Day Trading Thoughts For Thurs. Apr. 2

Discussion in 'Trading' started by erikrkolodny, Apr 2, 2009.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    Stunningly, a major development which could rock the financial markets one way or another is receiving precious little press. And when does said development occur? Today. That’s right, Today. I wrote a detailed piece about the phenomenon here from March 10 so I will not repeat the text of that entry:

    Yes, today financial regulators will decide whether to relax the mark-to market accounting rules. Rather than give a discourse about m-t-m (which I already did a few weeks ago), let’s go over the likely day trading scenarios. The most likely thing that will occur is the politically expedient solution- the attempt to find a way to appease everyone. Basically, mark-to-market would not be suspended or revoked; rather, an attempt will be made to somehow someway allow banks to value assets in a way that will help them. I know this makes no sense, but very little in government circles in Washington, DC does. If this happens, there will likely be a massive rally followed by a bit of a sell-off as nobody is able to figure out what is going on ala the original plan that treasury Secretary Geithner proposed several Tuesdays ago which was long on optimism, but short on detail judging by the 300 Dow point decline that session. Basically, looser accounting rules would allow bankers to place higher values calculated by in-house mathematical systems ergo a guesstimate would be placed on what the value of the assets theoretically should be. This is terrific in the immediate-term as it allows banks books to be shored up, but creates uncertainty in the long-run. The 2nd most likely scenario is a temporary suspension of the mark-to-market schematic. This would probably cause a nice pop for the market in the immediate-run, but prices would decline in the longer-run as, once again, prices will still have to be marked correctly over time. Yet, it’d create a great short-term rally. The 3rd most likely scenario would be that nothing is done. It’d imply uncertainty/players behind the curve and I’d have to think that politicians will do whatever they can to save themselves at this point much less the economy. If nothing is done, the markets would likely sell off very hard as an expectation is built in for something as this was one of the cornerstones behind the dramatic late March rise in equity prices. The least likely scenario is a complete revocation of mark-to-market. This would cause a searing immediate-term rally because it’d theoretically allow marked down prices (in many cases below true values because there is no liquid market for many securities right now) to come up and create a real viable pricing mechanism for toxic assets. It may not be good in the long-run, but it’d allow things to flow again in the here and now. So, use this as a guide to market performance, be ready to change with the flow of the markets at a moment’s notice, and keep your eyes attuned to whatever comes out of that panel meeting to properly be ‘in the know’ as to how to trade today.

    Overnight, markets throughout the world soared on the heels of the good economic news from the U.S. yesterday as well as hopes for IMF and mark-to-market progress. And by “soared,” I mean Tokyo was 4% while Hong Kong’s markets rose 7%. The bourses in Europe are up about 4% on average- and strengthening as I type as the ECB just voted to cut interest rates 25 basis points rather than 50- this is another sign of strength. It is sheer folly for me to hazard a guess as to what will happen today here because it will all hinge on what comes out of the G-20 and what occurs in Washington re mark-to-market. Best guess, however, is that we open higher and sell off a bit. We’ve had a huge rally and there is a lot of hype/hope, but not much substance to this last phase. Again, that is only a guess, but if it turns to one of those bullishly grinding A-B-A2 days like we had on Tuesday, this is obviously how today should be played.

    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

    ACOR- tried rebounding; closed near a high

    EXM- amended its credit facilities and received an equity infusion by its major shareholders

    MGM- may receive capital infusement from Colony Capital; LVS, WYNN, BYD could move with MGM

    UNF- beat on quarter although issued hazy guidance for future

    CSIQ- closed near a high among strong solar sector stocks

    SYNA- closed near a high

    JPM, WFC, USB, BAC- among the banks up on speculation of what will happen at today’s mark-to-market panel meeting

    KMX- beat earnings estimates for the quarter

    MON- beat earnings for quarter; will miss guidance for year slightly, but still decent numbers. Watch for POT, MOS, AGU, CF in sector

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

    LEN- continued to sell off despite positive housing numbers yesterday

    SCHN- missed earnings estimates, but beat on whisper so may rally anyway

    LNN- atrocious earnings

    AMZN- downgraded by Barclay’s








    Good luck today.

    Erik R. Kolodny