|Written by Rob Goldman|
Last week was a hoot, wasn’t it? The Street couldn’t decide if it was time to act like Chicken Little or sing Don’t Worry, Be Happy. The beauty of it is that it doesn’t matter that not being bullish is no longer politically correct and a punishable offense both in your investment portfolio but through derision by bulls. We have found what we believe is the best way to trade volatility intraday or over a 2-3 day period. It is the most tradable stock (well ETF, actually) ever, and not only was it up 21% on Volatile Thursday but even we made money trading it---and you can too.
THE MOST TRADABLE ETF EVER
As I look back on the stock market’s performance toward the end of the week, I find that words alone do not do it justice.
When the bottom fell out of the market Thursday, it reminded me
of this character:
After the dust settled though, prognosticators made me think of R.E.M. hit “It’s The End of the World” http://www.youtube.com/watch?v=Z0GFRcFm-aY, just to help us sleep at night.
Of course, bad stuff is happening out there in the world and valuations are high relative to what the economic situation considering the uphill GDP battle we have thanks to a poor Q1. But, since earnings reports have largely been pretty good, the one hit wonder “Don’t Worry, Be Happy” seems to have really set in. http://www.youtube.com/watch?v=d-diB65scQU. In fact, with nearly 1/3 of the S&P 500 reporting this week, and the mockery of the selloff over, it is as if political correctness has set in thanks to the financial press. If you aren’t bullish you must be a fool! And a bad person.
Look, big stocks are likely to still lead the charge for a spell, but don’t count on it lasting. In fact, you would be wise to stick this trading idea in your back pocket for when stocks drop again and volatility sets in. If played right, you could make serious cash.
On July 8, we introduced an ETF that may be the best way to trade the market. In fact, it was a monstrous winner on Thursday, jumping 21% on huge volume in response to the market volatility. (Even I made money on it!) It is an awesome and simple way to directly trade in response to market volatility and we would recommend using it as the situation arises for an intra-day or 2-3 day trade only. If you missed it in our Market Monitor blog, here is the 411:
VelocityShares Daily VIX Short Term Exchange Traded Note [ETN] (TVIX - NYSE - $2.78) is designed as a very short term contrarian bet on the stock market direction and volatility, like shorting the market. It is an ETF that is traded on the NYSE and can be bought and sold like a stock. The vehicle seeks to replicate the returns of twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures index. The index itself was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. The ETNs are linked to a multiple (2x) of the daily return of the index and do not represent an investment in the VIX.
The unusual absence of any real volatility in the market, or the VIX, which measures volatility, has been the subject of many articles in recent months. However, as the market has dropped in the past 2 sessions, the VIX, and in turn TVIX is up as well and it appears as if it could continue in the short term.
I should note that it is not for the faint of heart due to its leveraged status and its own volatility. Therefore, investors planning to utilize this vehicle should have very short term time horizons of days, not weeks or months. In fact, the prospectus of the vehicle itself cautions that TVIX is only suitable for a brief investment horizon. After all, this product aims to deliver 200% of the daily return of the CBOE Volatility Index, making its losses or gains even more dramatic.
Therefore, for investors seeking to eke out 5-10% gains over a 3-5 day period by shorting the market, or taking advantage of increased volatility, this may be the vehicle for you. Just be wary of big swings and be prepared to pull the trigger should the price turn against you. Monitor it for a while before stepping in and be sure to set sell limit orders upon purchase.
Are You Feeling Lucky...?
This could be the week of the contrarian. For example, we were early in suggesting that energy, particularly oil, would have a good start to Q3. Well, it hasn’t. But, that doesn’t deter us from again saying it is imperative that you have some exposure to the black gold—especially if/when things go south in the market or in the geopolitical arena.
Speaking of being contrarian, if you are feeling lucky enough to trade a stock that just hit a 52-week low and has closed down for seven straight sessions we have a stock for you—-but only after the company releases its Q2 results, given the risk.
Zix Corporation (NASDAQ—ZIXI—$3.02) reports its results after the close on Tuesday. It appears as if all the bad news is already reflected in the stock and if it just meets estimates, the valuation is attractive enough to warrant attention.
Zix Corporation provides email encryption solutions in software as a service model in the United States. Its encryption service delivers information in a secure manner and enables the use of Internet-based email for sensitive information exchange primarily in the healthcare, financial services, insurance, and government sectors. It offers email encryption service, a secure messaging service that allows an enterprise to use policy-driven rules to determine which emails should be sent securely to comply with regulations or company- defined policies. The company also provides a solution, which analyzes and encrypts email communications. Its services allow users to send encrypted email to any email user at any email address by using the ZixCorp Best Method of Delivery protocol, which automatically determines the direct and appropriate means of delivery, based on the sender's and recipient's communications environment and preferences.
The Street is forecasting EPS of $0.03 for the quarter and $0.16 for the year on sales of $53M, with EPS rising to $0.21 next year on sales of $62M. The company has $0.37 per share in net cash, but it does trade over 3x this year’s estimated revenue forecast.
If the numbers are solid and guidance is not reduced, it could be a nice pick-up on Wednesday. It is really out of favor and down 11% since the start of July. There is risk to be sure, but I if the Q is okay, a 10-15% jump is definitely possible.
Have a profitable week!
Launched in May 2010, The Goldman Guide is a free weekly publication of Goldman Small Cap Research and is written by Founder Rob Goldman with contributions from the GSCR contributor team. This non-sponsored investment newsletter seeks to provide investors with market, economic, political and equity-specific insights via an action-oriented, straight to the point approach. No companies mentioned in this newsletter are current sponsored research clients of the Company or its parent, With rare exceptions, all companies or investment ideas mentioned in this publication are publicly traded stocks listed either on the NYSE or the NASDAQ. Goldman Small Cap Research members and contributors’ bios, certifications, and experience can be found on our website: www.goldmanresearch.com .
This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces non-sponsored and sponsored (paid) investment research. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
The Firm’s non-sponsored research publications category, Select Research, reflects the Firm’s internally generated stock ideas, along with economic, industry and market outlooks. In virtually all cases, stocks mentioned in Select Research offerings are listed on the NYSE or the NASDAQ. Publications in this category include the weekly newsletter The Goldman Guide, daily Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report.
Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored micro cap research ideas that typically carry greater risks than those stocks covered in Select Research category. It is important to note that while we may track performance separately, we utilize many of the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in company-specific Opportunity Research reports, updates and articles.
All information contained in this newsletter and in our reports were provided by the companies mentioned via news releases, filings, and their websites or generated from our own due diligence. Economic, market data and charts are provided by a variety of sources and are cited upon publication. Stock performance data is derived from Yahoo! Finance. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, other firms, or other financial news outlets. Goldman Small Cap Research relied solely upon information provided by companies through filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, update, article, blog, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com.