Day Trading Thoughts For Fri. Jan. 23

Discussion in 'Trading' started by erikrkolodny, Jan 23, 2009.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    In the last few days, the CEO’s of Bank of America (BAC) and JP Morgan (JPM) both bought a significant amount of shares of their own company. There are many reasons to sell shares of your own company’s stock if you are an officer of said entity. You may want to diversify your holdings by placing some of the monies elsewhere. If well-paid, you may simply want to sell enough shares to insure that you and your family are set for life. And of course, maybe you think the prospects for your company just aren’t that good. Now, I’ve been doing this for many years and until recently, I truly believed that the only reason that one would buy shares of his/her own company’s stock is if he/she thought the price would go up and thus, he/she would have darn good reasoning to buy the stock. Well, interestingly, shares of both BAC and JPM already trade below where their CEO’s purchased their positions. Then, I did a little digging. What I came up were two discernable thoughts. First, is it possible- this coming from the cynic in me-that these buy orders are but a relatively tiny fraction of these officer’s wealth and serve as a show of support? For instance, is the CEO of BAC simply trying to buy time for his company by showing that if he puts his money where his mouth is, he believes in the firm…or is it a façade to buy more time? The other conclusion is that these wealthy individuals (now poorer) just have a false sense that everything will be OK. OnOctober 24, 2007, a director of Wachovia Bank (WB) bought 10,000 shares of that stock at 44.80. It gets better. On September 15, 2008, another director bought 1,000,000 million shares of the stock at 11. The stock closed out the year at 5.87 when it was bought out by Wells Fargo (WFC)- in the interim, WB traded below 1! So, as day traders, the gut reaction is to hit the “buy” button whenever we see a story cross about insider buying because, well, it has always worked and it will keep working as common sense says to ‘buy’ when seeing headlines like the ones we saw in BAC and JPM earlier this week. But the astute day trader should take a little time and study the buying patterns of the officers at the company because a short through the price at which the officers purchased the shares is setting up to be a new and creative way to play the financial crisis of the late part of this decade.

    The Tokyo market was down almost 4% overnight with more moderate losses in the rest of Asia. European bourses are down 1% to 2% across the board. State-side, futures are well down albeit off their lows on the GE news. With GE bouncing and GOOG up, I am not sure how we cannot at least try to rally this morning, but the numbers showed precious little reaction to GE’s strength. Thus, it’s ‘be careful’ time. The markets should open well lower this morning and stage a bit of a rally. If that rally is a weak one and particularly if GE begins to sell off, watch out otherwise we’ll likely chop around much of the day in a frustrating directionless manner albeit in negative territory. Benchmarks today are GE, GOOG, and the banks with techs showing relative strength.

    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 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

    GOOG- solid earnings

    SYNA- good earnings

    CNI- decent earnings

    CBST- good earnings

    FII- decent earnings

    TPX –decent earnings

    EZPW – good earnings

    SCO- solid guidance

    LMT- closed near a high after posting earnings Thurs morning

    POT- closed near a high after posting earnings Thurs morning

    ATHN- featured on “Fast Money” last night

    HCN- replacing SOV in the S&P 500 when SOV deal closes

    FRX, CAG, MDRX- featured on “Mad Money” last night

    GERN- received FDA approval to begin world’s first human clinical trial of embryonic stem cell-based therapy

    GE- in-line earnings, but maintaining dividend and talking optimistically about the future

    WYE/PFE- rumors of megadeal in which PFE will buy out WYE

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

    ISRG- met earnings…seems growth is stalling based on conference call

    WFR- beat earnings; said that revenues this upcoming quarter will be less than half of the 4th quarter. Wow.

    COF- missed estimates

    MSCC- missed earnings and warned

    JCI- closed near a low

    USB- weakest of the bank stocks yesterday

    AFL- Morgan Stanley issued a report indicating that AFL’s European based asset portfolio is rapidly deteriorating; the company defended its capital position to seemingly no avail…MS and FBR both say shares have priced in issue now, but stock stil lclosed near low
    HPY- closed on its low

    CNH-closed near its low

    FNF- closed near a low

    STI- closed near a low

    CINF, EWBC, FULT UCBI, AMFI, BPOP, FITB- all smaller banks/financials closing at or near trend lows

    CATY- closed near a low

    GTXI- demolished yesterday on worries over the EU not allowing GTXI’s products to be sold in Europe

    TRV, PGR- among the insurers closing near lows

    MFC- broke down in closing near the low for the day

    HOG- bad earnings

    SLB- bad earnings

    XRX- warned in its outlook

    IBI- warned on its earnings outlook





    Good luck today.

    Erik R. Kolodny
  2. Erik I gotta say I like your creative analysis about insider buying... very similar to how Livermore thought about the market.

    Personally I believe BAC and C will probably not survive this based on how they are trading.