Day Trading Thoughts For Wed. Mar. 18

Discussion in 'Trading' started by erikrkolodny, Mar 18, 2009.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    As announced yesterday, new U.S. housing starts surprisingly surged just over 22%. According to the Commerce Department, the jump in housing starts (to a seasonally adjusted rate just shy of 600,000 units) was the biggest percentage gain since January 1990. More importantly, it was the first advance in the number since April of last year. And, oh by the way, the January housing start number was revised higher as well. Now, one month does not a trend make, but it is important to note that the fate of the housing market is at the core of the financial crisis so any uptick in house values could help to spur consumer spending once again. The glaring negative, however, was that building permits (a sign of future construction) rose much less than starts which indicates that the pace of construction may once again slow because obviously if a declining amount of permits are applied for, building of houses/condos cannot keep up a good (sustained) pace. There are several points here. First, the sale of foreclosed homes will continue to compete with new construction of homes until the supply of existing foreclosed homes is whittled away. To date, this has not happened. Second, it is extremely notable that there has been a string of decent economic and corporate news recently; the news in turn has coincided with the market rally. PPI data came in OK yesterday and CEOs at banks such as Bank of America, Citicorp, and Barclay’s have indicated that current quarterly performance is relatively solid. Finally, the decline caught a lot of people off-guard. It is unusual for a number to be that good or that bad so if this is indeed the ‘bottom’ of the economic/market cycle, it is an event such as this housing starts number which would indicate as such. For the day trading world, it is a reiteration of two things. Trade what you see and not what you think/feel and keep your eyes out for every piece of major economic and corporate news because in this hypersensitive world we now live, anything can move the markets- but you have to know what is going on in order to have any chance to succeed.

    Markets in Asia were lightly mixed overnight with prices in Europe generally higher ranging from barely in Britain to about 1% in Germany. Everything else from commodities to currencies are quiet. State-side, futures are down slightly with most financials a little lower. That will likely be the theme of the day- consolidation. I am looking for trading on both sides of unchanged for the bulk of the day until the Fed results. At that point, particularly if the markets are up a bit, I think there will be some light profit-taking after this huge run-up ala there is not much else the Fed can do at this point so that may be as good a reason as any to take a little money off the table.

    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

    ADBE- decent earnings; CFO sees signs of ‘stabilization’

    FEED- run-up after great number continues

    SINA- major reversal on bad earnings and closed near high of day; ASIA, SOHU, BIDU among stocks to watch with this one for the day

    JPM, WFC, PNC, USB, STI, STT, NTRS, MS, GS- among the major financials closing at or near their day highs

    CEPH- closed near a high after positive drug news

    AFL, PRU, MET, ALL- all major insurers closed near their highs of the day

    DRI- great earnings

    AAPL, AMZN, IBM, RIMM- among big cap tech stocks closing near their highs

    STEC- continues a stunning ramp higher after posting great earnings last week

    HEV- closed at high of day

    SKIL- closed near high of day

    HES- among big oils closing near high of day

    BBY- among retailers closing at/near high of day

    FFG- closed near high of day

    GGC- ramped higher after obtaining waiver help; closed near a high

    RIG, XLNX- mentioned positively on “Mad Money”

    AIR- good earnings

    HUN- responded to S&P action by stating that wins in pending legal cases will provide it with substantial liquidity

    BAC- CEO Lewis indicated that BAC may give back the TARP money by the end of next year

    GIS- boosted outlook slightly

    MET- during presentation, the company indicated their capital is adequate with liquidity not a concern

    JAVA- rumored to be bought out by IBM

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

    GES- warned on next quarter’s earnings

    SHS- closed near a trend low after posting bad earnings

    MGM- in dangers of imminent default; also had bad earnings

    MRX- its lead drug not only may be delayed, but its biggest competitor may get its drug approved thus beating MRX to market

    SII- mentioned negative on “Mad Money”

    ATU- poor earnings

    IBM- rumored to be buying out JAVA







    Good luck today.

    Erik R. Kolodny
  2. Re: Housing-

    From, "Analysts note that 82 percent of the increase is in the volatile multi family category rather the single family category which only increased 1 percent."
  3. erikrkolodny

    erikrkolodny ET Sponsor

    Thank you for the specifics because those numbers really put the 'surprise' into perspective.

    I agree that any housing data is volatile particularly at this point and the cynic in me continues to question the veracity of any government data, but my two main points remain the same. First, the uptick was indeed unexpected because it beat the consensus estimate (no matter how one arrived at his/her estimate) so it helped spark the rally yesterday and second, the day trading community needs to pay more and more attention to these numbers (no matter the quality or lack thereof of them) because the information moves markets.

  4. Just wanted to point out that new properties are going towards rent properties vs. the single family home (which is how every media outlet is spinning the #s).
  5. erikrkolodny

    erikrkolodny ET Sponsor

    Agreed and thank you. Every 'win,' i.e. beating an 'analyst' estimate' is not necessarily a high quality win so I for one appreciate the extra color you put on this.

  6. hey erik,

    i read your post everyday. your insight is very valuable.

    i have been trading for only 3 months. i have been trading earnings. i had originally bought GUESS (GES) long at $15.64. the report came out and stock shot up to 16.20. i was going to sell, but then the forecast came out "very negative" as even you have said. i know from history (fslr - in particular) that forecast trumps earnings. i quickly sold at a loss and shorted. it proceeded to go down in after and subsequently pre market to 15.20. it then opened down to 15.02.

    after about first two minutes it shot up and went all the way up over 10%.

    did i miss something???? with all of your expertise could you figure out an explanation for why this stock performed the exact opposite of how it was supposed to??? also, i dont mind losing, but also why such a big gain???

    thanks for any of your input
  7. erikrkolodny

    erikrkolodny ET Sponsor

    Three things-

    1) I cannot even pretend to guess why stocks move the way the do in individualized situations like this. I can give you a canned response like "maybe the bad news was factored into the stock" or go even fancier and make myself sound like an analyst by noting "I am guessing the conference call went real well." But the real answer is: "I don't know." And the part that may not make sense right now: "I don't care..." because....

    2) I trade based on how I see a stock acting rather than what I think it should be doing. Every single day, I cut and paste the instructions for how I look to trade the stocks in the "good" section and the "bad' section. Now, I actually didn't trade GES yesterday morning because I was trading several other stocks on the list and truth be told, I missed the wild movement in GES as I was focused elsewhere. But the only two trades based on my methodology/advice are to have either bought it when it through unchanged on the day on the initial impulse higher and/or after it came back in and made a new high at around 9:40AM. I don't ask 'why" a stock is acting a certain way...I know that if GES is rallying and it 'should' be falling...guess'll probably keep rallying because people who are short scramble to get out. So, I go with the market rather than try to fight it.

    3) I have extremely tight stops. Using the trades I'd have done had I see it, I'd bought GES thru unch at 15.65. My outpoint for half of it would have been when it first got stuck and the balance once cent below where old resistance was now support at 15.65 -unch (because it should not have gotten back below the breakout). With the second one, 15.80 was the entry as it was now firmly ensconsed in positive territory. Bottom line- I do not hold onto positions very long because if I am wrong to start with, odds are I will be even more wrong the longer I hold it- just monetarily much worse.

    Basically, whatever success I have comes not from any degree of intelligence or insight per se; rather, it is dervied from discipline. I don't question why things are the way they are; I go with the flow and when I'm wrong, I'm out. my average time horizon for a trade is just over two minutes.

    Hope all of this gives some help?


  8. erik,

    thanks for taking time to answer. u are exactly right. i agree 100% and i know exactly what you are saying.

    the reason why it went up 17% when it should have gone down. is clearer than clear.

    at 12:30, 2 hrs after the big move, they posted a news story that the "f*ed" up analysts, 2 of them, re-iterated a buy on GUESS. as a rule an "upgrade" which this is, more or less, cause it was a buy and it cant guy any higher, on an overall up market day, with any positive news in an earnings report, which there was, results in a big.

    so there it is.

    and yes you are soooooo right, i really did not need to know that news, all i really needed to do was see it was blasting off up. i should have stopped out and been done with a small loss, and then play it from there.

    but thank you. i am new to it and what u say re-enforced what i believe to be true.
  9. erikrkolodny

    erikrkolodny ET Sponsor

    The only thing I disagree with here is that ignroance is not totally bliss. You should know the news in the stock, but if it is not acting as you think it should, act accordingly.

    In any case, good luck.