WED. OCT. 6- Yesterday's Massive Rally So what happened yesterday? There were two main triggers. The major factor was The less-important factor was a faster-than-estimated growth indicator in the Institute for Supply Managementâs measure of service industries. This better than expected data helped provide a cushion for those in the camp who believe that the economy is perking up. If the service industries are showing good growth, it obviously bodes well for the entire economy. But the major issue came straight outta Tokyo. They announced that they were cutting interest rates to zero and considering buying government bonds heavily. In turn, this helped lend support to the thought that other world governments would do the same thing. This is basically an overt de facto devaluation of paper currencies. But it is bullish for bonds, gold, and oil which all rallied yesterday. The tonic is great for stock prices certainly in the immediate-term also because it makes investors want to take a bit risk plus it makes stocks look relatively cheap as all of these flood of money has to go somewhere. Thus the combination of bettering prospects for the economy along with the government action provided the perfect recipe for an immediate-term ascension in stock prices- which is exactly the type of levitation that occurred yesterday. Markets in Asia traded sharply higher overnight in the heels of Wall Streetâs rally yesterday with Tokyo up 1.8% and Hong Kong up 1.1%. In Europe, prices are higher despite a downgrade of Irish debt with London and Frankfurt both up about ¾%. Gold is up ½% again, the dollar is marginally weaker, oil is down slightly, and bonds are nicely ahead with the 10-year yield now at levels not see since January 2009 as the 2.40% level is threatened. The ADP report came in worse than expected with a loss of 39,000 jobs versus a gain of 10,000 jobs expected. Weekly crude inventories are due out at 10:30AM. Futures are ostensibly flat. This is great considering the gains the market made yesterday along with the double shot of bad news this morning. This is a morning where the first hour will truly be key. If the markets open a touch lower or flat and fail to go down in the first few minutes, look for a rapid short covering momentum rally. If the rally fails to materialize early, look for a mild profit-taking down session. The focus will be on the fertilizers, the network neural data center services sector with EQIX down a lot (SVVS, RAX, et al), the box retailers with COST having posted poor numbers, and relative strength plays early in the day. 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 VHC- closed near a high TV- closed near a high GS- closed near a high FCX- closed near a high CLDX- closed near a high after a positive report on its brain cancer vaccine AMZN- closed near a high AAPL- closed near a high SNDK- closed near a high GYMB- closed near a high upon confirmation is trying to put itself up for sale BIDU-closed near a high V- closed near a high CF- closed near a high BUCY- closed near a high CLX- featured positively on âMad Moneyâ last night VECO- closed near a high CCRT- closed near a high HSTM- closed near a high FDO- raised earnings guidance Bad-The following stocks have bad news and/or a weak technical pattern EQIX- abominable earnings warning; SVVS, TMRK and RAX trading down in sympathy TLB- closed near a low after issuing an earnings warning OPEN- featured negatively on âMad Moneyâ last night DMND- poor earnings CML closed near a low IRM- closed near a low after issuing an earnings warning COST- poor earnings Earnings: WED OCT 6 BEFORE COST MON RPM STZ WED OCT 6 AFTER MAR RT Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
THURS. OCT. 7- Worry Hits Momentum I remember the day I officially grew up. It was a horrible day. Iâd been studying for the SAT and playing some Nintendo (not necessarily in that order). The day was pierced with the news that my beloved grandmother had been diagnosed with terminal cancer. In one of her final lessons to me, she implored me to continue educating myself as much as possible from everything from fun things like fantasy baseball (she loved baseball) to very serious things. She also implored in my head the concept of âwhile you do need to educate yourself as much as possible, donât be afraid to act if need be even if the education isnât quite complete.â That seems a little off to most people, but itâs just right to me because there are times that if you try to learn every fact at hand, you miss doing what you need to do in a timely fashion. Just watching her and the fate that befell her immediately got a young me freaked out about cancer and the possibility of getting it- even if the likelihood of procuring cancer at the ripe age of 17 was not very high. Much more mundanely, this is what happened to many high-flying stocks yesterday. On Tuesday night, one of the leading cloud computing entities (Equinox Systems) indicated their business was slowing. The stock was pummeled for a loss of over 30% yesterday. The stocks in the sector such as RAX followed suit in falling a good bit as well. That makes sense. What was interesting though was that the forth began coming out of some of the other momentum plays yesterday because of the fear of what could happen to them. By that, I mean players worried that the same fate of EQIX could befell other stocks. This is why their were huge down moves in the likes of FFIV, NFLX, AMZN, BIDU, CTXS, RVBD, MTB, WYNN, and CRM. Does renting videos really have anything to do with EQIXâs downfall? Not really. But the mere thought that there could be a major decline in a NFLX if they indicated their growth was slowing was enough to stoke fear in the hearts of the momentum players. As the month of October rolls on, look for this tug-of-war of increasing fear and greed to get much more fierce- which will likely make our trading opportunities that many more in not only quantity but quality as well. Markets in Asia were flat overnight and slightly higher in Europe as every major bourse either closed at or traded/s within a fraction of unchanged. The other markets continued to extend their amazing movement with the 10-year now under 2.40%, gold up almost another 1%, oil up almost another 1%, and the dollar is breaking down to 15-year lows against the yen (and challenging 1.40 euros). Futures are slightly higher after decent claims data and building upon continued movements in the external markets. Look for the strength to hold overall with a focus on small cap biotechs, the retailers with all the same-store sales data, and the momentum stocks that were moving around yesterday. 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 AXU- closed near a high after a positive update from the Keno Hill drilling program ITMN- sold Danoprevir rights to Roche for $175 million FSLR- announced 380 Megawatt increase in 2011 orders GROW- closed near a high WFR, FDO- mentioned on âMad Moneyâ last night ALVR- signed deal with Barrett Xplore to deploy the first national 4G network in China ANF- good same store sales results JWN- good same store sales results SPEX- announced statistically significant results in phase III study with D-tagatose in Type 2 Diabetes Bad-The following stocks have bad news and/or a weak technical pattern BLUD- lowered earnings guidance NSR- named new CEO and sees 3rd quarter revenues below estimates FFIV- closed near a low NFLX- closed near a low AMZN- closed near a low BIDU- closed near a low EQIX- closed near a low DNDN- closed near a low RVBD- closed near a low AKAM- closed near a low APKT- closed near a low RHT- closed near a low TDC- closed near a low WYNN- closed near a low ISLN- closed near a low WL- closed near a low amid rumors a capital infusion is needed for the company MAR- poor earnings AUMN- seeking equity financing VNR- unit offering TGT- poor same store sales results PEP- poor earnings Earnings: THURS OCT 7 BEFORE PEP THURS OCT 7 AFTER AA MU Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
FRI. OCT. 8 - Correlating Assets I want to go into something I touched upon a couple of days as Iâve been asked a lot about it. Itâs a very very very important concept. For any of us kids who collected baseball cards growing up, we all knew about the Honus Wagner baseball card. Honus Wagner way back in 1911 asked that his baseball card stopped being made because the manufacturer was a tobacco company with Wagner not wanting kids to smoke cigarettes. There were only about 100 of these cards distributed to the public with one of them sold in July 2007 for $2.8 million. Mind you, this is but a piece of cardboard with many other cards from other players ostensibly worthless because of the prevalence of production. Perhaps a better example of the point I am going to try to make is the recent phenomenon of school districts handing out incentives (with business partners) to school kids for getting good grades. Whether it be an iPhone or just cash, thereâs an added bonus for getting good grades besides the obvious theme- getting ahead professionally in life! But if everybody got good grades, itâd cheapen the grades- and likely make the incentives go away. Well, in a manner of speaking, this is what is going on stock-wise right now along with the external markets. Yes, it is indeed hard to argue with some signs of economic pick-up whether it be a positive ISM, a downtick in foreclosures, or an uptick in temporary jobs. But what the proposed quantitative easing program put in place by the Japanese government last week along with hopes for a similar one state-side is produce more baseball cards so to speak. That is, it makes paper aka fiat currency worth less (thus the decline in the dollar) while making harder commodities worth that much more thus the rise in things such as gold and oil. Furthermore, since stocks are âpaperâ assets, they rise in value too as more and more money (paper) is pumped into it- even if their relative value to things like gold is not maintaining itself nearly as much. One therefore can get an immediate-term phase where prices of all assets can rise. This where we are. Whether this is artificial or long-lasting is not something I can easily answer, but as a day trader, I am cognizant that the delta of moves is certainly increasing and I for one will continue to trade accordingly. Markets in Asia were mixed overnight with the Chinese stock market rallying 3% after having been closed for the week for a holiday, Hong Kong was up 0.3%, and Tokyo was down 1%. In Europe, markets were down overall last night but have rallied back in also performing a mixed performance with the averages trading anywhere from down 0.3% in London to up 0.2% in Frankfurt. The jobs report data came in negatively overall, but the private number was in-line. The reaction has been wild with the dollar weaker, bonds down a bit, and gold up 1%; futures were down 100 Dow points but are now higher as of this writing as equities moved with the dollar. Look for a very choppy day on a very choppy report. Trading should be centered upon the mixture of news in the tech sector, the earnings, the various downgrades, and relative weakness plays if the markets open higher but fail to rally in the first few minutes. 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 AA- decent earnings DRWI- raised revenue guidance SCSC- good earnings TTO- decent earnings BORN- closed near a high EQIX- closed near a high MMR- closed near a high RSTI, ATNI- going into S&P indexes; RSTI in the 600 on 10/12 and ATNI into the 600 on 10/14 GEDU- pricing 6.375 million share IPO @ 10.50, near high end of 8.50-10.50 range Bad-The following stocks have bad news and/or a weak technical pattern MU- poor earnings ONXX- delaying new drug application for Carfilzomib after the FDA asked for additional information relating to manufacturing the drug on a commercial scale CYTX- share offering KLIC- earnings warning GMXR- closed near a low STRA- closed near a low EFC- pricing 4.5 million share IPO @ 22.50, near low end of 22-24 range AMZN- removed from Conviction Buy List at Goldman Sachs FFIV- downgraded to Sell at Goldman Sachs Earnings: None today Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
MON. OCT. 11- The Market's Open on Columbus Day? As the legend goes, approximately 518 years ago tomorrow, Christopher Columbus discovered The New World. Mind you, the politically correct (much less factually correct) would note that humans of course were in America before October 12, 1492. However, what Columbus did was to bring the idea that America did exist to the rest of the civilized world (specifically the burgeoning peoples of Western Europe). Mind you, I do not mean to type up a sanitized history, but it is true that there was precious little change or advancement in the Western World until the beginning of the 16th Century. It is true that people enjoy things like Columbus Day parades, but letâs not forget that it is a recognized holiday today. But it also happens to be one of those days where people wonder if there is mail delivery (no), people wonder if it is a bank holiday (yes), with federal offices closed yet things like most libraries open. The bond market also happens to be closed today. This takes me into the stock market- itâs a semi-holiday today and it will impact trading. Volumes tend to be light with movements muted overall but exaggerated when prices do budge due to illiquidity. Think of today as the stereotypical calm before the earnings and markets storm to come; do not overtradeâ¦and watch a good parade (or baseball game)! Markets in Asia were generally higher overnight. Tokyo was closed but Hong Kong was up 1.2% with the other Asian indexes following suit. The gains are more muted in Europe with the bourses up about 0.1% to 0.3% across the board. The dollar is a little stronger with oil a tinge weaker with gold flat. The bond market is closed for the Columbus Day holiday. Futures are marginally ahead. Look for trading to be slow overall today with prices on both sides of flat but the bias to the upside pending an exaggerated light volume move in the currencies or commodities markets. Focus on the myriad of small cap biotechs in the news, the solars, the stocks making merger news, and the banks on the continued rumors about the foreclosure process. 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 BORN- closed near a high FUQI- closed near a high CBEH- closed near a high GBR- closed on a high MGM, WYNN, LVS- closed near highs after Las Vegas Strip gambling revenue jumped 21% in August according to Nevadaâs Gaming Control Board AAPL- closed near a high after Oppenheimer raised its price target DDS- closed near a high CLF- closed near a high RIMM- closed near a high SNDK- closed near a high POT, CF, AGU- closed near their highs in a strong fertilizer sector FCX- closed near a high JCP- Vornado announced it took a 10% stake in company EXAS- closed near a high HOGS- closed near a high NTGR, WAG- featured on âMad Moneyâ on Friday night LPH- traded higher Friday after being recommended in a newsletter CHK- announced a deal with CNOOC (CEO) in which CNOOC Intâl. Limited will purchase a 1/3 stake in a CHK natural gas field in which CHK will receive $1 billion plus funding of the drilling costs until an additional $1.1 billion has been paid LDK- boosted earnings outlook IMGN- reported positive Lorvotuzumab Mertansine data and raised cash guidance EXEL- announced major licensing program to BMY CSIQ- guided shipments to upper end of forecast range with the CFO leaving amid the SEC inquiry ARG- lost a ruling which will allow APD to call for another annual meeting in January in the ongoing hostile takeover saga for ARG ARQL- reached agreement with FDA on special protocol assessment of phase III trial of ARQ 197 HRBN- received $24/share buyout bid from CEO Bad-The following stocks have bad news and/or a weak technical pattern TSN, SFD- closed near a low on fears higher agricultural prices will crimp profits FSLR- closed near a low BGC- closed near a low after a ratings cut by Sidoti NDN- closed near a low after posting poor earnings JAZZ- FDA cannot approve JAZZâs NDA for JZP-6 in present form ALXA- received complete response letter from FDA on Adusuve with the FDA indicating the application is not ready for approval CXSW- earnings warning Earnings: MON OCT 11 BEFORE None today MON OCT 11 AFTER GPN None today Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
TUES. OCT. 12- 4th Quarter Earnings Season Is Here In the many years Iâve been trading, Iâve never seen perceptions of situations change as much as I have in the last year earnings-wise. A year ago, the markets were happy if a company missed earnings as long as it didnât miss by a lot. The next phase was that earnings needed to beat estimates but it was Ok if revenues didnât because it still showed earning power was there. The next phase has been a desire to see revenue growth with earnings to show that earnings werenât made or lost by accounting mechanisms and/or cost cutting. With the recent climb in the market, weâre now at the next phase. For a stock to rise, it has to not only have a decent quarter, but it must show earnings growth and revenue augmentation for the foreseeable future. For instance, in the case of Equinix (EQIX) recently, the company saw revenue of $328 to $330 million whereas the previous expectation was $335. Boom ka-pow, 30% haircut. Pepsi (PEP) announced earnings which met expectations for the quarter, but saw $4.08-$4.12/share for next year vs $4.17 so it got hit. On Wednesday morning, Robbins & Myers (RBN) earnings 45 cents vs 40 expected but saw .25-.35 for the next quarter with an estimate of 32 cents so it declined. Thus, as we hit the core of earnings season over these next three weeks, know the whole package- earnings and revenues growth in the future- is going to be needed for a stock to keep going in what has been a very strong tape. Markets in Asia were down overnight with Hong Kong down 0.4% but much worse in Tokyo with the Nikkei off 2%. The ever-strengthening yen as well as a rumor that the Chinese government is about to force banks to tighten lending standards led the declines. The bourses are down as well in varying amounts from 0.2% in Frankfurt to 0.5% in London to 0.8% in Paris. The dollar is marginally mixed in trading a little weaker against the yen and a little stronger against the euro. Oil and gold are both down about 0.5%. Futures are down as well. Look for a bit more active day than yesterday, but contained overall with prices mixed to slightly weaker. Focus on the merger rumor stocks, the earnings plays, the solars to see if there is follow-through from yesterday, and big cap tech. 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 MYGN- Prolaris test accurately predicts survival with prostate cancer according to company AUMN - closed near a high after target price was lowered at Dahlman Rose to 85.17 from 104. Seriously. ASTI- closed near a high after announcing a certification deal on one of its modues WYNN, LVS- closed near their highs CHK, ALXN, BMRN, WM- featured on âMad Moneyâ last night ACTI- to be bought for $3.25/share in cash GERN- closed near a high after enrolling the first human patient for its early-stage embryonic stem cell treatment for spinal cord injuries PUDA- closed near a high after a brokerage upgrade ARTW- closed near a high after posting great earnings CFSG- closed near a high OINK- closed near a high JKS- closed near a high AVP- âUK Mailâ story indicates company is likely to get an acquisition offer TQNT- raised earnings guidance KG- to be acquired for $14.25/share in cash by PFE Bad-The following stocks have bad news and/or a weak technical pattern GPN- poor earnings CTXS- closed near a low CRM- closed near a low FFIV- closed near a low RE- closed near a low AMZN- closed near a low SYNA- warned on earnings and CEO resigned VQ- closed near a low after updating production numbers and announcing an âat the marketâ offering COCO- CEO resigned for âpersonal reasonsâ FAST- poor earnings Earnings: TUES OCT 12 BEFORE FAST TUES OCT 12 AFTER ADTN CSX INTC LLTC None today Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
WED. OCT. 13- "QE2' In The News A columnist at Bloomberg named Rich Yamarone recently wrote a piece about quantitative easing. For those not aware what quantitative easing is, it is ostensibly a program designed to pump money into an economy without using traditional means such as the lowering of interest rates to do it. The first quantitative easing package entailed delving out almost a trillion dollars on various projects and bailouts over the course of the last couple of years. The debate is whether there will be another quantitative easing program (nicknamed âQE2â) as well as what type of impact it will have on the economy. In any case, Yamaroneâs story encapsulated a very popular and logical view that the program wonât help. Below is the first part of his recent column: âEvery year as it begins to get cold in the northeast, oak trees drop acorns. The annual bounty helps countless squirrels, chipmunks, rabbits and other rodents en¬dure the bitter winter months. Let's say oak trees dropped 1.3 trillion acorns last winter and that an industrious squirrel hunted and gathered far more nuts than he needed. He sought to loan some to others, but the neighboring chip¬munks and deer already had plenty. The Nuts, Acorns, and Seeds Administration, surveying the landscape, found the level of acorns unchanged at 1.3 trillion. Wor¬ried about another tough winter, it recom¬mends that trees drop another 2 trillion acorns.â Yamaroneâs point is that the Federal Reserve is on the verge of making even more money/financing available yet there is precious little desire for those who already have money in the coffers such as the nationâs banks to take it. It becomes a function of eating cake at a birthday party. The first slice may well be delicious, but if there are 17 entire cakes put in front of you, you likely wonât be eating all of the sweet goodness even if itâs there. Whatâs important for day traders to take note of is that the stock market has been trading on the opposite side of that view. The consensus reason for this is- continuing with the analogy- itâs always good to have the cake (or acorns!) just in case. Itâs ostensibly the crux of the old maxim that one should not fight the Fed. If there is a negative economic report such as the jobs report from last week, the market upticks. Furthermore the prospect for a QE2 causes the dollar to weaken which has also caused the stock market to rally recently. It becomes self-serving. The mystery will likely be solved at next monthâs two-day Fed meeting. In the interim, continue to monitor every piece of economic data that comes out but be aware that for the next several weeks that the market will likely trade in accordance with how it views the prospects of a 2nd quantitative easing program and the details of said program rather than the prospects for the broad economy. 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- Markets were up in Asia overnight with Hong Kong up 1.5% and Tokyo ahead 0.2%. The party continued in Europe with London up 1.2% and Frankfurt up 1.5%. Itâs the same trend in all the external markets with the dollar weaker across the board, gold up 1% and oil up over 1%. With the INTC and JPM numbers out combined with QE2 hope, futures are once again sharply higher this morning. Use INTC and JPM as benchmarks for the market today but look for the gains to hold overall. Focus on the techs and financials on the heels of those two stocks, the casinos on the MGM news, the selected small biotechs in the news, and the momentum plays from yesterday. Good- The following stocks have good news and/or a strong technical pattern INTC- decent earnings CSX- good earnings RIG- closed near a high after the Gulf drilling moratorium was lifted CRM- closed near a high GS- closed near a high OGXI- closed near a high MOTR- closed near a high RNOW- closed near a high after raising earnings guidance and installing a new COO ININ- closed near a high after raising earnings guidance AMZN- closed near a high AAPL- closed near a high GERN- closed near a high after obtaining stem cell patient number one ASTI- closed near a high after announcing agreements with Manville and Votum ALKS- announced FDA approval of Vivitrol VRTX, VRUS, CSCO- featured on âMad Moneyâ last night EXFO- decent earnings GMCR- rumors floating it is an acquisition target CTDC- closed near a high PLCE- closed near a high ULTA- closed near a high ADTN- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern MGM- guided lower on earnings and announced 41 million share offering LLTC- bad earnings CVX- lowered earnings guidance MY- closed near a low Earnings: WED OCT 13 BEFORE DPZ HST JPM WED OCT 13 AFTER APOL Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
THURS. OCT. 14- Understanding True Momentum Many people describe the style of trading that I and many other day traders utilize as âmomentum trading.â But what I for one do, itâs not the case whatsoever in the truest sense of the word âmomentum.â The only time I truly try to utilize momentum trading is when the market is moving rapidly. For instance, Citrix Systems (CTXS) at 11:23AM yesterday ticked to a new high. Upon ticking to that aforementioned intra-day high, the stock fell 36 cents (about 0.6%) in the next 15 minutes. The danger of that fake immediate-term break-out actually has a high likelihood of occurrence when one momentum trades as market downticks and there's no news on the individual stock. Basically, Iâm noting that it was a decent set-up but when something has no trigger for entry, it is hard for me to pull the trigger. Plays like that become pure momentum ideas and when the market is neutral or downticking, it becomes very difficult to make money in the immediate-term routinely trading like that. Trading momentum for momentum sake is very hard (for me). Instead, I look for a nuance to do my trades. For instance in using an example from yesterday, it makes logical sense to me that if the market has rallied but is coming off and J.P. Morgan (JPM) beat its earnings handily on the bottom line number yet the stock breached a low and unchanged to go negative, it's a short. Why? Because it couldnât go higher on the news. When traders who happened to be long the stock were puzzling as to what was going on, they acted first and asked questions later which is why one can get quick spike moves such as the one that occurred at 9:35/9:36AM yesterday. That's putting the odds in one's favor. Momentum is only good (for me) when market is really moving rapidly, but for the most part, look for a reason to do a trade over and above flowing with the trend if trading for an immediate-term horizon. Markets remained strong in Asia overnight with Hong Kong rallying 1.7% and Tokyo even stronger in closing ahead 1.9%. The picture is certainly more mixed in Europe with Frankfurt up 0.5% but London down 0.3%. The dollar weakness is even more notable this morning with the dollar approaching 81 yen and below 1.40 euros. Gold is up once again with prices now approaching $1,400 the ounce. Oil is up ½%. Futures are mildly higher. Core PPI came in as expected although the headline number was slightly stronger. Jobless claims data was weaker than expected. With options expiry tomorrow, look for more of the same- a mild choppy upside session with eyes on GOOD this afternoon. Focus on the takeover stocks like YHOO, the education stocks off of the APOL warning, and the myriad of stocks which closed at or near highs today for extensions of moves (or reversals today if market reverses). 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 V, MA- closed near their highs CSX- closed near its high after posting great earnings ZAGG- raised revenue guidance EXAS, AA- featured on âMad Moneyâ last night YHOO- rumored to be in early discussions to be acquired MON- closed near a high VHC- closed near a high RIG- closed near a high CRWN- closed near a high after a positive mention in the Motley Fool newsletter DSTI- closed near a high COHN- closed near a high HOC- closed near a high AGO- closed near a high GBX- closed near a high RUSHA- closed near a high JOBS- closed near a high SIGA- closed near a high after winning a smallpox contract PWRD- closed near a high IL- closed near a high WNR- closed near a high Bad-The following stocks have bad news and/or a weak technical pattern APOL- warned on earnings; CECO, DV, STRA, ESI may move with APOL CSH- closed near a low as CASH sold off after being accused of violating law JOE- closed near a low after a negative mention in a newsletter ADTN- closed near a low after posting earnings LSTR- poor earnings Earnings: THURS OCT 14 BEFORE FCS GWW LSTR PGR SWY THURS OCT 14 AFTER AMD GOOG JBHT Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
FRI. OCT. 15- Knowing When NOT To Trade When I first learned to drive a car, I was very nervous but very excited. My father took me to the parking lot of a local school and I practiced driving around in a circle, starting/stopping, parallel parking, and so forth. The first time I drove on a city street in traffic was nervewracking for me but exhilarating. Obviously, over time, driving has become much more mundane. Yet there are still circumstances I will never drive- in a blizzard, in a hurricane, when taking medication after surgery, and so forth. Furthermore, when Iâm really bored (which really doesnât happen much these days with work and two kids soaking up all my time!), I also donât randomly get in a car and drive simply because there are much better things I can be doing. These analogies were both very much in place yesterday in the markets. The first one took place both in the morning and hen in selected instances in the afternoons. For scalpers who are trading major financial stocks, the biggies such as BAC and C began dropping just below the open. Nobody knew (nor could find) any real news. Well, in that blizzard, why try to drive out in the middle of it? Why not wait a little bit, find out whatâs going on, and then trade? Another example would be the cases of things like TGB and GMCR which had huge moves suddenly. For those with ordinary news services, the moves already occurred before one could procure the event that sparked the major move. But why play aftershocks if one doesnât know what is going on? Regarding the latter analogy, there was a pocket for about 1 ½ or two hours in the early afternoon when stocks werenât moving dramatically. So, why try to create something out of nothing? The net is this: knowing when to trade is obviously very important. But knowing when not to trade is even more important so that you donât gamble your day (or week or month or year) away. Markets in Asia were lower overnight with Tokyo down 0.9% and Hong Kong down 0.4%. In Europe, prices are more mixed with London flat but Frankfurt up 0.8% It has been a wild morning already in the external markets with oil now up slightly but well off its highs, gold flat but down from up $10, the dollar marginally weaker but up from its lows below 81 yen, and the 10-year yield hovering at 2.50% but off of its high as well. CPI, retail sales, and NY Empire all came in pretty good. Michigan Sentiment is out at 9:55AM ET with Business Inventories at 10AM ET. Options expiration is today at the close. Bernankeâs speech commencing at 8:15AM straddled a fine line but the message was that he left the door open for quantitative easing in implying it may well be needed and can be handled. Futures are sharply higher as the markets got what they wanted plus earnings and merger mania are in full effect. The upside likely maintains itself today, but keep a weary and tired eye on currencies and gold for true direction. Focus on STX and the stocks in its sector, GE, earnings plays, GOOG, techs for major moves particularly relative weakness, and the fertilizers on the rumors surrounding POT. 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 GOOG- blockbuster earnings AMD- decent earnings STX- announced interest for potential going private transaction; WDC, XRTX, STEC, NTAP, and SNDK may move in sympathy MBI- closed near a high ZAGG- closed near a high after boosting revenue guidance STV- closed near a high AAPL- closed near a high SMSI- closed near a high MNKD- mentioned on âMad Moneyâ last night HWK- received takeover offer from CSL for $50/share SHMR- received offer from Essilor to acquire 50% of company for 14.50/share FHN- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern CBST- poor earnings GS- closed near a low HRB- closed near a low on continued worries over the burgeoning foreclosure scandal MOTR- closed near a low SMED- closed near a low after a negative report from a web service JOE- closed near a low on continued fall-out from the Einhorn report on Wednesday WGO- closed near a low after posting earnings TOWR- IPO for 6.15 million shares at 13, below expected range of 15-17 POT- rumors floating from various news reports that Sinochem will no longer counterbid for POT GE- poor earnings INFY- poor earnings MAT- poor earnings Earnings: FRI OCT 15 BEFORE FHN GCI GE GPC INFY MAT SCHW Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
MON. OCT. 18- The Weak Bond Auction Last week, I wrote a piece in which I discussed that in the immediate-term, the anticipated immediate-term effects of potential quantitative easing was aiding in causing the worldwide right of all asset prices from gold to oil to equities to bonds. This of course makes sense; if the Treasury is going to pump money in some fashion in buying back bonds, the demand (âartificialâ or not) would keep yields low. I also noted that this type of action is difficult to sustain as something has to give. Rising gold and oil prices are often harbingers of inflation (which implies higher interest rates). Placing a lot more fiat currency into the money supply would cause a de facto devaluation of the dollar which makes the dollar cheap relative to other assets which helps to feed on itself. The problem of course is that there is no way over a long period of time that interest rates can stay down in this scenario as it ostensibly implies inflation. I bring all of this up because of a disturbing development on Thursday afternoon. The Treasury regularly holds debt auctions; last week, there were three of âem. A $13 billion sale of 30-year bonds was priced with a higher yield than has been the case recently and was expected to draw in buyers getting miniscule returns on immediate-term bonds. It did not happen. Investors placed bids for about 2.5 times the amount offered when thereâd routinely been a factor of four. This indicates a sign of waning desire to purchase 30-year Treasuries. Very notably, bonds suffered their biggest two-day drop in a very long time with the 10-year yield mushrooming from 2.38% to 2.58% in two days. A move like this would oftentimes takes weeks for perspective as recently as 15 years ago. It may turn out to be nothing, but combined with the dollarâs descent and goldâs ascent, this is certainly a situation to monitor for the foreseeable future. Markets in Asia were mixed overnight with Tokyo flat but Hong Kong down 1.2%. In Europe, prices are generally higher from ¼% to ½%. Oil is flat, but gold is actually down almost 1%. Notably, the dollar is up almost a full euro although little changed against the yen. Futures are little changed. Industrial Production (0.2%) and Capacity Utilization (74.8%) are out at 9:15AM with the NAHB Housing Market Index (13) out tat 10AM. Interestingly, many of the bigger names are higher this morning (AAPL, C on its earnings) in contrast with the tug down by the stronger dollar. Look for the tug-of-war to continue all day but with prices higher overall in a major stock picking day. Focus on the earnings, banks off of C, the techs off of AAPL, the myriad of small cap biotechs in the news, and the materials off of commodity weakness. 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 PIP- closed near a high after a positive blog article on Seeking Alpha in which the author made a case for the stock to go to 20 CCME- closed near a high NEXS- closed near a high after announcing its light bulb is included on the Energy Start Qualified LED list AGN- received FDA approval for usage of Botox to prevent migraines MON, CF, MOS- closed near a high ISPH- mentioned on âMad Moneyâ on Friday AMZN- closed near a high AAPL- closed near a high GOOG- closed near a high after posting great earnings ISTA- received FDA approval for Bromday ARWR- announced development agreement with Smith & Nephew ZOOM- raised guidance AGAM- to be bought by $20.80/share by STJ HAS- decent earnings ASTM- to imminently begin phase III testing for CLI program KWK- Quicksilver ruling family considering taking company private HIHO- received tooling and product orders for mobile phone cases Bad-The following stocks have bad news and/or a weak technical pattern SOL- closed near a low COF- closed near a low as monthly data released by major credit card issuers indicate a slow pace of economic recovery GS- closed near a low TSL- closed near a low KDN- closed near a low SUPX- guided 2nd qtr revenues below consensus HAL- poor earnings FLR- announced cost escalation on offshore wind project will impact third quarter results NIHD- TV and NIHD agreed to mutually terminate an agreement in which TV would have acquired a stake in Nextel Mexico PETS- poor earnings JCP- announced shareholder rights plan EDU- poor earnings Earnings: MON OCT 18 BEFORE C EDU HAL HAS MMR MON OCT 18 AFTER AAPL CCK IBM INFN LNCR PKG STLD VMW ZION Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
TUES. OCT. 19- It's Insaaaaaaaane It's happened to us all. We're running slightly late for a nighttime appointment, meeting, or a party. We think we know the address of our final destination, we get there, and we see that if we're looking for "1171" and we pass "1151" to come to "1201," we just know it has to be in between the two numbers. So we drive back. We still don't see it. We drive the same strip again. If we do it one more time, it becomes somewhat stupid. If we do it two or three more times, it becomes irrational. If we do it five more times, it becomes insanity. What we should do after the first couple of times is check to make sure we have the right address and/or to see if maybe there exists a little side street where "1171" is located. That fine line between the common sense of pausing to figure out one's mistake and doing something about it (looking for aforementioned side street or checking with someone to make sure the address is correct) and repeatedly driving the same small stretch of road is a feature of the very mentality of a human being. It is also at the core of the successful versus the flawed trader. It floors me on a daily basis to see people making the same mistakes repeatedly- doing nothing about them- and continuing to lose more and more money. In the past couple of weeks, Iâve personally seen traders do things such as adding to losing positions or getting to work late and not having the first clue what is occurring on any given trading morning as a result. Now one has to make mistakes to learn from mistakes. G-d knows I make mistakes on a daily basis in trading and in life. I know because my wife tells me so (ba-dum-ching)! But if I make the same mistake repeatedly, I am not being immodest when I say I do my best to learn from it. If I found that I didnât know what was going on news-wise, Iâd get to work earlier. If I kept shorting shares as a stock kept rallying- and lost repeatedly, Iâd stop doing it. Thus, trading can be hard enough but when one literally insanely does the same thing wrong- while being told it is wrong and not learning from it in hemorrhaging money- trading for a living becomes impossible. It feels like two weeks since 3:30AM ET. Markets in Asia were up overnight with Tokyo notching a 0.4% gain with Hong Kong advancing 1.3%. Prices are down slightly in Europe with markets down 0.2% to 0.4%. Gold and oil are both down over 1%. Bonds are at their morning low with the 10-year up 5 basis points. The dollar is higher against the yen and euro. Futures are getting hit to the tune of about ¾% on the S&P. The storm started when there was an error in the trading of the SPY at 4:15PM ET which took that conduit down almost 10% by mistake. Then, the earnings flow wasnât overwhelmingly great with AAPL and IBM getting hit. Finally, this morning, the Chinese Central Bank raised its 1 year benchmark interest rate. Housing starts came in better than expected with building permits worse than expected. For today, look for the markets to trade lower in a choppy random manner in staying down but certainly use AAPL and GS as benchmarks. Focus on the earnings plays such as GS, the techs, the healthcare stocks off of UNH, and any relative strength play particularly in the first part of the session post-open. 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 COF- great earnings ICUI- decent earnings LYB- featured on âmad Moneyâ last night BC- closed near a high JST- closed near a high REE- closed near a high AGN- closed near a high amid positive buzz over the migraine Botox approval BAC- decent earnings PH- good earnings UNH- good earnings KO- decent earnings PII- decent earnings MEE- exploring strategic alternatives according to âWSJâ GS- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern AAPL- poor earnings guidance IBM- poor earnings guidance VMW- poor earnings guidance INFN- terrible earnings LNCR- poor earnings HT- share offering EXAC- poor earnings guidance CWTR- terrible earnings guidance MSFT- chief software architect resigned CBST- convertible securities offering JKS- closed near a low MMR- closed near a low after issuing poor earnings CASH- closed near a low after the OTS indicated it was not prepared to allow MetaBank to enter into any new three party relationships HRB- closed near a low BK- poor earnings LMT- warned on earnings guidance WFT- poor earnings SVU- poor earnings BTU- poor earnings ITW- poor earnings Earnings: TUES OCT 19 BEFORE BAC BK BTU EMC FRX GS HOG ITW JNJ KO LMT MNI MTG NYT OMC OXY PH PII STT SVU UNH WFT TUES OCT 19 AFTER ALTR BSX GILD ISRG JNPR SLM SONC SYK TPX TUP URI WDC YHOO Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President