WED. JUN. 16- The Message Of The Markets In yesterdayâs market commentary on the blog, I wrote this: "Markets were little changed in Asia overnight with Tokyo and Hong Kong both up 0.1%. In Europe, markets are shaking off a BP debt downgrade by Fitch as well as a Greek debt downgrade to junk (which occurred yesterday while U.S. markets were open but Europe closed) with most bourses up about 0.5%. Oil is up another 1% with gold up slightly. The euro is stronger again too. All of this is leading to a respectable uptick in futures. Very impressive microcosm. With CBOE expected to be a strong IPO today, donât underestimate the impact this could have in bringing some confidence back to the markets as well. Barring a meltdown by GS or the drillers, look for the gains to hold today. " Yet, all day long yesterday, I heard stories of people getting short shares of stock and getting that much more short as the markets kept creeping higher. People were waiting for a decline that just never came. I was asked by seven different people at seven very different times if I thought the markets would sell off intra-day. All one had to do to develop a sense of what was highly likely to come was to pay attention to what had come before it. I know, thatâs all, like, deep and stuff but it could not be more true. On Monday night, the Asian markets failed to follow the sell-off that took place on Wall Street intra-day Monday. Then, despite a downgrade of BPâs debt, negative talk out of Greece, and that aforementioned reversal, the bourses were rallying with short covering in full force in the euro. Thus, the equity markets had every reason to gap down yesterdayâ¦instead, they gapped higher, held early strength, and slowly began to lift. I can say things like âthe bad news was factored in.â But itâs a generic, pat, and largely ignorant answer. The truth of the matter is that I have no idea what happened and why the markets reversed. But I do know that by simply reading the internal clues to what had happened and what was going on what I should not do (which kept me from losing). Obviously, as important, it led me to believe what I should do- namely aim to enter unique longs such as BP on an A-B-A2 to the upside once it got positive on the day early in the session or buying DVN at 70 after a long consolidation period in the middle of the session. Basically, donât try to outguess the markets- instead pay strong attention to the given clues, make sense of it, and donât hold personal beliefs about what should or should not be but rather what is. Markets were higher in Asia following Wall Streetâs big rally yesterday with Tokyo up 1.8%. In Europe, markets initially traded somewhat higher, but have fallen off after some disappointing economic data state-side with the bourses down about 0.3% across the board. Oil is giving back about 1%, gold is flat, and the euro is weaker. Futures are getting hit on weakness/worries over BP as well as poor housing starts and building permits data. Yet the futures are down but not as much as one would think. For the day, expect the trading range in a narrower band than yesterday with a downside bias. There will likely be one rally attempt to build on yesterdayâs strength, but weakness in the likes of BP and NOK will act as overhangs and likely cause the major indexes to remain lower all day. Focus on BP, the drillers, and anything with relative strength as there could be some short covering in the stocks which arenât showing weakness early on. Reiterating- 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 specified. If 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 RIG- nice reversal in closing near a high DO- closed near a high GS- closed near a high CETV- closed near a high after a brokerage upgrade FSLR- closed near a high on speculation about the presidentâs speech last night AAPL, AMZN, RIMM- closed near a high V, MA- closed near a high X- closed near a high CLF- closed near a high FCX- closed near a high POT- closed near a high APA, SLB- closed near a high SWN, DVN- closed near a high PNC- closed near a high PWER- mentioned on âFast Moneyâ last night MDRX- featured on âMad Moneyâ last night CTRP- closed near a high ERII- closed near a high ATI- closed near a high CLC- good earnings SUN- plans to separate SunCoke Energy and expects refining segment to be profitable next quarter NBIX- announced agreement with ABT to develop and commercialize an endometriosis product PPG- raised earnings guidance Bad-The following stocks have bad news and/or a weak technical pattern PDLI- poor revenue guidance IFLG- reversed a huge two-day rally in closing near a low SMBL- closed near a low after posting terrible earnings outlook RL- pricing 9 million shares at 81 COV- acquiring SMTS for $25/cash per share; says acquisition will be negative to earnings on a GAAP basis in 2010 and 2011 FDX- poor earnings NOK- warned on outlook CRIS- poor phase II results JDAS- lost lawsuit against DDS Earnings: WED JUN 16 BEFORE FDX WED JUN 16 AFTER None today Good luck today. Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
THURS. JUN. 17- BP And The Debt Market Thereâs an old saying that the perception can become the reality. Recently, there have been all kinds of rumors as to whether it is possible (or plausible for that matter) for British Petroleum (BP) to declare bankruptcy. Very briefly, there are organizations such as the Environmental Defense Fund which claim that damage to natural system and goods and services along the Mississippi River Delta of as much as $1.3 trillion data which would exceed BPâs market capitalization by a factor of 10. I could go on about how they got this number or how/why other organizations have similar numbers, but I think we all know enough about this disaster to know that a) it is bad and b)nobody knows with any certainty what the true damage actually will be monetarily. This is also a company that earns upwards of $20 billion annually. But hereâs the thing. The markets can cause this on mere belief. The cost of borrowing money for BP has risen sharply in recent weeks as the company's bonds have taken a hit as investors/massive funds speculate as to exactly what will happen. Well, if itâs harder for BP to tap the credit markets to finance its operations on a day-to-day basis, it makes it hard for the company to keep said operations going as a stand-alone operation which prompts worries of missed interest payments which prompts worries of a cash crunch due to overriding liability. Now, at $20 billion a year in profits, any bankruptcy would likely be prepackaged and would not be one in which the entire company shuts down. Furthermore, the measures taken by the company yesterday- cutting the dividend entirely for instance- lessen the likelihood of an immediate-term bankruptcy dramatically. And I certainly donât mean to fan the flames here. Iâm just noting that nobody truly knows what to expectâ¦but we do know what can happen based on the debt markets. Thus, as time progresses and we hear what we think are seemingly outlandish rumors about the viability of BP as an ongoing entity, the key to watch will be the credit markets- if their debt yields continue to scream higher, the chances of BP heading into receivership or worse would also rise- opposite of BPâs stock price. Markets overnight were mixed in Asia with Tokyo down 0.7% and Hong Kong ahead 0.4%. However, optimism over the actions regarding BP yesterday and a positive Spanish debt auction are pushing the euro higher which in turn are providing a lift to European stocks with prices up 0.5% in London and 0.8% in Frankfurt. Oil is down slightly with gold up slightly. Futures are respectably higher on continued momentum. It is a pretty good immediate-term development that the markets failed to yield any ground yesterday after Tuesdayâs huge rally and ahead of an options expiration tomorrow. Thus, the bias will likely remain slightly to the upside today in another quiet session with a relatively small trading range. Focus on Bp and the other drillers for the news flavor of the moment, the solars due to FSLRâs upgrade, and definitive relative weakness/strength plays. Otherwise, trade less frequently than you have been with opportunities more sparse than theyâve been in recent weeks. Reiterating- 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 specified. If 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 AAPL- closed near a high on positive buzz about its iPhone 4 order data CRAY- closed near a high LFT- closed near a high after reaching a marketing relationship in china CRUS, NVDA- CEOâs featured on âMad Moneyâ last night FSLR- upgraded at Credit Suisse PIR- decent earnings XOMA- positive clinical findings from the XOMA 052 product for Behcetâs Disease HGSI- additional positive efficacy results in phase III trial for Benlysta Bad-The following stocks have bad news and/or a weak technical pattern RIG- closed near a low GXDX- closed near a low after posting terrible earnings DCTH- closed near a low RL- closed near a low after announcing a stock offering including shares sold by Ralph Lauren himself IFLG- closed near a low DNDN- closed near a low JDAS- closed near a low after losing a lawsuit DRE- share offering STLD- issued earnings warning MYGN- closed near a low FDX- closed near a low after posting awful earnings Earnings: THURS JUN 17 BEFORE ATU KR PIR SFD SJM WGO THURS JUN 17 AFTER SMOD Good luck today. Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
FRI. JUN. 18- Shakeup In The S&P The S&P 500 is truly the benchmark index of large capitalization U.S. equities with trillions of dollars of market capitalization. The index is capitalization weighted meaning that the larger the market capitalization, the larger the weight of the stock in the index. Well, once a quarter, the S&P undergoes a share rebalance. The reason for this is quite simple: during each quarter, stocks move! For instance, if Apple (AAPL) increases in market capitalization by, say, $20 billion in a quarter, the index must account for that to truly reflect the proper valuation of the company. For sake of ease, say AAPL and GS were the only two stocks in the index, both with equal valuations on January 1 (say, 1). If AAPL rose 20% in a quarter and GS fell 20% in a quarter quarter, the index should reflect AAPL worth 1.2 as compared to GS at .80. Thus, each move in AAPL would take on more significance than that of GS in the next quarter (as it should be in this hypothetical example). Itâs important not only for accuracy sake, but also because index fund managers trying to build a portfolio based on said indexâs value needs to own the proper ratios of stock. Well, everything is readjusted typically on the 3rd Friday of the 3rd month of each quarter. Todayâs rebalancing is somewhat more interesting than others in recent memories because there are a few more things than normal which need to be rebalanced plus the market has been volatile. Particularly notable will be an additional money flow into AAPL and money out of GS on the close due to their recent moves. There is no guarantee that anything will truly move on the bell today as there are widely available lists of the component changes, but it is certainly a phenomenon to watch at the close today. Markets in Asia were mixed overnight widely with Hong Kong up 0.7%, Tokyo flat, and China down 2%. In Europe, prices are down about 0.3% to 0.5% across the board. There are some very notable troubling signs out there. The euro is stable which is good. But gold spiked to a new high yesterday and is up almost another 1% this morning. The Chinese stock market is now off almost 30% from its high after last nightâs tumble. The 10 year yield fell sharply yesterday in a weird rush to safety despite the placidity with which markets traded yesterday (and again this morning). I donât know that any of these caution indicators will matter per se today- a sunny Friday on a quadruple options expiration day, but they are all worth monitoring. Solars are again strong with energies and financials mixed. Look for a choppy day with a slight downside bias (barring huge moves in the aforementioned indicators). The movement today will likely be in the first and last hours with a placid middle. Trade accordingly. Reiterating- 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 specified. If 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 SMOD- decent earnings SJM- closed near a high after posting good earnings PDO- closed near a high ANAD- closed near a high CWLZ- rallied hard in closing near a high CVS, WAG- reached an agreement in which WAG will continue participating in the CVS pharmacy benefit management national retail network for existing, new, or renewal plans Bad-The following stocks have bad news and/or a weak technical pattern ADLR- Phase IIa trials of ADL5859 and ADL 5747 showed no improvement over placebo KAMN- warned on 2nd quarter earnings outlook HCP- share offering BBBY- closed near a low amid worries of slowing housing demand BANR- share offering CPSI- closed near a low after suspending the CFO NMTI- closed near a low after announcing that its ClosureI PFO product failed to meet its preliminary results in a product trial Earnings: None today Good luck today. Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
MON. JUN. 21- Comprehending The News When creating a list of stocks to go on the morningâs watch list and blog, there are discernible reasons as to why each stock is placed in this space. Oftentimes, people will ask how particular stocks, but will not be aware whatsoever of what was going on because they havenât done very basic reading of the research I did to denote the stocks in this space in the first place. Thus when people want to act on a certain symbol, oftentimes, they are doing it without totally understand the trade. But I try even in shorthand due to the plethora of stocks out there to list the âwhyâ I have everything here from a very basic âclosed near a highâ to a more specific reason (which tend to be my favorite plays). Such an example occurred last week. On Wednesday night, Polo Ralph Lauren (RL) issued a press release concerning a share offering. The relevant portion is as such: Polo Ralph Lauren Corporation (NYSE: RL) (the "Company") today announced that an underwritten secondary public offering of 9.0 million shares of Class A common stock owned by its principal stockholder, Mr. Ralph Lauren, was priced at a public offering price of $81 per share. J.P. Morgan, Goldman, Sachs & Co., Deutsche Bank Securities and UBS Investment Bank, the underwriters of the offering, have a 30-day option to purchase up to an additional 1.35 million shares of Class A common stock from Mr. Lauren. The Company did not sell any shares in the offering and will not receive any proceeds from the offering. The Company has also agreed to purchase an additional 1.0 million shares of Class A common stock from Mr. Lauren at the per share price of the public offering. All of the Class A common stock to be sold by Mr. Lauren will consist of shares received upon the conversion of an equal number of shares of Class B common stock.â On Thursday, I noted in the blog that Ralph Lauren was a seller of his own stock. If you read the press release portion very carefully, youâll see the company received no benefit whatsoever from this offering. Instead, it was Ralph Lauren himself who sold $729 million of stock and perhaps more should the underwriters choose. Lauren could have any number of reasons for selling ranging from he just wants to cash out some in guaranteeing liquidity for life to a more sinister desire to exitâ¦I mean, who knows the business of Laurenâs company better than Ralph Lauren?! When Blackstone Group (BX) came public, the day of its IPO was the day that BX traded at its highest level as an example that this type of action can and does occur. Thus, itâd seem 81 had to be some sort of immediate-term cap ceiling on the stock logically because if the founder of the company was selling stock there, why should anyone buy it above 81? And this is where the day trade comes in. The buy is not at 80.80 when the range is 80.95 to 80.65 .The trade is not at 81 even if it is a high of day. The distinct trade here just by taking a little time to skim the press release is to buy the stock above 81. Indeed, on Friday once the stock popped above 81, it rallied to 81.22 within two minutes. Thatâs it. Thatâs the trade. Whether you get it or miss it (like I did as I just wasnât fast enough), thatâs the only thing to do. So, as you do your research for your trading no matter your style of trading, be aware of the stories behind the stocks you are trading because a thorough comprehension will not only earn you a living, it can save you from losing a lot of money. Markets overnight rose sharply throughout the world with Tokyo up 2.4%, Hong Kong 3.1%, China about 3% and 1.1% to 1.4% throughout the major European bourses. Gold is up slightly, oil is up 1% plus, and the dollar is stable. The main trigger (offsetting more negative news out of BP) is that China is seeking to widen the trading band for its yuan. It is a token move, but one in which the markets are viewing as China trying to signal that it is attempting to conform to the worldwide economic schematic by appearing to be more flexible in its actions. Futures are sharply ahead albeit off of their highs of the morning as of this writing. Look for some give back of this strength after the opening rally. Focus on the drillers, relative weakness plays, and the small cap stocks with drug news out there. Reiterating- 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 specified. If 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 AMLN- closed near a high after Rocheâs competing prospective drug was delayed along with a JP Morgan AMLN upgrade RIG- closed near a high on increasing belief that it will be spared significant legal expense from the Gulf oil mess DO- closed near a high VECO- closed near a high after an initiation of a buy by Noble Financial WNS- closed near a high after positive form 20-F data OAS- closed near a high MWE- featured on âMad Moneyâ on Friday night ZIOP- positive guidance of phase III Palifosfamide data DYAX- announced partnership with Sigma-Tau to develop and commercialize DX-88 EFJI- accepted $1.50/ share cash takeover bid; possible pre-market play CYPB- in-licensed BioLineRxâs CYP-1020 schizophrenia product AIPC- agreed to be acquired for $53 share cash takeover bid; possible pre-market play END- reports positive results from a U.S. drilling initiative Bad-The following stocks have bad news and/or a weak technical pattern CWLZ- reversed in closing near dayâs low CVS, WAG- closed near a low in an island reversal after resolving their pharmacy-benefit management dispute LINTA- closed near a low AFFY- slightly disappointing phase III Hernatide data VRX- merging with BVF; VRX shareholders will receive 1.7809 BVF shares for their shares plus $16.77/ dividend. Values VRX at $42.77 compared to $45.87 Friday close, but BVF shareholders should get slight premium on deal CPKI- poor earnings guidance Earnings: MON JUN 21 BEFORE None today MON JUN 21 AFTER SONC Good luck today. Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
TUES. JUN. 22- How Strong The Yuan? On Sunday night, there was an announcement out of China which helped maintain a worldwide rally in equities yet the uptick failed state-side yesterday. So, what exactly happened? Basically, China flashed a signal that is ready to put an end to the yuanâs fixed rate to the dollar. The thought process behind China announcing a couple of days ago that it was going to drop the 6.83 yuan target to the dollar is that there is no need to shield exporters anymore with an increasing reliance upon domestic demand as the rest of the world suffers from a debt crunch. The central bank noted that there was no basis for a dramatic move in the currency, but it will be allowed more flexibility. A stronger yuan would raise the purchasing power of the domestic populace which have already caused imports to jump to record levels in China. Furthermore, there is a thought process that increased yuan flexibility may put a damper on inflation as trade tensions should ease a bit with more focus on the domestic demand of internal products. However, with a deeper look, the consumption segment of GDP has fallen sharply in the last 10 years with labor shortages in many provinces. However, if one reads the statement, one will note that the relatively statist Chinese government intimates that the approach is extremely gradual and not that dramatic. In fact, the words âyuan appreciationâ actually never appeared in any press release issued by the Chinese government on Sunday night! Thus, as investors took another look at it, they realized this isnât the panacea many were looking for with stocks selling off yesterday. With an upcoming G-20 meeting in Toronto scheduled to be held over the weekend, one should keep oneâs eyes open for any news regarding this whole situation- although itâd certainly seem that China tried to beat the world in making news on its own before being forced to make the news. Markets overnight were down throughout the world as optimism about Chinaâs announcement fizzled. In Asia, the markets were down 0.7% on average while markets in Europe are trading off about 1% on average. Gold is down slightly after a 2% decline yesterday with oil down 1%. The dollar is slightly weaker against the yen but slightly stronger against the euro. Futures are quiet as the domestic stock market had its reversal yesterday. For today, look for a lot of crosscurrents. Worries over BP and a âsell the newsâ mentality over the yuan along with a newly re-weakening euro are in combat with forces such as end-of-the-quarter window dressing which are sparking stocks like AAPL this morning. Look for a choppy directionless overall environment with the focus on individual stocks/sectors such as BP and the drillers, the relative strength plays like AAPL, and a myriad of microcaps with news out this morning. Reiterating- 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 specified. If 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 CADX- signed option agreement to acquire Incline Therapeutics NTES- closed near a high Bad-The following stocks have bad news and/or a weak technical pattern SONC- poor earnings AMZN- closed near a low after announcing it was slashing the pricing of the Kindle BP- closed near a low CYPB- closed near a low RAH- closed near a low after announcing earnings guidance and AIPC acquisition AFFY- closed near a low after very disappointing drug trial data PCX- shuttering a mine in West Virginia that it closed last week due to a roof collapse ZIOP- closed near a low after the FDA rejected the companyâs phase III study plan GPN- closed near a low after CIBC announced it will end its agreement with the company in March LLL- warned on 2010 earnings outlook after disclosing a SOFSA contract was not rewarded to the company WAG- poor earnings Earnings: TUES JUN 22 BEFORE CCL CMC JEF WAG TUES JUN 22 AFTER ADBE JBL RHT Good luck today. Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
WED. JUN. 23- No News Yesterday Was Bad News Usually, I try to devote this space to some sort of trading parable and/or an economic discourse, but for the 2nd day in a row, I feel the need to go over what happened yesterday. I tend to write the âreview of yesterdayâs actionâ type pieces when neither I nor a lot of people around me can explain in a couple of sentences what went on so let me try here at this point. The futures actually rallied into the open yesterday with the NASDAQ notably strong. As best as I can tell, there were two notable factors. The first is the topic discussed yesterday regarding buying the rumor and selling on the news. The market ran up last week at least partially in anticipation of some news out of China. The announcement regarding the yuan flexibility came out on Sunday night with little fanfare left over once the news hit the wires. Thus, the selling can be seen as an extension of that. Furthermore, there was a drop in U.S. home sales which added to nervousness that the gains of the last few days may have outweighed the true economic prospects. The interesting thing here is that neither factor comes as a huge surprise to the markets. However, with no major piece of good news out there, the markets seized upon the limited news flow (or lack thereof) late in the day. About the only major takeaway from a session like this is to realize there are likely many days like this to come in the near future. Following this week, the next two weeks tend to be fairly slow with almost no earnings out there and many people taking vacations around the 4th of July holiday. Thus, as volumes slow along with available (logical) news, trade accordingly. Markets in Asia were generally weaker overnight with Japan down 1.9% and Australia off 1.6%. The story is the same in Europe albeit to a lesser extent with stocks down 0.1% in Germany and 0.4% in England. Oil is down modestly with gold and the currency markets little changed. Futures are bouncing a bit from the last couple of days of weakness with no major new news overnight in any hot topic such as the BP saga or the euro debt crisis. For today, the word looks to be âquietâ for the bulk of the session. With a U.S. World Cup match at 10AM ET and a Fed Statement due out at 2:15PM ET after a two-day meeting, look for much of the action to take place early and late- and probably with an upside bias at that due to the vacuum of news. Focus on big cap tech in the news such as AAPL or ADBE, the drillers, and any relative weakness play in what looks to be a decent tape. Reiterating- 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 specified. If 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 JBL- great earnings VRX- closed near a high PM- pre-announced decent earnings guidance KMX- good earnings and being added to the S&P 500 Bad-The following stocks have bad news and/or a weak technical pattern ADBE- poor earnings RHT- poor earnings PRGS- terrible earnings RIG- closed near a low PCX- closed near a low after shuttering a huge coal mine BC- closed near a low GS- closed near a low DNDN- closed near a low WAG- closed near a low after posting bad earnings V- closed near a low CLF- closed near a low WYNN- closed near a low SWK- closed near a low UFS- closed near a low BID- closed near a low Earnings: WED JUN 23 BEFORE KMX RAD WED JUN 23 AFTER BBBY DRI NKE PAYX Good luck today. Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
THURS. JUN. 24- Real Estate And Day Trading Yesterday, the data for existing homes disappointed the markets in coming in below expectations. The market dipped a little at the time. But when one looks at the data, it has to be one of the grimmest statistics in modern history- no exaggeration. It is not terribly surprising that sales plunged almost 35% from April to May with the expiration of the new homeownerâs tax credit as of April 30. But what is downright stunning to me is that the annual pace of homes sold is about 300,000- this would be the lowest annual total since detailed records began being kept in 1963. Almost as notable is that the median price of existing homes declined almost 10% on an annual basis to the lowest point since the end of 2003. With total sales expected to drop about 20% to a 410,000 annualized pace, expectations must be dampened further which already will put more pressure on a still largely government supported housing market. So of course shares of many homebuilders promptly rallied yesterday. In a tale of looking at the tiny detail within the story, the supply of new houses on the market dropped to its lowest point since May 1970. Thus, in the midst of what has been a poor year for housing stocks, most of them bounced a bit on the thinking that further affordability will spark demand for new homes even over existing homes with what will eventually be a very tight market. While a stock like KBH immediately plunged on the headline, it turned out to be a pretty good âbuy thru unchangedâ type of day trade once it got positive on the day once again. The housing data as was shown both Tuesday and yesterday can and indeed is moving markets and stocks so it is but one more factor to constantly monitor as we progress through the summer. Markets overnight were mixed in Asia with Tokyo flat but Hong Kong down 0.6%. The trend was a little worse in Europe with Frankfurt down 0.6% and London 0.7%. The dollar is flat against the euro, but weaker against the yen. Oil is down almost 1%. One of the more notable features of the morning is that the 10-yar bond continues its steady ascent with yields closing in on 3%. Amid this push to safety, futures are broadly lower but off their floor amid optimism about AAPL from a number of upgrades as well as positive durable goods data. Look for a continuation of yesterday- choppy and directionless- very difficult environment. Focus on the stocks in the news with earnings and product intros (NKE, AAPL, et al) as well as the small caps out with good stories (such as LTBR and SNMX). Reiterating- 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 specified. If 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 MIPI- positive Azedra phase 2a trial data in Neuroblastoma tumors LTBR- closed on a high after the company said it made a major technological breakthrough which it hopes will transform the nuclear power industry SNMX- announced collaboration with Pepsi (PEP) to develop and commercialize new sweet flavor ingredients DFS- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern NKE- poor earnings BBBY- terrible earnings PAYX- poor earnings ORIT- closed near a low after a sell imbalance yesterday APOL- had a $277.5 million jury loss reinstated WL- closed near a low after a brokerage downgrade DCTH- closed near a low LEN- poor earnings Earnings: THURS JUN 24 BEFORE CAG DFS LEN MKC THURS JUN 24 AFTER A.CN FINL HRB ORCL RIMM TIBX Good luck today. Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
FRI. JUN. 25- Russell Day On the last Friday of every June comes a rather unique phenomenon: the Russell rebalancing. The Russell 3000 is an index which tracks 3,000 of the largest stocks in the U.S.; approximately 98% of all investable U.S. stocks are included in the index. The Russell Company adds stocks to its indexes on a quarterly basis, but it deletes stocks just once a year. Below is the list: http://www.russell.com/indexes/membership/Reconstitution/Reconstitution_changes.aspx Index and various asset managers try to reconfigure their own portfolios to accurately show the make-up of the new grouping of stocks in the index. Many Russell or small-cap managers in particular are forced to do this reconfiguration by the close of business today. Thus, on the close, volume often surges because of the influx and outflow of monies in the stocks going in and coming out, respectively. Most years, there will be millions of shares to buy on the close of the Russell stocks which are offset by, say, institutions which use the volume to exit positions of stocks that they no longer wish to hold thus stocks have no reaction on the close. Occasionally, the demand is not sopped up and stocks can spike sharply on these rebalance days as happened on the close in 2000 and 2001 (my two best trading days in the decade of the 2000âs) with stocks moving multiple points on the last tick of the day. Of course, every so often, the desire of fund managers to exit their positions in select stocks outweighs the buying of Russell managers and stocks fall on the close. However, that scenario is unlikely this year as the marketâs tone has been largely neutral. Most years, the whole thing is a total neutral because everybody knows everything. All of this in mind, short of entering orders on every stock going into the index, the best strategy for the close is to watch for order imbalances and simply play the biggest ones by placing offsetting orders far away from prevailing market prices on the bell. The âfunâ ones often occur first, i.e. the ones which have 75,000 to buy or sell and theyâve traded 2,500 shares on the day. But as noted the ones that work best are the stocks that have the biggest imbalances because those are hardest to offset so spend time looking for things like multimillion shares imbalances in stocks like Berkshire Hathaway (BRK.A) as the ban on the inclusion of that stock into its index has been lifted. And remember to expect absolutely nothing out of it, but definitely hope for the best because it occasionally provides a chance for significant profit for prepared day traders. Markets overnight were broadly lower throughout the world with Tokyo down 1.9% and the European bourses about 0.6% across the board. Oil and gold are both slightly higher with the dollar and bonds quiet. Futures are modestly ahead as a preliminary deal was reached over financial reform in Congress- a deal which is not the worst case scenario originally envisioned so thereâs a notable uptick in financials. Look for the upside bias to maintain itself throughout the day with action bookmarked at the beginning and end of the day. There will be lots of trading in the financials, the drillers, and big cap tech in particular on the reform, continued AAPL buzz, and off of BP headlines. Itâll likely be slow mid-day and then pick up again ahead of the Russell rebalance on the close as well as the fact this is the last day of trading for the quarter for many traders who will go on vacation next week ahead of the Independence Day holiday to make it 1 ½ weeks off as itâs the last day of school for many kids. Trade accordingly; today is one of those days where little may (and will likely) happen but where one truly has to be on guard with all of the newsflow and the rebalance. Reiterating- 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 specified. If 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 ORCL- good earnings A.CN- decent earnings HRB- decent earnings TIBX- good earnings AOS- decent earnings IDSA- closed near a high after posting positive revenue guidance Bad-The following stocks have bad news and/or a weak technical pattern RIMM- poor earnings FINL- poor earnings LIBR- reversed after 1 ½ days of huge gains in closing near a low RIG, APC, DO- closed near a low BBBY- closed near a low after posting bad earnings DRI- closed near a low after posting bad earnings X- closed near a low CLF- closed near a low DVN- closed near a low POT- closed near a low AVAV- poor earnings ASH- closed near a low MAG- closed near a low after receiving an NYSE delisting notice as well as being removed from the S&P 600 JOE- mentioned on âMad Moneyâ last night in the âSell Blockâ AOD- declared disappointing dividend Earnings: FRI JUN 25 BEFORE KBH www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner
MON. JUN. 28- Financial Reform Worry Alleviation On Thursday night, a deal struck by members of a House and Senate conference reached a tentative agreement on legislation to overhaul financial regulation. After reading through the details (fascinating reading on a Friday morning before the sun was up, let me tell ya), the conclusion I came to was that the regulation (if approved by both legislative bodies) will cut down on overly excessive procuring of risk while at least somewhat bolstering available capital. However, it certainly wonât force big financial institutions to restructure their entire business nor does it seem to go far enough to prevent another financial maelstrom. What it will do is things like limit FDIC-protected institutions from pouring money into trading derivatives much less investing in hedge funds. The original uncompromised version of the legislation was much tougher. Thus, for day trading purposes, what occurred Friday was very very bullish. The market clearly priced in something worse than what happened. The average headline reader would simply note that financial reform was about to take place and would be loathe to buy the financials. Alas, if the true thought process here was that companies like Goldman Sachs (GS) will allow to operate much less encumbered than what could have been. With it having been beaten down in recent weeks, it set the stage for some short covering which in turn provided a floor for the market. Thus, as we prepare for a very slow stretch in the news in these next 2-3 weeks ahead of earnings season, the things to watch for aside from geopolitics are any major earnings warnings and of course any major modifications to the Friday morning compromise to what is actually signed by President Obama in the next few days particularly in light of the passing of Senator Robert Byrd which may cause the final vote for the bill to fall short of passage. Markets were mixed in Asia overnight with Tokyo down 0.5% but Hong Kong up 0.2%. In Europe, the bourses are a bit stronger from as little as 0.2% in London to 1% in Paris and Frankfurt. Currencies and gold are flat with oil down about 1%. Futures are generally flat in losing almost all of their overnight gains. For today, look for a relatively quiet session with big cap tech and financials leading the way. The bias will likely be to the upside following the strong financial gains on Friday combined with the overnight move. Focus on AAPL after it announced sales data, the anti-Russell moves, and the small biotechs in the news. Reiterating- 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 specified. If 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 BRK/B- closed on a high due to the Russell rebalance GS- closed slightly off of a high on the financial regulation passage ACN- closed near a high after posting good earnings MA- closed on a high FSLR- closed near a high CLF- closed near a high BUCY- closed near a high WYNN- closed near a high BMRC- closed near a high with a big move at the end of the day OPEN- closed near a high with a big move at the end of the day OMER- closed near a high with a big move at the end of the day FTWR- closed near a high with a big move at the end of the day UMH- closed near a high with a big move at the end of the day AEL- closed near a high OVTI- mentioned on âMad Moneyâ on Friday ARNA- positive phase III data from Lorcaserin CRME- Brinavess recommended for approval in the EU OREX- positive Contrave study results FSLR- initiated with a âBuyâ rating at Goldman Sachs NE âbuying privately held FDR Holdings Bad-The following stocks have bad news and/or a weak technical pattern BP- closed near a low RIMM- closed near a low after posting terrible earnings GFC- closed on a low APOL- closed near a low amid worries about regulation in Washington, DC for its industry SHBI- closed near a low with a big move at the end of the day CNVO- closed near a low with a big move at the end of the day FNLC- closed near a low with a big move at the end of the day CDXS- closed near a low HNRG- closed near a low GGS- closed near a low HKN- closed near a low WLB- closed near a low AMZN- downgraded by Susquehanna Earnings: MON JUN 28 BEFORE None today MON JUNE 28 AFTER BKS MU Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner www.epiphanytrading.com
TUES. JUN. 29- Strong Bonds Occasionally, a market number occurs which makes even the most non-observant market watcher say âhmmm.â It does not happen often, but such a number appeared yesterday afternoon. The yield on the 10-year Treasury note almost got to 3%. For those not familiar with this number, it is the yield one would get by buying 10-year Treasury notes from the U.S. government. What is very notable about this is that the yield is lower than it was at any time during the Great Recession. In times of great woe, investors have historically flocked to U.S. paper as a relatively safe investment. Well, by this particular benchmark, investors with lots of money to invest are notably placing it in long-term paper versus riskier asset classes such as equities. Furthermore, according to a recent Bloomberg survey of 63 analysts (from a June 23, 2010 âBusiness Weekâ article), their estimate is that the yield will rise to 3.8% in the 4th quarter. To me, that is scary. The implication is that yields will go one way- up. When something seems that obvious amidst a move that seems counterintuitive, that counterintuitive move turns out to portray logical thinking more often than not. The argument is that as government stimulus wears off, so will economic growth- which is quite a different picture than the optimistic view held by many. As an aside, I hope the optimists are correct because the alternative when things are already precarious at best is not a happy motif. As day traders, it is imperative to watch the yield particularly as gold hits new highs- and as equities puzzlingly shake off things like movement in the euro and oil. Markets overnight were hit very hard as the Conference Boardâs leading economic index for China was up only slightly versus a much bigger gain last reported in the index. This information sparked concerns over the upcoming U.S. jobs report and sparked a major 4% plus sell-off in Shanghai. Furthermore, debt concerns are being a focus again in Europe with Greek bond yields rising anew. Tokyo was down 1.3% with Hong Kong down 2.3%. In Europe, most bourses are down in excess of 2%. The 10-year yield is now 3% exactly. Oil is down 2 ½%. The yen is strong as dollar is weaker against the yen with the euro down against the dollar. Futures are down sharply. Donât look for a major bounce todayâ¦this 3% number as discussed earlier this morning is major for the bonds. With summer volumes in effect, the sell-off likely wonât get dramatically worse either, however. Thus, look for a relatively tight range barring a major move in the yen with a focus on relative strength plays in particular as most everything else will gap down opens and no major range. Reiterating- 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 specified. If 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 SMSC- announced decent earnings RMBS- announced licensing deal with GE MMM- positive revenue guidance CWS- closed near a high IDN- closed near a high after a New York senator discussed more security at New York airports from the companyâs headquarters IDT- closed near a high after CEO rang opening bell at NYSE and appeared on CNBC Bad-The following stocks have bad news and/or a weak technical pattern MU- poor earnings GFC- closed near a low in the midst of a continual plunge GS- closed near a low amid financial reform worries BIDU- closed near a low RHB- closed near a low amid worries about proposed rule changes for rehab therapy rates BID- closed near a low POT- closed near a low WYNN- closed near a low CLF- closed near a low AMZN- closed near a low after a brokerage downgrade IOC- closed near a low BUCY- closed near a low PCX- closed near a low CHBT- closed near a low BKS- poor earnings Earnings: TUES JUN 29 BEFORE None today TUES JUN 29 AFTER GIS ZZ Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President Joseph R. McCandless- Managing Partner D. Timothy Seaquist- Managing Partner www.epiphanytrading.com