Abbott and Costello. Laverne and Shirley. Batman and Robin. If you cannot tell, the theme for todayâs piece is pairs. Pairs trading was very much in vogue during the late 1980âs in particular. The concept of âpairs tradingâ was started by a quantitative analyst from Morgan Stanley named Gerald Bamberger in the late 1980âs. Bamberger discovered that certain equities- particular in the same sector if they were direct competitors- tended to correlate in their day-to-day price movements. For instance, KO and PEP and F and GM are but two famous pairs. To this day, pairs trading is often done with the thought that if a spread between two particular equities gets too wide, the spread comes in, i.e. if PEP rallies, KO should rally as well. The problem for day traders, however, is two-fold. First, there can be a lot of noise intra-day. Spreads can widen and come in intra-day seemingly randomly so it makes it hard to game the system. But the second issue is of more import- one must pick the right pairs. For instance, if one traded Reebok and Nike some time ago (or DELL and IBM most recently), seemingly equal competitors can diverge rapidly, i.e. Nike became the dominant shoe entity while IBM dwarfed DELL. Which brings me to my point: many traders recently have been trading GS and MS together along with the banks as a whole together. And much more often than not, if one is rallying, some of the others in the sectors do not necessarily catch up. This is because of the aforementioned two points: we may well be witnessing â namely the weak are separating from the strong in the financial sector and things are vacillating wildly intra-day. Namely, just because GS is rallying does not mean MS will and vice versa; indeed, MS posted poor earnings on Wednesday and traded down much of the day while GS actually rallied. Daily epiphany: do not overthink things. Keep up with the macro of course, but know that buying a competitor blindly when day trading does not always fellow common sense logic. Markets in Asia were lightly mixed overnight with Tokyo down 1% and Hong Kong up fractionally. Markets were stronger in Europe with prices up 1% to 2% across the board. State-side, MSFT and AMZN are helping to lead a charge in techs while other sectors are following in lockstop albeit less so in relative terms. With it 70 degrees and sunny in New York tonight, look for a much slower day as traders file out early. But, we should have a marginally higher open. From there, there seems to be a ceiling in the short-term amid worries about the stress test results yet nobody wants to sell anything either in case the results are good. Ergo, we get stuck and that is probably what happens todayâ¦a tight range-bound trading market with individual stocks totally utterly the way to go. The bias is to the upside unless shown otherwise, but watch for the 2PM announcement about how the test was conducted as well as any leaks about stress test news. Reiterating- Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea. If the whole story is not there - If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified- Good- The following stocks have good news and/or a strong technical pattern AMZN- good earnings MSFT- in-line earnings, revenue miss, but stock rallied after-hours MHK- positive earnings guidance AXP- good earnings BNI- good earnings JNPR- good earnings CAKE- great earnings WDC- good earnings ALGN- good earnings STAR- good earnings RVBD- good earnings PMCS- great earnings DV- good earnings NTY- good earnings CF- good earnings SYNA- good earnings FIG- closed on high of day COF- closed near high of day CPHD- good earnings BUCY- good earnings SKT- good earnings LVS- mentioned on âFast Moneyâ last night PH- mentioned positively on âMad Moneyâ last night OFG- good earnings F- good earnings HON- good earnings SLB- good earnings WL- good earnings Bad-The following stocks have bad news and/or a weak technical pattern NFLX- bad earnings guidance SPWRA- weak earnings guidance AMGN- poor earnings WFR- weak earnings IBKR- terrible earnings CNW- bad earnings DECK- warned on its outlook EZPW- poor earnings SWKS- bad earnings ORI- closed near low of day SD- doing a share offering at 7.60 MMM- bad earnings ACI- bad earnings Earnings: FRI APR 24 BEFORE ACI CYH F HON IDXX IPCR ITT KMT KTC MMM PNK SLB SWK WL XRX Good luck today. Erik R. Kolodny
As many take value of Erik's blog, we would like to take it one step further. We would like to stimulate great discussion and value. We would like to identify, the trade of the day by group opinion. Please let us know the set ups that you do not want to miss. As F shares have traded as high as 5.75 in the pre market. The trade that I am looking for is a Ford open trade down and buy throught the open. This is a textbook trade for the Epiphany Method labeled the A-B-A2. This is a trade that we will be doing in size. Brendan P. Byrne
I love that trade idea. I will be all over it too. I will also be paying extra close attention to the financials especially with the 2:00 event
FYI Todays earnings FRI APR 24, Before the opening ACI CYH F HON IDXX IPCR ITT KMT KTC MMM PNK SLB SWK WL XRX MON APR 27 BEFORE ACV BEAV CHKP ENR GLW HUM IMA LO OMC ONB PVTB RCII SII SLG SOHU TKR VLO VZ WBC WHR MON APR 27 AFTER AAN ALB AXS BIDU CMP ELX EW FNF HBI HMA HXL KRC LRY MAS MRH MTH OLN PCL PRE PRXL RGA RKT SWN TMX UHS WMGI WRE WRB WRI XL TUES APR 28 BEFORE AG AM AMB AMED AVY AXE BCO BDX BEC BEN BMY BP CCE CE CNC COG COL CPO CVG CVH DAI DIN DVA ECL EME FDP FMER FPL GPI HCP HSP IPG JEC LAZ MHP MJN ORB OXPS PCAR PCH PCZ PFE SMG TLAB UA VSH WAT WDR X TUES APR 28 AFTER ACC ACE AMX BWLD CBI CERN CPX CRI DWA FIS FSP HTZ JLL LIFE MEE MPWR NAL NLC OFC PMTC PNRA PSYS QCOR RRC SRCL TRMB TRMK TSS VFC WBSN WED APR 29 BEFORE ABX AEP AET AFL AMG AMT ARW ASCA AVA BDC BHI CNP ENDP EOC EWBC FCN GD GT HES HST IACI JNY MCO MDP MHS MPS MT MWV NJR NVE NYB PX Q RAI RCI RGS ROC ROK ROL SEE SLAB SO SPW STR SVVS TEL TXT TWC TWX WMI WXS WYE WYN WED APR 29 AFTER AEM AIZ AKAM AMKR ARRS AVB BEZ BMR BXP CAI CAVM CBG CBL CBT CCI CDNS CLF CNQR CTXS CVD DNB DPL DRC DRIV DST DTE EFII ESRX ESS FLEX FLS FORM FSLR FTI GMR GNK HAR HIW ITRI ITC JDSU KEX LPS MANT MOH OI OII OKE ORLY OSIP PLD PLXS RE RNR RYL SAP SBUX SPN STM TCO TER TRN TTEK UNM URI V VAR VARI WGL WLL WSH THURS APR 30 BEFORE AHL APA ASH AWI AZN BBW BC BWA CI CINF CL CLI CMI CMS COCO COV CTL D DLR DOW DPZ DRE EK EQR EQT ERIC ETH EXPE FAF FMX GTI GTIV HOS HOT HP HS IFF IP IRM ITG K KBR KIM KSU LNT LZ MOT MRO MYL NBL NEM NRG NU NVO NWL NYX OC OCR OMX OSK PCBC PCX PDE PEI PG PTEN RGC RYN SPR STRA SWY TNDM TRH TRV TSM TYC WMX WPI XEL XOM THURS APR 30 AFTER ACS ARBA ATHN ATO BGC BMRN CAB CHH CMO CPT CQB DLB ELY FISV GPRO HIG IM IN ITMN MCRS MET MFE MTD MWW MXIM NETL NFG NST NTCT QLGC SSD TEG TSRA TSYS UGI VPRT VSEA FRI MAY 1 BEFORE AGN AGP AIV AOC AXL BPO CCJ CLX CVX DF DSX ED FLIR FO HMSY LPNT MA MDU NI PPL RSG SPG TE UTHR
I'm taking my FAS options profits at open, and then will play it as the pattern becomes evident. Hopefully today isn't as noisy / choppy as yesterday though. Wonder why F is up so much pre? Also, what's happening @ 2:00?
As described in today's blog, they will release how the test was conducted at 2PM. So, may/may not be newsworthy, but people will tyr to make inferences out of whatever is said about the test mechanism so there may be some market movement..