MON. AUG. 16- The Opening Indication Tell...Is Not Always A Tell Every single morning, indications are published as to the approximate opening range that a NYSE stock will have due to order displacement. The displacement is typically the result of major news in the individual stock and/or the market. Usually, the initial spread- put out around 9:15AM ET is quite wide and narrows over time. For instance, the spread on ALY was indicated 3.25 to 4.25 at 16:15AM with DYN indicated 4 to 4.75 at 9:18:59AM. Sure enough, DYN opened at 4.49 on the NYSE (but who knew where exactly itâd open) despite its 4.50 cash buyout offer. As a side note, it was trading around 4.45 to 4.50 in the five minutes leading up to the open. ALY was indicated 3.25 to 4.25 after getting a buyout bid for 4.25 in cash. It opened at 3.60, a full 65 cents off of the cash take-out price. Oh, as a sidenote, in the five minutes leading up to the open, it was 3.58 to 3.63 for a trading range on the ECNâs. Even more on point, at 9:24:34AM, NC was indicated 87.50 to 90.50. Yet, at 9:31:00AM, it went 87 to 89 and opened at 87.18 (below the range out there for six minutes plus). So, what happened? Institutions and funds have a habit of placing orders 1-2 minutes before the NYSE open. The specialist can only give orders based on his/her book, i.e. what is in the book much less how much risk the specialist firm is willing to take. So, an early indication (particularly if a stock is trading below or above said indication) is an attempt by a floor specialist to gauge interest. With NC trading at 87.55 as it was at 9:29AM, what can often happen particularly when the market is moving (as well as futures), is that the indication drops a little into the bell as the futures were dropping slightly into the open on Friday. Thus, it's a matter of the specialist attracting buyers because he/she doesnât want to own too many shares at too high a price. I learned the hard way three times in finally learning my lesson expensively the last time. The last time I did it many years ago (like over 10) was in GS. I don't remember the numbers exactly (although I remember the loss), but it was something like 155-160 indication and it was at 155 on ARCA around 9:27AM ET. So I bought something like 2000 shares at 155 in thinking Iâd break even in a worst case even if it opened at 155. It went 154 offer on ARCA but I wasn't worried. It soon was 153.50 offer. And the indication went 150-155 with it opening 151.50. Again, these arenât exact numbers as the passage of time erodes my memory, but close. So, much more often than not, realize that specialists cannot see ECNs nor is it easily predictable what an institution or fund will want to do on the opening bell. Thus, whatever someone is truly doing is better reflected in the prevailing ECN market than in the opening NYSE tick (which is why GS immediately came in rapidly). The moral of the story is to use NYSE indications as a guide for where a stock may open, but itâs not a certainty. So, for a trader doing any type of trading, donât treat the opening indications as gospel, but more as a guide- particularly when the prevailing ECNâs tell a different story. Markets in Asia were mixed overnight with Tokyo rising 0.4% but declining 0.2% in Hong Kong. In Europe, things are relatively quiet as well with Frankfurt flat and London down 0.3%. Gold is up 2/3% and oil up ½%. The dollar is mildly weaker across the board. Bonds are notably strong. Futures are down slightly, but were all over the map overnight with prices trading 0.5% on both sides of unchanged. Look for a quiet session overall today unless a move in bonds or currencies gets out of hand. Volume should be light on a balmy Monday. The focus will be in the for-profit education sector, big cap techs, and foreign airlines on the LFL-TAM merger. 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 LFL, TAM- merging with a ratio of .9 per share LFL= 1 share of TAM CHBT- closed near a high AMCN- closed near a high JKS- good earnings LOW- decent earnings SYUT- no direct link was found between infant formula and premature development of infants according to Chinaâs health ministry Bad-The following stocks have bad news and/or a weak technical pattern CREE- closed near a low in a continuation of a sell-off following last weekâs disappointing earnings report GS- closed on a low DV- closed near a low after posting earnings; others in sector sold off as well such as CPLA, LINC, and ESI TSTC- closed near a low after posting earnings JCP- closed near a low after posting earnings JWN- closed near a low after posting earnings ACY- closed near a low after posting earnings AAPL- closed on a low GOOG- closed near a low CNAM- poor earnings Earnings: MON AUG 16 BEFORE LOW SYY MON AUG 16 AFTER A IOC PWRD RINO URBN 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. AUG. 17- The Hindenburg Omen Something that has made the rounds on Wall Street lately is talk of the Hindenburg Omen. The Hindenburg disaster as most history buffs know took place in 1937 when the German passenger ship (Hindenburg) caught fire and burst into flame. Thus, perhaps it is apt if not a little dark for one of the more feared technical stock market patterns to be named after the disaster. The five main criteria for the omen, as quoted from a piece from the website www.zerohedge.com on Aug. 12 are: 1. That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day. 2. That the smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues. 3. That the NYSE 10 Week moving average is rising. 4. That the McClellan Oscillator is negative on that same day. 5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory. In June 2008, there was a confirmation of this signal and we all know what happened at that time. On Thursday (Aug. 12), the market action on the NYSE officially trigged this omen. Basically, the logic behind it is that inconsistencies in the markets such as a rising 10 week moving average yet more new annual lows are present stock-wise than 52- week highs, a greater risk exists that there is a state of confusion which can cause players to exit and stock prices to tumble. Hereâs the thing: the indicator has a decent track record. It signaled itself several times in 2008 and has occurred prior to every major downdraft in the markets since 1985. Furthermore, according to http://www.thestreet.com/story/10835851/2/hindenburg-omen-is-a-stock-market-crash-imminent.html - âThe average return of the S&P 500 three months after the Omen is triggered is a loss of 2.6%, and the market was positive only 29% of the time.â Furthermore, âThe probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, according to historical data quoted on Benzinga. It usually takes place within 40 days of the first Hindenburg event. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%.â So hereâs the thing: thereâs a 76% shot that the market will not crash. I agree- 24% is a very significant minority of the time. But the more people talked about things like the Death Cross concept a few weeks ago, the more that markets were likely not to act accordingly. Same here. Now, donât get me wrong- there are many other reasons that this can become ostensibly self-fulfilling even if the odds donât favor it. But as more and more people talk about it, we as day traders should be familiar with and understand the concept of the ominous Hindenburg Omen even if many other signs point to this being but mere fodder for discussion. Markets in Asia were lightly mixed overnight with Hong Kong up 0.1% and Tokyo down 0.4%. In Europe, the trend shifted with bourses up a little on either side of 1%. Gold is flat, oil is up 1%, the dollar is relatively flat, and bonds are down a tinge. Futures are up sharply on a continued burst of takeover activity. Todayâs main topic is POT and itâs unsolicited $130/share bid by BHP. The markets are due for a bit of a bounce and did not sell off yesterday when given a shot to do so thus look for the bounce to maintain and feed upon itself a little today. The pace of trading will be notably busier than yesterday with a focus in the fertilizer sector, the earnings that came out, and selected big cap techs such as RIMM. 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 IOC- decent earnings A-decent earnings RINO- decent earnings URBN- decent earnings NFLX- closed near a high OC- featured on âMad Moneyâ last night HD- decent earnings WMT- decent earnings POT- received unsolicited takeover bid for 130 from BHP; the company said the bid was grossly low. Sympathy plays include MON, AGU, MOS, CF, IPI, ADM PTV- subject of takeover rumors Bad-The following stocks have bad news and/or a weak technical pattern CATM- share offering MNKD- share offering TOO- share offering PWRD- poor earnings RIMM- closed near a low MHS- closed near a low after announcing an acquisition STRA, ESI, DV, LINC, CECO- closed near their lows in a weak education sector THOR- closed near a low LLY- halted phase III studies of Semagacestat ANF- poor earnings Earnings: TUES AUG 17 BEFORE ANF HD SKS TJX WMT TUES AUG 17 AFTER ADI LFT LZB 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. AUG. 18- Grains And Day Trading Having grown up in the South, I am very used to hot summers. Of course, as I type,I realize it can get very hot in every place Iâve lived from Savannah to Chicago to New York. Everyone always comments that itâs not the heat- itâs the humidity. But sometimes (ask the citizenry of Tucson), itâs just the heat. In fact, here in New York, we just had a three-week run where temperatures ran significantly above normal with precipitation significantly below normal. However, what if you live in a place where it doesnât routinely get very hot- a place that is not equipped to deal with the heat- a place that is not exactly known for being politically or economically modern (at least in the Western world). That place is a beautiful albeit vast place- Russia. Somewhere between ¼ and 1/3 of Russiaâs grain crop has been burned by horrific deadly fires which has prompted the nation to ban all exports of wheat. Global reserve stocks of grains are fairly full thankfully which will help to mitigate an immediate-term global food crisis. But Russia is already predicting that its autumn and winter planting will be delayed if not halted which could lead to bigger problems ahead. From a macro vantage point, grains prices have soared and as Russia is the worldâs 3rd largest producer of wheat, the situation could worsen over time if Russia has continuing problems and global stockpiles of grains were to decline. I mean, that sentence alone could form the basis for a 300-page treatise. So letâs instead briefly focus on what impact this has had on day trading in the last couple of weeks. The fertilizer sector had a huge run for awhile now with the likes of Potash (POT) having run from 86 at the end of June to 112 on Monday. That did not stop BHP from bidding 130 for the company nor did it stop POT from closing over 140 yesterday. Thus, the whole fertilizer sector remains in play as there is a limited amount of fertilizers and food yet a growing population- and many major companies are truly realizing that. This is not a one day story so monitor this entire sector as time progresses along with headlines about the situation in Russia and/or food shortages/surpluses as those will have more and more impact on fertilizer stocksâ¦along with potential other takeovers in the sector. Markets overnight were mixed in Asia with Hong Kong down 0.5% but Tokyo up 0.9%. In Europe, the range is a bit narrower with Paris and Frankfurt just south of unchanged with London off 0.5%. The dollar is quiet, bonds are back up a little, gold is flat, and oil is notably weaker by just under 1%. Futures are flat. It looks to be a fairly quiet day again particularly ahead of options expiration on Friday. There is a ceiling as the external indicators just arenât goodâ¦bonds are staying strong, the dollar weak, oil is not acting well, and gold hovers at a multi-week high. But the floor is there with a mini merger mania here thus things will remain locked and choppy. Focus on the fertilizers, the earnings play, and the small caps 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 ADI- decent earnings LFT- decent earnings CRDC- signed contract with ISRG LGL- closed near a high after posting great earnings MMYT- closed near a high TRIT- closed near a high REXI- closed near a high after announcing securitization of $175 million of leasing assets JKS- closed near a high GGC- closed near a high MHS- featured on âMad Moneyâ last night BSDM- received FDA 510k clearance to market the MicroThermX microwave ablation system STV- good earnings CHS- decent earnings JAZZ- proposed Fibromyalgia drug appeared effective according to FDA Bad-The following stocks have bad news and/or a weak technical pattern LZB- poor earnings BPI- closed near a low NFLX- closed near a low CF, AGU- island reversals in closing near their lows STRA- closed near a low CDCS- closed near a low CTRN- poor earnings BJ- poor earnings CTRN- poor earnings DE- poor earnings TGT- poor earnings Earnings: WED AUG 18 BEFORE BJ CHS DE STP TGT WED AUG 18 AFTER AMAT BRCD GYMB HOTT LTD NTAP NTES PETM SNPS 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. AUG. 19- Merger Time On March 3, I wrote a piece about a potential mini merger mania (which also referred to a May 13, 2009 piece on the mechanics of day trading mergers): http://epiphanytrading.blogspot.com/search?q=mar+3+mini+merger+mania I wonât repeat anything from either of those blog entries except to note that the last week has seen the highest level of mergers & acquisition activity across various industries in 2010. Weâve seen deals in the tech sector whereby the likes of Unica UNCA) received a takeover bid more than 100% above prevailing market price. Dynergy (DYN), a seller of electrical energy, received a takeover bid 60% above prevailing market price. The most notable takeover, Potash (POT), a maker of potash products, received a bid 15% above prevailing market price but it is actually ahead more than 30% of where it was merely a few days ago. This morning, Intel (INTC) bid 60% up for Mcafee (MFE). So what gives? While the debt of the U.S. government continues to soar, this is actually not the case with corporations. The low rates has given many companies incentive to pay back their debts as LVS did yesterday when they announced a $1 billion payback of its debt. Furthermore, many companies are awash with cash. Well, they can either accept a miniscule bank deposit return or they can use the cash for investment; finally, it appears some companies are starting to do so. There is no reason for this trend to stop. For day traders, the macro effect is that it places a bid for the market beneath current prices because investors know that companies in any industry can be taken out at any time. The micro effect is that rumors such as MT for X yesterday can and indeed will appear out of nowhere particularly in an options expiration period in a low volume environment. So, keep your eyes poised particularly on relative strength plays that much more these days as a merger rumor (sometimes with substance) could well be behind an intra-day move- a move that can extend itself to a great degree. Markets in Asia were up overnight from 0.2% in Hong Kong to 1.3% in Tokyo. In Europe prices are down about 0.5% across the board. The dollar is flat, gold up slightly, and oil down slightly. Futures took a weird spill just after the bell yesterday, recouped all of that ground overnight, and then lost it again on a poor jobless claims number. Look for a very weak open with not a lot of movement from there ahead of options expiration on a sunny summer Thursday. Focus on the Internet security stocks, the stocks with earnings, the rumored deal plays such as X and POT, and relative strength plays particularly in the half hour after the 9:30AM ET open as some short covering can occur in select stocks. 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 AMAT- decent earnings guidance PETM- good earnings SNPS- decent earnings X- closed near a high on takeover speculation BSDM- closed near a high after signing a deal with ISRG TGT- closed near a high after posting decent earnings POT- closed near a high ENMD- closed near a high HAUP- closed near a high CVO- closed near a high WSM- decent earnings DLTR- good earnings STEM- reported publication of new preclinical data which demonstrated that the companyâs human neural stem cells restore lost motor function in mice with chronic spinal injury DKS- decent earnings SYMC, CHKP- will likely trade higher in sympathy with the MFE takeover TTC- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern NTAP- poor earnings GYMB- poor earnings HOTT- poor earnings BRCD- poor earnings SNDK- convertible notes offering SCOK- closed near a low after restructuring BIDU- closed near a low GOOG- closed near a low SPLS- poor earnings Earnings: THURS AUG 19 BEFORE BKE DKS GME PLCE ROST SHLD SPLS TECD WSM YGE THURS AUG 19 AFTER ARO BCSI CRM DELL FL GPS HPQ INTU MRVL VRGY 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. AUG. 20- It's Not Always Sunny In Philadelphia The Philadelphia Federal Index, according to Investopedia, is defined as such: âA regional federal-reserve-bank index measuring changes in business growth. The index is constructed from a survey of participants who voluntarily answer questions regarding the direction of change in their overall business activities. The survey is a measure of regional manufacturing growth. When the index is above 0 it indicates factory-sector growth, and when below 0 indicates contraction.â The indexâs data is published and released on the 3rd Thursday of every month at 10AM by the Philadelphia Federal Reserve Bank. It is widely followed as many investors use it as an indicator as to the health of the overall economy because of the measure of activity by manufacturers. In this number-by-number age of stock market trading, the âPhily Fedâ indicator as it is colloquially called was the main catalyst for yesterdayâs stock market sell-off. The index was expected to rise from 5.10 in June to 7 in July. Instead, the figure plunged to a reading of -7.7 which indicated not only shrinking growth but a broad miss of the expectation of leading economists. Furthermore, in breaking down the report, the level of new orders as well as the number of employees and shipment levels were well below what they were thought to be which could portend bad tidings for the September number as well. For day traders, the impact was immediate and dramatic as the major averages fell quite hard when the number was released at 10AM ET. The takeaway is two-fold. First, one must understand economic reports such as the Phily Fed; itâs one thing to se a general headline but itâs quite another to understand the meaning behind each indicator as well as how the data compares to expectations. Second, websites such as Yahoo Finance (http://biz.yahoo.com/c/ec/201034.html) publish a list of economic indicators as well as expectations for each. It is crucial that one knows the timing of each report because as was shown one more time yesterday, the effect on the stock market can be sharp and swift. Markets overnight were down across the board with Tokyo down 2% and the European bourses ranging from 0.9% in London to 1.3% in Paris. The dollar is sharply stronger against the euro, oil is down 1.5%, gold down slightly, and bonds are up sharply with the 10-year yield approaching 2.50%. It looks to be an extension of yesterdayâs losses certainly in the early going on an options expiration Friday. Look for an attempt to rally but things will likely be much as they were yesterday- a downdraft with no real oomph behind it. Much of the action looks to be in the first hour and last hour with the options expiry- and with the weather beautiful. Focus on the fertilizers, the education stocks, the earnings plays such as HPQ and DELL, and the solars off of the CSIQ 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 CRM- great earnings INTU- good earnings GPS- decent earnings MRVL- great earnings VRGY- decent earnings NFLX- closed near a high OTEX- closed near a high after posting good earnings HSFT- closed near a high after posting good earnings NTAP- closed near a high after posting good earnings NTES- closed near a high after posting good earnings TYC- being added to the S&P 500 on the close on 8/26 RBCN, CREE, FOSL- featured on âMad Moneyâ last night CIS- closed near a high and had decent earnings HRL- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern DELL- poor earnings BCSI- poor earnings CSIQ- poor earnings SWS- closed near a low after the CEO resigned X- closed near a low as takeover speculation subsided SHLD- closed near a low after posting bad earnings SNDK- closed near a low after announcing a convertible notes offering Earnings: FRI AUG 20 BEFORE ANN COCO HRL SJM 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. AUG. 23- The Last Two Weeks Of Summer There are time when one is watching a baseball game, itâs the first inning, and your team falls behind 3-0. But you just know that your team has every shot in the world to come back (in what ends up a 12-11 game). There are also times when itâs the 5th inning, your team falls behind 3-0â¦and you just know no matter how are what they do, they just cannot catch up due to either weather or a great pitcher on the mound or health of players. That latter scenario for the trading world is well worth discussing for the next two weeks of trading as the period between options expiration Friday and Labor Day is typically one of the slowest volume stretches of the year. There are four main themes here which are all important. First, expect volume to be low. Earnings season is generally lower and many people are on vacation in the United States, Europe, and Asia. So, the machines will be on but the herds will be quite thin. Second, volatility will be there- or not. By that, I mean that there are going to be long slow stretches such as the one which occurred Friday afternoon for three hours but also there will be times when prices will really move such as at 10AM just after the Phily Fed number on Thursday. Be ready for both types of environments. Third, in line with that last sentence, go with what the market is giving you. When it is volatile, trade a little less than your normal size if volumes are thin because if you are wrong, you can be more easily trapped than normal. By the same token, when there is nothing to do, do nothing trading-wise. Finally, do not force anything particularly when down. On Friday, my first two days wiped out much of what Iâd made on Wednesday and Thursday. But I knew inherently after way too many years of doing this that while many times I can get everything back- and more- in a rapid fashion, the opportunities were too few and far between to get overly aggressive. I do many things wrong; overtrading particularly on days when stocks arenât really moving is not a good way of getting oneâs money back so I did not make the mistake of doing so on Friday. As infuriating as it was to walk out the door poorer than when I had walked into it about 12 hours prior, not every day is going to be a winner. Thus trade very nimbly these next few weeksâ¦and good luck. Markets in Asia were lower overnight with Tokyo down 0.7% and Hong Kong down 0.4%. The trend shifted in Europe though with the bourses generally ahead around ½%. Oil is up 2/3%, gold up slightly, and bonds and the dollar are slightly weaker. The cog for the morning has been M&A with PAR getting a higher bid and rumors across the board in stocks such as POT. Futures are trading higher and will likely stay there on a day with low newsflow, high rumorflow, and no major earnings or economic reports due out. Focus on the M&A rumors, the fertilizer sector once again, and nay relative strength or weakness play. 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 AKAM- closed near a high on takeover speculation CRM- closed near a high after posting great earnings INTU- closed near a high after posting great earnings VMW- closed near a high FSLR- closed near a high WXCO- closed near a high JKS- closed near a high WCRX- paying out special $8.50/share cash dividend ISLN, CML- will likely trade higher as takeover targets as PARâs direct competitors Bad-The following stocks have bad news and/or a weak technical pattern JAZZ- its lead fibromyalgia drug did not receive support from FDA panel COCO- closed near a low after posting terrible earnings CPIX- FDA extended its review of the companyâs Acetadote IDI- closed near a low after it warned on earnings and indicated revenues in past years were overstated SAFM- poor earnings Earnings: MON AUG 23 BEFORE SAFM MON AUG 23 AFTER FMCN 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. AUG. 24- You Play To Win The Game A couple of mornings ago, I was speaking with a colleague who started trading a few months ago. After a little âgetting used to itâ period, he actually had a relatively sustainable period of success. To his absolute credit, he didnât go nutso with his trading in not letting anything get to his head. However, as is inevitable with all traders, he suffered a bad day a few weeks ago. This created an issue. Many people would simply double or quadruple their trade size in an effort to get everything back. He did not. Other people would fail to adapt to changing circumstances in trying to stubbornly trade the same exact way with the same size. He did not. However, he has fallen into what I call the âprevent defenseâ trap (which his actually the easiest of the three to break). In football, for those who know the sport (much less those who donât), everyone knows of the term âtouchdownâ and the myriad of ways to get one. What people donât discuss is how to stop a team from scoring a touchdown. The good defenses are aggressive no matter what. However, particularly when teams are ahead late in games, they go into âprevent defenseâ mode, i.e. the thought that by not giving up a big pass, it lessens the likelihood of allowing the other team to score. While there are selected instances whereby a team uses up a lot of time to score, many times, the same result happens- a team scores anyway in the same amount of time simply because a series of short gains are made. Thus, my moniker for it at least 1 of every 3 times is âprevent the winâ defense because in an effort to be conservatives, many times a team can lose the game because of it. I give the very long analogy to demonstrate as clear a relevant tenet to trading as I can because the same principle applies. While it is not good to be overly aggressive if things are not working out, it is also not good to play scared for an extended period of time if things arenât working out- because things will keep not working out. If your trading relies on split-second timing and you hesitate, youâll miss out on trades. If you are doing trading which requires you to stay in perpetual motion, you canât just totally stop or pull back dramatically. What I do after a hit is to simply cut down on my trade size until I get a rhythm going. Once I do a few successful trades, the greed component kicks in over the ear as the confidence creeps back. But I donât just stop pushing buttons nor totally refrain from what is I am trying to accomplish. So, if you take a sudden shock hit, realize after taking a little time to suck it in that many more trades lie ahead and the focus should be on the future. Trading is an odds gameâ¦sometimes things wonât go right. But from a purely scientific approach, if what you are doing works most of the time, youâll be fine as long as you do what youâre supposed to do. Thus, fully understand that- and let that thought pervade your psychology rather than excess nervousness of taking another massive loss otherwise what will happen is that youâll find yourself taking a series of small losses rather than the one big one- youâll wind up in the same place only over a longer spate of time. Markets overnight were down sharply throughout the world. The Nikkei closed at a 2010 low just below 9000, down about 1.3% with Hong Kong off 1.1%. The losses accelerated in Europe with Paris down 2%, London 1.6%, and Frankfurt 1.7%. The dollar is getting pummeled against they yen with it giving up the 85 and 84 handles to the upper 83s. The 10-year yield is now approaching March â09 lows with the yield around 2.50% as bonds are showing extraordinary strength. Oil is below 72 dollars to the barrel. Gold is down over 1%. Just extraordinary moves. There is no new major news other than a growing fear that the economy may well show a double dip. Thus, the massive asset shift out of equities and into bondsâ¦continues. It didnât help that GOP House Minority Leader Boehner called for a resignation of the entire Obama team as it signals deep divisions in Washington as to what to do nextâ¦the notion isnât shockingâ¦the fact however, that the derision is that deep is rather notable. Existing Home Sales (5.14 million) is expected at 10AM. For the day, it could (although likely will not be) a wild one. The bonds and dollar/yen relationship must hold (which I think they will); if so, the markets likely will bounce a bit. If not, it could get very ugly. Focus on the merger stocks, the fertilizers, the earnings plays, and any relative strength play in any early uptick. 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 FMCN- decent earnings ISLN- closed near a high CVLT- closed near a high PAR- closed on a high after receiving a $24/share takeover offer from HPQ MOS- closed near a high MHS, CRM- featured on âMad Moneyâ last night TSL- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern AAPL- closed near a low GS- closed near a low X- closed near a low BIDU- closed near a low WYNN- closed near a low FSLR- closed near a low in an intra-day reversal despite being upgraded NFLX- closed near a low BUCY- closed near a low UTA- closed near a low MDT- poor earnings Earnings: TUES AUG 24 BEFORE BIG BKS MDT TSL TUES AUG 24 AFTER PAY 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. AUG. 25- It's Not The End Of The World (Yet!) The year 1999 was an extraordinary one for the stock market. The NASDAQ that year was up almost 90%. But I remember specifically was December 1999 and my New Yearâs Eve that year. What I recall in the best year for the NASDAQ in its history was December of that year when news networks would devote chunks of their days to the impending Y2K disaster. And of course the next memory was on January 1, 2000 at 12:00:01AM when our TVs didnât go dark and the electricity didnât go out when everyone at the party I was at (all of whom had had a libation or six) jumped and down because we were all around. Before that, I am told of hysterias surrounding such things as the lunar landing in 1969 and of course we all know the history of the Cuban Missile crisis although only those people alive at the time can truly understand the palpable sense of impending doom. In fact, there is a 450 year-old term for all of this stuff- âeschatologyâ- which taken from the Greek means âthe study of the lasts.â In fact, every major religion actually has a definitive âend game scenarioâ for the world I which we live. I am also sure as the time comes closer that weâll be hearing much about 12-21-2012 aka the date with which a few ancient Mayans calculated thereâd be at least a major cataclysm. Economically, the debts of the developed nations will eventually be a major issue for the worldâs economic systems. Politically, thereâs always the threat of nuclear war. Scientifically, I donât think itâs far-fetched to assume that there will come a day that the sun will not rise in the east nor set in the west because, well, it wonât rise. There are two points for this depressing monologue. First, I ostensibly refuse to watch the news at home. When I go home, I want to spend quiet time with my family. When not happily playing games with my kids, I get enough depressing talk all day long on the TV and in front of me that I really need to get it out of my system by not looking at this stuff too terribly much. Whether itâs talk of âI canât do thisâ trading-wise to conversations on TV about the decline of the American economy, after awhile, it seeps into the subconscious and itâs good for me (as well as anyone reading this) to think of happier things. I am not saying some of this stuff wonât come to pass nor am I saying that there is not a time and place for thinking about it. This leads to my second point. Usually, that time and place is not while day trading. Iâm continually amazed when I hear people shorting BAC because âthe economy is going into the tankâ for an immediate-term scalp trade If your time horizon for a trade is two minutes, it is highly unlikely that the economy will go into the tank in those next two minutes. So, compartmentalize all of the end of the world chatter; do not ignore it per se, but certainly compartmentalize it- and do not let it affect your immediate-term decisions. Just because there was discourse about an economic depression on CNBC yesterday, said discussion did not stop the market from rallying 100 plus Dow points from its low at one point. Markets worldwide were lower overnight. In Hong Kong, prices were down 0.4% but stocks declined 1.7% in Tokyo. The trend is the same in Europe with the bourses down 1% to 1.5% across the board. The dollarâs quiet along with oil but gold is slightly higher and bonds continue to rally sharply with the 10-year yield now at 2.45%. Durable goods came out terribly this morning which has not helped as futures have worsened their early morning declines. The 10AM number today is New Home Sales with estimates ranging from about 300K to 335K. Interestingly, âhomeâ stocks reversed yesterday and are higher again this morning. Thus, as long as currencies and bonds stabilize (big âol if), we may well get a bit of a reversal today. The 10AM reaction will be telling; if there is no bounce in the markets by 10:05Am, start zoning in on A-B-A2s to the downside. Focus on the select microcaps in the news, relative strength plays off of the open, and casinos with LVS spotlighted on Cramerâs show last night. 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 PAY- decent earnings ZAGG- closed near a high SOMX- entered into co-promotion agreement for Silenor with Procter & Gamble (PG) TOL- decent earnings CWTR- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern WYNN- closed near a low GS- closed near a low X- closed near a low NUVA- closed near a low CF- closed near a low FCX- closed near a low BUCY- closed near a low SPMD- closed near a new trend low SCSS- closed near a low SYK- closed near a low PCX- the COO suddenly resigned after the close yesterday NFLX- closed near a low IOC- closed near a low Earnings: WED AUG 25 BEFORE AEO CWTR TOL WED AUG 25 AFTER GES JDSU RUE SIGM SMTC TIVO 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. AUG. 26- Homebuilders And Their Stock Prices On Tuesday, existing home sales data came in much below the expectations of top economists. Yesterday, new homes sales data came in much below the expectations of top economists. Yet, a very interesting thing happened on Tuesday amidst the very weak tape. Among the many strong homebuilders, LEN had an âoutside day.â For those not familiar with technical analysis, this is when the high of the day is higher than the previous dayâs high and the low of the day is lower than the previous dayâs low. This is even more notable when it occurs at the top or bottom of a range. It is even *more* notable when it happens on huge volume. As it turns out, LENâs outside low on Tuesday was the 2010 calendar low and the volume on the reversal was the largest in months. Yesterday, TOL posted better-than-expected earnings with the stock gaining almost 6% on the session. Basically, things have stabilized. Based on data from Tuesdayâs existing homes report, sales collapsed, but prices held. Thus, itâs plausible for prices to stabilize a bit and housing demand to fall a bit simply because there is a smaller market of sellers AND buyers. And yes, I know how ridiculous I am sounding. So let me clarify on the other side- if at the age of 15, I ate bacon, cheese, and mayonnaise sandwiches as my sole diet everyday for 15 years along with smoking three packs of cigarettes a day, itâs a good bet that at age 30, I will be in worse shape than at age 15. Letâs say I keep the same G-d awful diet/smoking regimenâ¦but I also do three hours of intense exercise a day for five years, itâs a good bet that by age 35, I probably would not have worsened too much health-wise. But by age 50, Iâll probably have coronary disease anyway. The markets have been held up largely by government credits- all artificial. Indeed, the only people seemingly truly taking advantage of low rates are the refinancers. Itâs also true that the ratio of unsold homes to sales is at its highest level in over 10 years meaning prices will likely resume their decline in time. But if a 4 bedroom 3 bathroom condo in Florida depreciated from $500,000 to say $225,000 (ignoring BP here), well, thereâs a floor where buyers will come in. I donât pretend to know where that floor is though and again, I feel that prices will resume their declines eventually. But I think itâs more of a thing where prices go down more slowly than beforeâ¦but donât bounce for years. Now, that Iâve given a discourse as to the good and to the bad, letâs revisit the fact that the housing stocks ignored the gloom of the last couple of days. It is this type of action that one must seek in individual stocks and markets when determining reversals. As you day trade, realize that concepts such as buying thru unchanged when things look the bleakest and vice versa can often result in significant trading gains particularly in sectors such as housing on an immediate-term basis intra-day. Markets were mixed in Asia overnight with Tokyo ahead 0.7% but Hong Kong down 0.1%. The trend shifted in Europe with markets nicely ahead by ½% to ¾% across the board. Oil is up 1%, gold flat, the dollar is flat, and bonds are up slightly. Jobless claims data came in much better than expected. Futures are nicely higher off of the data. Look for the bounce to hold today ahead of the big Bernanke speech in slow trade barring a major event out of Europe. Focus on the M&A stocks, the fertilizers, big cap techs, and relative weakness plays. 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 SMTC- decent earnings VPRT- closed near a high on rumors of a buyout by MSFT JAS- good earnings PPO, LAZ- mentioned on âMad Moneyâ last night AMZN- closed near a high AAPL- closed near a high NFLX- closed near a high MNTA- a U.S. District judge refused to issue a preliminary injunction by SNY to halt MNTAâs generic form of Lovenox GOK- received a $110 million contract from PEMEX Bad-The following stocks have bad news and/or a weak technical pattern GES- terrible earnings JDSU- poor earnings TIVO- poor earnings RUE- poor earnings CEPH- CEO took a medical leave of absence Earnings: THURS AUG 26 BEFORE APWR PDCO RGS SFL THURS AUG 26 AFTER ARUN IRF JCG NOVL OVTI 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. AUG. 27- A Jackson Hole Friday I stared at the computer screen for a good 10 minutes before beginning to write this piece. After all that time, I figured Iâd get to writing and still cannot think of a better beginning than âI stared at the computer screen for a good 10 minutes before beginning to write this piece.â Iâve been trading full-time for almost 15 years; in that time, I am hard-pressed to think of a more anticipated speech by a Federal Reserve chairman than the one that the current chairman of the Fed (Ben Bernanke) is scheduled to deliver today. Backing up a step, itâs important to note for those who do not know that representatives of the Federal Reserve as well as top economists much less central bank governors from around the world gather in Jackson Hole, Wyoming annually. Since 1982, the consortium aims to speak about the major issues affecting the economy and monetarily policy. What makes this speech so fascinating is the seeming lack of unity by the governors of the Federal Reserve as well as uncertainty about the economic outlook expressed by none other than Bernanke himself at a very divisive August 10 policy meeting. What makes it so uncertain is that not only does anybody have any guess as to whether this particular conference will be more financial-related or rodeo-related, nobody can guess what Bernanke can say. Furthermore, it is very difficult to parse how the markets would react to anything Bernanke says. Alas, this is our job as day traders. So, let me try to guess after having spent some time studying this. Basically, the Federal Reserve, as noted, is in disarray right now with a lack of confidence by the markets thus putting a tremendous amount of pressure on Bernanke to say something of consequence today- and he knows it. As opposed to former Fed Chairman Greenspanâs cryptic language, Bernanke has been relatively plain and direct- except in the last two months. Thus, it is unlikely anything decisive will come of the speech since it does not appear as if the Fed wants to commence a second quantitative easing program, they are no sure what economic conditions should trigger such actions, nor do they know exactly what the actions should be. Ergo, if Bernanke says something bad, the markets will view it negatively. If he says something good, many people wonât believe him. If he announces a new quantitative easing program, the markets would cheer and then groan as hope of the Fed being of aid will likely turn to despair when the realization sets in that the first program failed thus the seeds of doubt would be sown for a 2nd. Thus, what Bernanke will likely aim to do today is attempt to put to bed the notion that the Fed is paralyzed regarding the tools needed to bring the economy back and put a positive spin on the disagreement at the Fed. He is going to cop to recent weakness in the economic data, justify keeping rates low yet try not to sound desperate or panicked. Thus, he will probably use themes of uncertainty, stress slow growth, stress the Fed is ready to react to whatever happensâ¦in other words, heâll be vague while attempting to not sound vague in clarifying a dampening view of the economy. If this is the case, the speech will cause choppiness, but no real movement. But again, should he venture off much more positive, look for an immediate pop followed by an immediate sell-off on disbelief and if he announces something dramatically worse, look for a sell-offâ¦which will likely be followed by a snap back as it shows something definitive (even if negative) going on. Overall, after all of this typing and what-if stuff, the GDP data truly set a nice tone and Bernanke should be able to straddle the line for the day at least. Markets in Asia were generally higher overnight with Tokyo up 1%. The European bourses are up very nicely to the tune of ½% to ¾% across the board. The GDP revision came out nicely with the number coming in at 1.6% vs 1.3% estimate, but the whisper was much worse so the hint that things are more stable than many thought have sparked some sharp reversals this morning. The dollar is up nicely now against every major currency with oil marginally higher as well. Futures are trading ahead sharply with yesterdayâs losses eradicated as of this writing. Look for a little selling into the gains to start the day ahead of Michigan Sentiment Revision due out at 9:55AM ET (70.0) and Bernankeâs speech at 10AM. The tone of the speech will set the tone for the rest of the day but as noted above will likely be constructive. With the Fedâs Bullard on CNBC this morning chatting already about tiny baby quantitative easing steps, the stage is set. At that point, the rally should resume and then stocks will peter out from there as traders head out to enjoy the 85 degree sunny weather in Metropolis. 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 PAR- received a $27/share cash offer from HPQ MCRS- decent earnings ARST- closed near a high after announcing it was putting itself up for sale FIRE- closed near a high in a sympathy move with ARST MMYT- closed near a high NZ- great earnings FRO- decent earnings TIF- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern JCG- terrible earnings OVTI- poor earnings IRF- poor earnings outlook DVOX- closed near a low after posting terrible earnings CREE- closed near a low despite an upgrade by Morgan Stanley IBM- closed near a low GS- closed near a low AMZN- closed near a low AAPL- closed on a low CRM- closed near a low BIDU- closed near a low CFFN- closed near a new trend low IMGN- received refuse to file letter from FDA for T-DM1 Earnings: FRI AUG 27 BEFORE FRO TIF 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