Day Trading Thoughts For Wed. Mar. 11

Discussion in 'Trading' started by erikrkolodny, Mar 11, 2009.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    For those not familiar with it, the uptick rule was a feature present in the stock market for many years. The rule calls for a short sale to only occur at the last sale price if it is higher than the last different price. Ergo, if a stock is trading at 71.99 and you wanted to short it at the current price, your order could only be executed at 72 (or higher). The rule was initiated in 1938 after they were calls for market reform following an outcry that concentrated short selling helped spark a market break in 1937 following the rally that took place for a good deal of the 1930’s. The SEC eliminated the rule in July 2007 after results of a pilot study suspending the uptick rule on select securities showed that the uptick rule actually decreased liquidity and did not appear necessary in preventing stock manipulation. With the decline in the market in the last 1 ½ years, there have been repeated calls to bring back the rule. Yesterday, Barney Frank proclaimed in the middle of the day that he foresaw the rule being reinstated within one month; this helped add fuel to the market rally already taking place as the theory goes that few sellers in the market will allow for a reduction in selling pressure. Now, mind you, when the SEC banned short selling on select financial stocks for a month in the middle of last year, those stocks actually suffered from market underperformance thus destroying the hypothesis that short selling caused the market debacle. Yet, investors/people have short memories and the clamoring for the uptick rule has grown to a fever pitch. So, what happens now? First, there are actually methods around the uptick rule which renders it ineffective anyway. For instance, traders frequently used bullet trades which is a technique in which a trader purchases an ‘in the money’ put option, the sale of a call and purchases a stock results in the same thing as short selling a stock- without an uptick. Also, it is uncertain as to which exchanges the rule would apply to. When the old Island ECN became prevalent, one could short stocks on Island without an uptick because it was not a stock exchange; it was merely an electronic communications network. And of course the main question: what effect will this have on day traders? Well, that is hard to say. It would be much more difficult to short stocks, but other strategies can be employed. For instance, if XYZ fell from 72.50 to 72 very fast and it was 72 to 72.01 with a huge offer at 01 because people were trying to short along with a reloading bid at 72, it is oftentimes effective to purchase 72.01s for a quick pop. Also, it induces traders to hold things a bit longer and to add liquidity more. Thus, there is a great deal of uncertainty here, but it is not necessarily all bad. Keep your eyes out for more developments on this front as any rumors about all of this can cause swings in the market as evidenced yesterday- even if it shouldn’t because stocks inevitably go to where they should go.

    Markets throughout the world followed Wall Street’s lead with Asian markets up 3% to 4%. European bourses are mildly higher as well- about 1%- after huge gains next year. For today, everyone is waiting on ‘profit-taking’ or a down blip…thus, it probably will not happen. I am looking for a small dip shortly after the open, but an A-B-A2 to set up off of that with a rally to come thereafter. Assuming said rally occurs, if it peters out mid-day, that is when the market could reverse if it is to do so, but barring any major news coming out, this strength looks like it is here for a bit.

    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

    JCG-beat earnings for quarter with slightly positive guidance

    JPM, WFC, PNC, USB, STI, CYN, NTRS – all closed at or near their highs in a very strong banking sector

    AMZN- closed near a high

    MS, GS- helped lead the brokers in a stampede higher on short covering

    AFL, PRU, ALL, MET- all insurers closed at or near their highs

    CVX, XOM- big oils closed at or near their highs of the day

    MCHP – pre-announced quarterly guidance to the upside

    BAC, HSY- on “Mad Money” last night

    TCK- mentioned on “Fast Money” last night

    TROW- closed near high

    MMM- among Dow Jones stocks closing at or near highs

    URS- has had huge move in recent days; closed near high yesterday

    PSA, ARE, SPG, VNO, MAC, CBL- among REIT’s closing near their highs

    PFG- closed near its high after a huge run-up

    CAS- rallied violently on great earnings; closed near high

    NSM- decent earnings

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

    PSS- bad earnings

    SYK- announced government probe of mislabeled medical devices

    KFY- bad earnings

    LDK- bad earnings

    SPLS- terrible earnings










    Good luck today.

    Erik R. Kolodny