Day Trading Thoughts For Tues. Jan. 20

Discussion in 'Trading' started by erikrkolodny, Jan 20, 2009.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    Starting today, the next three weeks will be the heart of earnings season. Typically, trading on earnings/news flow tends to be very profitable for day traders who diligently study the earnings numbers. A very good pattern tends to be to fade good earnings reports and buy stocks with bad earnings reports when said stocks approached unchanged on the session. For instance, after the initial reaction higher to BAC on Friday morning, anyone who shorted the stock thru the unchanged level would have done very well- whether trading with a two minute or a two hour time frame. The thing to remember here is not to question why a stock is performing as it is, but simply to go with it. Why wonder why BAC popped initially or sold off…the fact of the matter is that when the stock initially got through unchanged, it fell. I also utilize the A-B-A2 pattern a great deal during this time; FHN reported earnings on Friday morning. It rallied to 8.86 initially (point A), fell back to 8.10 (point B), and when it hit 8.86 again (A2), the stock raced to 9.49 within 10 minutes! So, there is movement to be had. This earnings season is a little different from most in that the stocks with earnings will tend to truly reflect the market of the day moreso than normal. Furthermore, stocks with really good news that have been beaten down will likely have incredible short covering particularly on stronger market days. Witness the performance of Barclay’s Bank (BCS) on Friday afternoon when it noted it’d have better than expected earnings; it ran from 6.16 to 8.22 in minutes. Thus, stocks may not act as you’d expect this particular earnings season. Moves will be explosive on a day-to-day basis and the volatility will be even more present than normal. The bottom line is that there will likely be many opportunities this particular season because of the sheer emotion right now.

    Markets the last couple of days have fallen 3% on average across Asia and Europe. There are tremendous worries about the state of the banking sector; Britain unofficially nationalized their banking system while we enjoyed our day off. The banks will likely lead the markets significantly lower today. Trading will be best pre-open (like 7AM-8:15AM) and then busy from the open to 11AM. Look for a gigantic lull mid-day as people start watching the inauguration coverage. During this time, do not force anything. Focus early and get your main trading in today before 11AM for that reason. Following the inauguration, use the banking sector as your guide for the markets, but the selling will likely extend into the afternoon. Oil will be a sideshow as the contract rolls over tomorrow so watch the USO over the cash oil contract.

    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

    ILMN- closed near a high; looking for more continuation

    RIMM- closed near a high; looking for more momentum thru Friday’s 51.28 high

    TIV- up sharply on Friday upon finding gold in a few of their mines

    HOC- broke out to recent-term high

    AER- nearing recent high

    PALM- very strong on Friday one more time again, but traded lower after-hours. If it opens around unchanged, it is likely a short in the manner in which MA performed in the first few minutes on Friday

    FAST- beat earnings slightly

    SU- beat earnings

    FRX- raised guidance

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

    BAC- never had a bounceback after the initial rally on its earnings; closed near a low and looking to short thru Fri 7 low particularly pre-open before 8AM ET

    COP- announced significant noncash impairments for its 4Q late Friday afternooon

    VSEC- announced it has missed out on a U.S. Army contract

    REXX- closed near a low

    COF- particularly weak on Friday; watching for continuation

    MBT- leading Russian telecom entity keeps falling; looking for more continuation

    WBS- major reversal; could be short thru Fri’s low

    ZION- among the weakest of a weak banking sector on Friday

    AMTD- warned

    JNJ- warned slightly

    LOGI- missed earnings

    PH- beat for quarter; warned on year

    RF- missed earnings

    STT- atrocious earnings; more notable is that they are going to be writing off assets backing their money market funds…this literally could sink the company if the trend continues because they cannot pay out $1 for assets worth less than $1

    BABY- warned












    Good luck today.

    Erik R. Kolodny
  2. "The thing to remember here is not to question why a stock is performing as it is, but simply to go with it. Why wonder why BAC popped initially ."

    Erik, the above statement should be glued to every traders computer., daytraders tend to over analyze rather than just going with the flow. terrific post as usual Erik !
  3. erikrkolodny

    erikrkolodny ET Sponsor

    Thank you. Unfortunately, I (like most) learned that lesson the hard way, but it could not be truer. There is little point in questioning why things are happening if trading for an immediate-term move in particular. It's so much easier to go with the trend than to think "enough is enough" and fight the trend.

  4. popolino


    Keep up the great posts Erik! Thanks for your insight and ideas. Do you use earnings info from the start of the month to influence trades on companies announcing @ a later date in the same sector?
  5. erikrkolodny

    erikrkolodny ET Sponsor

    I keep the past data in my mind, but quite honestly, I just use that day's numbers to trade off of as my time horizon is so immediate-term.