Day Trading Thoughts For Wed. Dec. 31

The last day of the trading year can sometimes be quite interesting. Usually, the last day of trading acts like the previous 5-10 business days thus it is likely to be quiet today as well, but one never knows. There are two main forces at work today which the straggler money managers as well as many retail investors contend with. First, there is the ‘wash rule’ phenomenon. A ‘wash sale’ is defined as the purchase and subsequent sale of a security within a short period of time. Most importantly, sales which take place within 30 days of the underlying purchase do not afford ordinary taxpayers to take a loss on their tax return unless using mark-to market accounting. Thus, if someone who is not a trader by career choice owned 1000 shares of SIRI from 8 and sells the shares at 0.10 on December 31, 2008, he cannot get credit for the tax write-off if he were to buy SIRI before January 31, 2009. Exiting the dense explanation, what this oftentimes mean is that retail investors push down weaker stock performers in 2008 as it is the last day to sell the stock to get the loss credit. Furthermore, many try to worm their way around the wash rule in establishing a similar position (i.e. selling a long position in SPY, but going out and buying DIA) thus some strange machinations can occur in many lower-priced stocks. The other major force today is that there is a great deal of ‘window dressing’ going on by the stragglers among the big-name money managers. Window dressing is a strategy employed by many money managers to improve the appearance of their funds before presenting results to their clients. The most common ways they do this is in dumping their worst performers so as to not show where their investments occurred and even more sinister is that some of these characters buy up shares of strong yearly performers and/or illiquid stocks to boost performance. Their buying alone can sometimes spark an inexplicable rise in a stock. So, again, some years are better than others for these forces, but be on the lookout today for some very whipsaw action, particularly in some smaller-priced stocks.

Markets throughout the world were up about 0.5% to 1% across the board. Oil is substantially lower and the bond market quiet. Today will be a little different in all likelihood than the other days this week. Markets will still be quiet, but a bit more active as some money sloshes around. Look for very choppy trading at the beginning and end of the day with a flat middle, but again, there will likely be some more volatility today than has been present throughout much of the 2nd half of December.

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

NFP- rallied very hard amid news that its merger should go through; looking for a buy thru 3.16 Tues high

SOL- very strong all day yesterday; want A-B-A2 buy off of open if it sets up correctly

SFN, ZINC- mentioned by some analyst on CNBC late last night; may be in play because of that

TSL, JASO, STP- very strong despite cousins like APWR warning

GS- very strong yesterday; may be in play today on window dressing

NLC, IEX- closed violently higher on last second ticks

CWST- closed sharply higher near a high; looking for continuation of momentum

IOC- found gas at a well in Canada

NAV- out with earnings early…decent enough numbers on the surface

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

WTR, PLL – closed sharply lower on last second ticks

AHR- announced a slashing of dividend and restructuring after-hours yesterday


Earnings:

None today



Good luck today.

Erik R. Kolodny

 

i like how FLIR broke above its 50 dma yesterday. something to look at.

also, my long pick yesterday was AXYS which did very well. could be some continuation today but its a hard call. the easy AXYS money was definitely made yesterday. AXYS was set to gap up yesterday and i made the long call with conviction that AXYS will jump at least another point ABOVE the opening gap.