Day Trading Thoughts For Fri. Dec. 26

Discussion in 'Trading' started by erikrkolodny, Dec 26, 2008.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    Many traders out there (including myself) use the benchmark Dow Jones Industrial Average as a measure of how the market is doing at any given second. However, it is arguably the worst average to use. It is a measure of the value of 30 stocks in various sectors with a divisor thrown in. A much better average to utilize is the S&P 500 which of course is a much broader measure of market strength. Most of us day traders also use the NASDAQ as well. In any case, for whatever reason –perhaps it is due to the media focus or the push by the “Wall Street Journal” over the years- the average person tends to expect an answer of the net change of the Dow when he asks “So, what’s the market doing today?” However, there are certain times in which the cousin averages can indicate underlying strength or weakness for the Dow. Thus, the two benefits of this piece of basic knowledge are as such: 1) One can trade Dow Diamonds (DIA) if one thinks that the Dow will catch up with the other averages…or vice versa. One can also trade SPY in an effort to arbitrage the difference in the indices. 2) One should keep an eye on everything to get a true picture of what the market is doing. At one point on Monday, the Dow was down less than 1% while the losses on the S&P 500 eclipsed 3%. This indicated to me that the internal weakness in the market was significant; as the Dow played catch-up, shorting DIA was a good play but also it made me well aware that just because the Dow fell in the 2:30PM-3:30PM timeframe, it did not necessarily mean that the broader market would sell off with it- simply because it had already sold off a great deal! Thus, it made me keenly on the lookout for sharp rallies in the DIA in particular, but it kept me out of trouble. Thus, always look for the whole picture when trading and pointedly watch the blizzard of numbers at the top of the CNBC crawl every so often- because the numbers can only to serve to help you.

    Markets in Asia were slightly higher net-net the last couple of days while Europe remains closed for the Christmas holiday. Oil fell very hard after the markets closed state-side on Wednesday. There is a bit of an upside bias today; that will likely continue, but it is likely going to be a very slow day to trade. Look for drifts and trade only pockets of activity (such as PLD on Wednesday).

    Reiterating-If the whole story is not there -
    If something is good, assume either a short thru unchanged or an A-B-A2 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

    PLD- announced on Wednesday that it made contributions of properties throughout the world which garnered $1.26 billion; stock exploded…looking for A-B-A2 thru 13.50

    HCE- trying to liquidate fund; may be buy thru 4.26 on A-B-A2

    RMBS- very strong on Wed.; looking to buy thru Wed high of 15.68

    BNE- closed very strong on Wednesday; very illiquid, but like a buy thru 6

    BEBE, JNY, AEO- all on “Mad Money” on Wednesday

    GM- GMAC received bank holding company approval

    Bad-The following stocks have bad news and/or a weak technical pattern

    ANR- very weak; looking to short thru 15.01 Wed low when/if it gets there

    AAPL- notably weak on Wed; looking to short thru Wed low of 84.55

    SAY- one of the directors resigned; company also issued a rebuff to the Wrold Bank in asking for reasons for its actions earlier this week


    None today

    Good luck today.

    Erik R. Kolodny
  2. ]


    I am not sure if it were by design, but your morning commentary on the chat room broadcast had mention about how Oil fell $2 on the final bar of the day on Wednesday, Christmas Eve. So yes, oil is up from the close, but it is down significantly from normal trading.

    Good luck today.