireless, automotive and computer peripherals.”
National Semi has a history of moving up or down more than 10% following earnings. With a weaker than expected report, NSM could trade at a series of new 52-week-lows.
Suggested Stop: $12.09
Nordson Corporation (NDSN) is set to discuss earnings before the market opens Thursday, December 18. With direct operations in 30 countries worldwide, Westlake, Ohio-based Nordson Corporation is the world’s leading manufacturer of systemsthat apply adhesives, sealants and coatings during manufacturing operations.
NDSN is expected to earn a profit of 84 cents for its 4th quarter. We expect the adhesive company to announce earnings that will miss investors’ and analysts’ expectations.
KeyBanc Capital Markets analyst Matt Summerville recently lowered estimates of Nordson’s earnings per share to 82 cents from 87 cents for the fiscal fourth quarter and to $3.35 from $3.41 for 2008. For 2009, he now expects earnings per share of $2.70, down from $3.85.
According to our technical analysis, this stock is poised to move following earnings and it has a history of jumping wildly following its earnings report. Last time out the stock dropped more than 25% following its quarterly check up. NDSN shares have also soared 10-15% following the call. We see it as an ideal candidate for an options straddle.
Suggested Stop Long: $25.31
Suggested Stop Short: $31.17