WED. OCT. 20- The China Syndrome A very major political event happened with an alarmingly paucity of fanfare a couple of weeks ago.. That afternoon, the House of Representatives- by an overwhelming majority of 348 to 79- passed a bill which authorized the Department of Commerce to impose âdutiesâ on imported products from nations it deems as having âundervalued currencies.â The bill was broadly supported by both major political parties with Democrats portraying the matter as a jobs issue while Republicans framed the issue as one of fairness. Earlier this year, China indicated itâd allow its currency (yuan) to trade in a wider band against the dollar, but the yuan has barely appreciated since that time. Most experts widely acknowledge that the yuan is about 15%-25% undervalued against the dollar which makes Chinese goods cheaper in the U.S. and U.S. goods sold in China more expensive. Basically, I view it as a situation whereby because two wrongs don't make a right. China is seemingly wrong based on the yuanâs performance, but the U.S. retaliating so overtly with such political overtones will not go over well there. I am not saying we should lie back and take it, but making such a public stink about it could cause the Chinese to do things like raise tariffs on steel imports. Which would cause the U.S. to retaliate. And so forth. Indeed, in the last 24-36 hours, the Chinese raised their benchmark interest rate and very quietly began an embargo on rare earth metals to the United States. That doesnât sound major until one considers many of these same metals are used in the manufacturing of products such as semiconductors. I have absolutely no idea how this situation will break, but with the Senate voting on the House bill later this year, Sino-U.S. relations could once again become a forefront issue for day traders as many rumor (or actual event as has occurred in the last day affecting U.S. trade can dramatically impact stock prices. Markets were hit in Asia overnight with Tokyo down 1.6% and Hong Kong down 0.9%. Things actually perked up in Europe slightly with a lot of the damage having been done yesterday as the bourses are up either side of ¼%. Oil and gold are rebounding a bit- oil about 1% and gold about ½%. The dollar has renewed its decline with it approaching the 81 yen level and down almost a full euro. Futures are higher. Today will likely be very choppy with trading on both sides of unchanged. There has been a rebound in sectors like commodities but financials are almost universally lower. Oil inventories are out at 10:30AM with the Beige Book out at 2PM. Keep an eye on those commodity and financial stocks, the rare earth mineral plays, AMLN and the fallout from its drama, and the myriad of companies that have reported earnings. 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 SHZ, REE, MCP- all rare metals stocks; all closed near their highs on the China embargo news NVO- main beneficiary of the Byetta denial by the FDA TWER- closed near a high DEAR- good earnings ALTR- decent earnings SYK- decent earnings SHAW, CTL- featured on last nightâs âMad Moneyâ ECA- decent earnings ETN- decent earnings BA- decent earnings DAL- decent earnings WFC- decent earnings STJ- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern AMLN, ALKS, LLY- FDA again denied approval for Byetta CREE- terrible earnings; VECO may move with it JNPR- bad earnings POT- Saskatchewan will announced decision to approve or deny BHPâs takeover bid on Thursday; the premier will do so and has been against the bid FSII- earnings warning ISRG- missed revenue estimates RIG- closed near a low CASH- closed near a low WLP- closed near a low FNSR- closed near a low after reporting terrible earnings SVU- closed near a low after reporting terrible earnings Earnings: WED OCT 20 BEFORE ABT AMB APH BA BLK CHKP CMA DAL DGX ECA ETN GAP GENZ KCG LCC LNN MAN MI MO MS MTB STJ SWK TIN TXT USB USG UTX WFC WED OCT 20 AFTER ACF ACL ADS EBAY ESV FNF ISIL LRCX NE NFX NFLX RHI RJF STX TSCO TSS XLNX Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
THURS. OCT. 21- What's The Market Thinking About? Donât worry. I wonât be graphic. I just have to describe something to make a point. It is all about childbirth. Iâve been lucky enough to witness much less play a part in the delivery of both of my beautiful little girls (Rayna and Samara). During the process, a zillion thoughts passed through my mind. But the pervading thought that I was left with was how everything was a blur leading up to their births. I remembered in a mental cacophony in my mind the discussions, the âcould we handle it,â the moments of pregnancy from when my wife and I told the world we were going to be parents to the moments when she had intense morning sickness. But all of that mental noise was eviscerated on the mornings of the angelsâ births. All that mattered was that the kids and my wife were happy and, thank G-d, healthy. After sitting at my desk for a few minutes, could not think of a more applicable analogy for this stock market. On Tuesday, we heard headlines about China (some of us wrote a blog post yesterday about it), the pending foreclosure mess at the likes of Bank of America, and relatively poor earnings flow. But when I awoke yesterday morning, I noted that the dollar had fallen a full euro. By the end of the day, the loss was almost 2 ½ euros and the market had recouped for the most part Tuesdayâs losses. Despite all of those Tuesday worries, the losses were wiped out yesterday because the dollar took a dive. ss has been noted in this space, when the dollar declines in recent months, it has been good for equities and vice versa. So, it is important as always to keep track of as much data as possible, but just as nothing mattered when my kids were born, nothing mattered to the markets net-net these last two days except for the performance of the greenback. Thus, that was the singular most important sign to show you where the marketâs focus is right now and will likely be for some time to come. Markets in Asia were lightly mixed overnight with Tokyo closing ostensibly flat but Hong Kong was up 0.4%. Markets in Europe have traded higher all morning to the tune of about ¾% on average as of this writing. The dollar leads the way again with it above 1.40 to the euro and below 81 to the yen. Gold and oil are slightly lower. Futures are higher on all of this but a bit off of their heights of the morning. LEI 0.3%) and Phily Fed (1.4) are both due out at 10AM. As has been so often the case recently, track the dollar to track the equities intra-day. Action will likely be choppy but maintain an upside bias. The focus is on the triple digit amount of companies that reported earnings this morning, the rare earth plays, and the big cap techs. 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 NFLX- great earnings EBAY- great earnings TSCO- good earnings TSS- decent earnings RHI- decent earnings RJF- decent earnings LNN- closed near a high after posting earnings BA- closed near a high after posting earnings WSCI- closed near a high after posting earnings HUBG- closed near a high after posting earnings URZ- closed near a high GS- closed near a high RIMM- closed near a high UAL- closed near a high and had decent earnings IL- featured on âMad Moneyâ last night WSTL- decent earnings NLST- demonstrated 100 virtual machines on a single standard server using Hypercloud Memory at Interop ALXN- decent earnings BAX- decent earnings DO- decent earnings STI- decent earnings TRV- decent earnings CAT- good earnings FCX- great earnings LUV- good earnings MCD- good earnings ISLN- good earnings PNC- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern ADS- terrible earnings STX- poor earnings XLNX- poor earnings TEX- poor earnings MCP- closed near a low FMBI- closed near a low after posting earnings MLNX- poor earnings HSY- bad earnings PM- poor earnings CYS- poor earnings PM- poor earnings PLCE- terrible earnings outlook K- bad earnings CRUS- terrible earnings NTRS- poor earnings FLIR- poor earnings UNP- poor earnings CY- poor earnings ESI- poor earnings Earnings: THURS OCT 21 BEFORE ALK ALXN APD BAX BBT CAT CRUS CY DHR DO ESI ETR FCX FLIR GR HBAN HSY ISLN JNS LH LLY LUV MCD NTRS NUE PCP PCX PM PNC PPG R RAI RS STI T TRV UAL UNP UPS VFC XRX THURS OCT 21 AFTER ALB AMZN AXP BCR BIDU BUCY CA CB CMG CPWR CTXS CYMI CYT ELX INFA MCRL NCR PLCM PMCS QLGC RMBS RVBD SNDK SYNA WOOF Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
FRI. OCT. 22- Learning From History A few weeks ago, I noted that I had analyzed many trades in order to truly gather data for attempting to aid my own trading performance particularly in light of the switchover of EDGX to the Direct Edge Stock Exchange. A few people asked me about it so I want to go into one of my (many) weird quirks so I can explain myself better. I had a phenomenal trading year in 2001. The volatility of that time served me quite well thankfully. In 2002, as the markets settled in, my year trended lower as compared to 2001â¦I was profitable every single month of the year but to say that my January/February was better than my November/December is an understatement. As 2003 started, I got off to a decent if unspectacular start. Around the 3rd weekend in January, I decided to go back and analyze the first two weeks of my trades in 2003 to see if I could find something to improve myself. I figured some things outâ¦but the best thing that came out of that experience is that each and every trading day, I keep track of the stocks I trade, the amount of shares I trade in each, the total revenues, the total costs, and the net profit of each symbol. Every week, I go over the previous weekâs trades. Once a month, I analyze the previous monthâs trades. Once a year, I analyze the previous yearâs trades. Furthermore, when there is a time that I donât trade as well as I feel I could, I go back to this gigantic spreadsheet of my trading career. Not only is it from this spreadsheet that I have been able to find the tenets for what generally works and what doesnât (for me), it keeps me from losing vast amounts of money because I am forced everyday if nothing else to re-live the previous day or two and subconsciously much less consciously study my trading as I enter my data. It is this spreadsheet more than any one factor (and accompanying notes when I am going really well or really poorly when I denote my best and worst trades- some of which have formed the basis of blog entries in this space) which provide a harvest of information for me to better myself as a trader. Markets throughout the world were mixed overnight. In Asia, Tokyo was up 0.5% with Hong Kong down 0.6%. In Europe, Frankfurt is up 0.1% while London is down 0.4%. Gold is down slightly with oil up ½%. Bonds are a tinge higher with the dollar a tinge lower. Futures are slightly ahead. Thereâs no economic data out. All of this is Erik code for âitâs relatively quiet right now.â For the day, the story remains the dollar but with movement muted ahead of this weekendâs G-20, equity movement will likely be choppy but in a less volatile range than yesterday. Focus on the earnings, the techs, the rare earth plays once again, and random microcaps that have random moves (such as LIVE and CDTID 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 BIDU- decent earnings SNDK- great earnings RVBD- great earnings NCR- decent earnings CMG- great earnings FTNT- decent earnings NFLX- closed near a high after posting great earnings GRA- closed near a high after posting decent earnings CYD- closed near a high SURG- closed near a high TZOO- closed near a high after posting decent earnings LYTS- closed near a high after posting decent earnings VRA- closed near a high CODE- closed near a high CY- mentioned on âMad Moneyâ last night KEY- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern AMZN- poor earnings CTXS- poor earnings BUCY- terrible earnings QLGC- poor earnings CYT- terrible earnings INFA- poor earnings ALGN- poor earnings CRUS- closed near a low after reporting awful earnings and mentioned negatively on âMad Moneyâ last night JCG- closed near a low BORN- closed near a low REE- closed near a low ARO- closed near a low HOC- closed near a low LHO- closed near a low after posting earnings LTM- closed near a low after posting earnings FNF- closed near a low after posting earnings GRNB- closed near a low after posting earnings Earnings: FRI OCT 22 BEFORE BPOP DOV EXC HON IR KEY PAG SLB TROW VZ Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
MON. OCT. 25- Speculating on Speculation On a day like Friday when trading becomes quite slow, oftentimes one can create something out of seemingly nothing amid the environment we are in. By that, I mean that there is a degree of forth underneath the surface as some investors/funds have sought to bolster their performance particularly ahead of the October 31 fiscal year end for most mutual funds. Thus moves that seem innocuous can be padded in relative illiquid conditions. For instance, IPO Vera Bradley (VRA) closed just off of its high on Thursday but traded in a narrow band on Friday morning in failing to yield any ground. Upon breaching 25, the shares stretched to 26.75 within 20 minutes. A stock such as that of Acacia Research (ACTG) posted great earnings on Thursday night. The stock traded up about 3 ½ for the bulk of the day hanging out between 24.75 and 25.15 for quite some time. When the stock took out the high, it rallied 75 cents in about 10 minutes. Stocks such as BKD, RITT, SFUN, CMG, RVBD, CYT, and BUCY all had dramatic moves on Friday. The feature to look for when trading these things is consolidation near a high or a low particularly when news is featured. The way to trade them is to seek out said consolidation in the direction of the trend and look for a refreshing bid on the level II screen if looking to go long (and vice versa). Furthermore, make sure the consolidation is indeed quite narrow to protect yourself. But what sparks these things is the exaggeration of fear and greed. In a stock like ACTG which has a decent short interest, a few ticks to a near high on a relatively lazy Friday afternoon is enough to cause some day traders to scramble and the momentum feeds upon itself. The same is true for a VRA play in the morning as traders seek to get out to a good start. So, particularly in this week before mutual fund year-end with the market having risen a lot recently, be particularly ready for these specialized situations in which liquidity is not as present in making the relative illiquidity work for you- again with the stipulations described above. Markets overnight were mixed in Asia with Tokyo down 0.3% but Hong Kong ahead 0.5%. In Europe, prices are definitively higher about ½% to ¾% across the board. The theme of the talk out of the G-20 over the weekend was ostensibly âthere will be no currency warâ which has shoved the dollar lower (below 81 yen now and solidly above 1.40 euros) with gold up over 20 dollars the ounce and bonds a bit higher as well. All of this has sparked a nice early rally in the futures. Existing Home Sales (4.25 million units) will be out at 10AM. There are a bevy of Fed speakers with Bernanke at 8:30, Dallas Fed at 10:30, Bullard at 1:30, Dudley at 4:30, and Hoenig at 10:00. For the day, with a number of notable upgrades and dollar weakness at the marketâs back, itâd seem that the gains should hope if not build on themselves a little bit. Volume will likely be a little lighter than normal with an unexpected beautiful weather day set-up in the New York area. Focus on the myriad of stocks (particularly recent IPOâs) which closed at or near their highs on Friday, the casinos on the varied news within that sector, the âmediaâ stocks pumped up by newsletters and TV shows since Friday, and anything with relative weakness in the first hour or so after the opening bell. 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 ACTG- closed near a high after posting good earnings BKD- closed near a high after competitor Atria received a bid for its real estate assets HMG- closed near a high SFUN- closed near a high NOG- closed near a high TZOO- closed near a high BORN- closed near a high AUMN- closed near a high CPHD- closed near a high after posting good earnings AFOP- closed near a high after posting good earnings FTNT- closed near a high after posting good earnings INFA- closed near a high after posting good earnings BIDU- closed near a high after posting good earnings AMZN- closed near a high after posting good earnings CMG- closed near a high after posting good earnings RVBD- closed near a high after posting good earnings BJRI- closed near a high after posting good earnings FFIV- closed near a high amid positive buzz about the CTXS earnings MOTR, MNRO- featured on âMad Moneyâ on Friday night APSG- seeking strategic alternatives APC- closed near a high amid rumors that Kosmos Energy may sell its stake in Ghana oil Assets which would a price on what APC owns in the same venture DRI- closed near a high on takeover rumors EONC- closed near a high XRS- closed near a high MDF- recommended in Louis Navalierâs newsletter CTV- confirmed itâs in discussions with CSL to be acquired for $31.50/share in cash LDK- signed polysilicon agreement with BYD (a China-based company 10% owned by Berkshire Hathaway) ROP- decent earnings SOHU- good earnings LMT- announced new $3 billion stock buyback plan CYOU- decent earnings PPD- exploring strategic options with private equity firms having offered $60/share as of this writing Bad-The following stocks have bad news and/or a weak technical pattern CONN- closed near a low after it warned on earnings and announced rights offering CYT- closed near a low after posting bad earnings BUCY- closed near a low after posting bad earnings GS- closed near a low WYNN- filed common stock shelf registration TDW- earnings warning Earnings: MON OCT 25 BEFORE BYD CRNT LO ROP RSH SOHU MON OCT 25 AFTER AMGN ATHR BEAV COG DDR DRIV EW IDTI MAS MIPS PCL RGA SLG SNV TXN VECO VLTR VRTX Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
TUES. OCT. 26- Answering A Question Yesterday, I made reference to the fact that almost all mutual funds end their fiscal year on October 31. But almost nobody knows why. In fact, I was very embarrassed by my ignorance when I had several people ask me yesterday why it was indeed the case that the October 31 date is as such with me not able to provide a coherent answer. The answer is actually not that simple. Basically, until the mid-1980's, most mutual funds were plain vanilla in nature in that they tended to be invested in stocks, bonds, and various money market conduits with few if any esoteric financial instruments implemented. Countless new financial vehicles were developed in the time preceding the Crash of '87 and with it, tax accounting became much more involved. And naturally, changes in the tax law magnified the difficulty a great deal. There was a major piece of legislation in 1986 entitled The Tax Reform Act of 1986 which of course was suppose to, um, reform taxes but in fact made things that much harder. Until this time, funds could and usually did wait until the calendar year following the end of their fiscal year to pay capital gains much less dividends from net investment income. By that, I mean distributions could be made in January even if the fiscal year ended in December. However, under the TRA, mutual funds must by December 31 each year distribute at least 98% of any capital gains (post-taxes) earned through October 31 as well as ordinary income earned through December 31 else they'd pay an additional 4% excise tax. Since most income earned by mutual funds is of course capital gains, the tax-planning schematic for most mutual funds has had to be placed on a calendar year basis and shrunk to two months so as to know how to pay out by December 31 else the 4% excise tax would have to be paid. So, as with a lot of things in professional life, the mystery of the Halloween fiscal year end for mutual funds down to money...and funky legislation. Markets were lower throughout the world overnight. In Asia, Hong Kong was down 0.1% with Tokyo off 0.7%. The losses are a bit steeper in Europe with London down almost 1%. Not coincidentally, the dollar is a bit higher against both the yen and euro. Oil is slightly lower with gold down ½%. Futures are somewhat lower as well. Look for another very choppy session today with the dollar playing a dominant role in trading; if it catches a bid, the move in the stock market could get exacerbated. Case Shiller is out at 9AM (2% expected), with Consumer Confidence (49.0) and FHFA Home Price Index (no estimate) out at 10AM. The focus will be on the earnings plays with the fall-out from those playing a major part in todayâs trading with sectors such as steels, techs, rare earths, and retailers the sectors to trade. 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 BIDU- closed near a high on follow through from Fridayâs rally on good earnings APSG- closed near a high after announcing a decision to explore strategic alternatives ACTG- closed near a high on follow through from Fridayâs rally on good earnings RVBD- closed near a high on follow through from Fridayâs rally on good earnings CDTID- closed near a high after being awarded a contract for funding for a ferry emission reduction program PEGA- closed near a high after launching a new CRM solution which will theoretically allow lenders to automatically eliminate errors in mortgage originations BID- closed near a high SOHU- closed near a high after posting good earnings RIMM- closed near a high DRIV- decent earnings, but doing convertible notes offering MIPS- good earnings SUPG- good earnings NFLX- featured on âMad Moneyâ last night CIT- decent earnings COH- decent earnings JAKK- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern HRBN- closed near a low CGA- closed near a low TXN- lukewarm earnings guidance ATHR- poor earnings PLD- share offering VECO- terrible earnings PCL- poor earnings VLTR- poor earnings ZRAN- terrible earnings ARIA- share offering MAS- poor earnings AIG- CEO diagnosed with aggressive cancer; says he will maintain normal schedule at this time UCTT- closed near a low after posting poor earnings WL- closed near a low amid speculation of a take-under CMI- poor earnings KMB- poor earnings LXK- poor earnings RF- poor earnings X- poor earnings F- poor earnings CSR- poor earnings outlook AMTD- poor earnings TLAB- poor earnings PCAR- poor earnings Earnings: TUES OCT 26 BEFORE AGCO AKS AMED AMTD ARG ASH ATI BIIB BMY CIT CMI COH CSL DD ECL EPD FE FIS HL HSP JCI KMB LXK MHP MYL NOV ODP PCAR PCR RF SHW TLAB UA VLO WAT X TUES OCT 26 AFTER AFL BRCM BXP CENX CHRW CML CNI DV DWA EQIX FFIV FORM ILMN JLL LIFE MCK MEE NAL NBR NTGR NVLS OII PNRA PPDI PXD SPF WBSN WLT WU Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
WED. OCT. 27- One More on Mutual Funds I wasnât planning on turning this into âHalloween Mutual Fundâ week, but Iâve gotten more questions since Monday about this than anything. So, let me go back to basics. In yesterdayâs piece, I discussed the âwhyâ behind the mutual fund year end occurring on October 31. In Mondayâs piece, I made reference to it. Now, what I need to do is discuss why this can potentially be important. Window dressing is a practice put on at the end of the year by many entities but many mutual funds to this day quietly implement it at the end of October. For those that donât know, many mutual funds have historically tried to improve the overall look of a yearâs performance by selling stocks with large losses and buying stocks with good performance. The performance numbers arenât sent out for awhile as these funds âaccount for their performance,â but investors sure do see which stocks are in the funds. Thus, a holder of Mutual Fund A may not know that his fund underperformed in a given year, but sure will see on November 1 that his fund owns shares of things like AAPL. This effect has the potential for even more exaggeration this year with many funds underperforming the benchmark indexes as they are forced to play catch-up what with several stocks accounting for much of the gains in an index such as the S&P 500. Along with the weak dollar, this is a primary factor in the exacerbation of stock moves in things such as the top performers of the year much less in select random microcaps that can artificially inflate performance on a mark-to-market basis such as CDTID. So, expect volatility to pick up on a case-by-case basis as we wind up the next three daysâ¦with the next fun game to occur next week- gaming the election cycle! Markets were mixed throughout the world with Tokyo flat but Hong Kong down sharply 1.9%. In Europe, Frankfurt was up 0.2% with London down 0.4%. Commodities are lower with gold down ½% and oil down 1%. The dollar is marginally stronger against the euro and yen. Bonds are a little higher. New Home Sales (295,000) are out at 10AM with Crude Inventories out at 10:30AM. Durable Goods came in mixed with the overall number better than expected, but weaker than expected when excluding Transports. Futures are down slightly on the dollar strength. Itâs the same thing once again- the dollar will be the key factor today along with the reactions of individual stocks to earnings. Focus on the many earnings plays out, the cloud computing sector, the rumored takeover stocks, and the big cap techs. 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 CML- decent earnings BRCM- good earnings FFIV- good earnings; CRM, CTXS, VMW may move with it ILMN- decent earnings MCK- great earnings AFL- decent earnings NTGR- decent earnings OII- great earnings NVLS- decent earnings WU- decent earnings DWA- decent earnings DV- decent earnings EQIX- good earnings outlook FORM- decent earnings LIFE- decent earnings SIMG- good earnings JDAS- decent earnings MIPS- closed near a high after posting great earnings RCII- closed near a high after posting great earnings COH- closed near a high after posting great earnings BIDU- closed near a high MCP- closed near a high LVS- closed near a high FCX- closed near a high MOS- closed near a high LNG- closed near a high OVTI- closed near a high NFLX- closed near a high amid vague takeover rumors USB- featured on âMad Moneyâ last night WHR- decent earnings ADP- decent earnings IP- decent earnings PG- decent earnings RDWR- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern JKS- share offering MEE- poor earnings CENX- terrible earnings CHRW- poor earnings BWLD- terrible earnings PNRA- bad earnings PPDI- poor earnings MYL- poor earnings KMB- closed near a low after posting bad earnings LXK- closed near a low after posting bad earnings UIS- closed near a low after posting bad earnings BXS- closed near a low after posting bad earnings RCI- closed near a low after posting bad earnings COG- closed near a low after posting bad earnings TNP- share offering PFCB- poor earnings JNY- poor earnings S- poor earnings Earnings: WED OCT 27 BEFORE ADP AVY AYE BWA CMCSA COP CP DPS EAT ELN FBC GD HES IACI IP JNY LM MWV NOC OC ODFL PFCB PG PX RDWR S SEE SLAB SVVS TMO WHR WED OCT 27 AFTER AEM AFFX ALL AMP AVB BEC BYI CAVM CCI CYH EFX EQR ESRX FLEX FLS FMC FTI HLX IDCC NSC OI ORLY OTEX PLXS RRC RYL SKX SPN SYMC TER TMK TRN UHS V WLL Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
THURS. OCT. 28- Talkin' Japanese Several days ago, the Japanese government stepped in and promulgated a major intervention to attempt to prop up the sagging yen. For a brief time, the yen vaulted higher. But it didnât take long for the strong trend to reassert itself. First, one has to understand- artificial means can be used to prop up a financial instrument. But the cold beauty behind any market is that prices eventually go to where they should go. For instance, just before Thornburg Mortgage went bankrupt a couple of years ago, the stock rallied from 1 to 5 in days before going to 0 almost immediately after touching 5. But the bottom line is to understand what is going on. There are a few reasons. Japan did not get hit as badly as the rest of the world from the subprime mess. So although their banking system isnât the greatest on the planet, it has become stronger relative to that of many other nations. Next, the yen is now seen as a âsafe havenâ type of currency âright or wrong- due to ears of economic and debt weakness in Europe and the United States. An even more important reason is the idea of the carry trade. As recently as five years ago, institutions borrowed yen at very low rates of interest and used the yen to invest in other nations where the rate of return was higher. However, with the stock market not having done as well with risk-averseness a major tenet of the thinking of many investors, the cash need is high. Thus a lot of the borrowed money is being paid back- with yen borrowed which has created high demand for the yen. And the number one factor has been a stream of repatriated cash in addition to the yen borrowed from the carry trade. Japanese investors and citizens have been bringing their money back home. In a country notorious for its high savings rate, this is a time where the savings rate hurts. By not spending, the economy cannot get cranking. So a flood of yen by the government combined with the aging of the population has not helped as Japanese debt has skyrocketed. The banks hoard the money, they sell it back to the government, and the banks strengthen a bit (those that are still solvent from the 1990âs mess) while the governmentâs finances weaken. Itâs a vicious cycle. The stronger the yen, the worse the profit margins for Japanese companies that sell their products overseas. Should this yen strength continue, it may well continue to be the number one factor to watch on a daily basis as the move reverberates throughout the currency markets as well as affects the commodity movements. In turn, this could eventually have quite an impact on the stock market over the long-run much less immediate-term. Markets in Asia were mixed overnight with Hong Kong up 0.2% with Tokyo down 0.2%. Markets are nicely in Europe however with London and Frankfurt both up 0.7%. The dollar is sharply lower with gold and oil sharply higher. Futures have been rallying all morning with the levels at the high of the day as of this writing. The gains should hold if not build as the day progresses as long as the dollar stays weak. Focus on the pool of earnings plays, casinos, financials, 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 MCP, REE- closed near their highs FFIV- closed near a high after posting good earnings BRCM- closed near a high after posting good earnings CML- closed near a high after posting good earnings NTGR- closed near a high after posting good earnings OII- closed near a high after posting good earnings LIFE- closed near a high after posting good earnings DV- closed near a high after posting good earnings VOCS- closed near a high after posting good earnings JKS- closed near a high despite announcing an offering LVS- good earnings; WYNN and MGM may move with it AKAM- decent earnings BEC- decent earnings SYMC- decent earnings IRBT- decent earnings FLEX- good earnings IDCC- decent earnings AEM- decent earnings and featured on âMad Moneyâ last night RITT- closed near a high RDWR- closed near a high after posting good earnings NETL- closed near a high ARUN- closed near a high SMCI- closed near a high after posting good earnings GSIC- good earnings BGS- featured on âMad Moneyâ last night UTHR- good earnings ABX- decent earnings CELG- decent earnings MOT- decent earnings NBL- decent earnings NIHD- decent earnings XOM- decent earnings TKR- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern PNRA- closed near a low after posting bad earnings JNY- closed near a low after posting bad earnings AMZN- closed near a low AAPL- disclose lower-than-expected gross margins in a government filingâ¦but the disclosure was actually made in last weekâs conference call V- poor earnings SKX- terrible earnings ESRX- poor earnings FLS- poor earnings NSC- poor earnings ALL- poor earnings RYL- poor earnings FTI- poor earnings FIRE- terrible earnings NLY- poor earnings UHS- poor earnings OTEX- poor earnings ISSI- poor earnings PLXS- poor earnings BYI- poor earnings CAVM- poor earnings EXXI- share offering TER- poor earnings STV- copyright investigation into an online video company in which STV holds a minority stake AVP- poor earnings OCLR- poor earnings AN- poor earnings CL- poor earnings PMI- poor earnings Earnings: THURS OCT 28 BEFORE ABX AN AVP AVT BEN BX CAH CELG CL CME DOW EK EQT FO GT HOT HRS ITW LEA LINE LLL MCO MMM MOT NBL NIHD NXY OCLR OMX OSK PLD PMI PNW POT PTEN RTN SII TEL TEN TKR UTHR WMB XEL XOM ZMH THURS OCT 28 AFTER APKT ARBA BG BMC BMRN CEPH CERN CLF CSTR DECK DRC EGO EMN EXPE FSLR GNW HGSI HLS JAH KLAC LPS MET MFE MSFT MTW MWW MXIM NETL NLY NUVA NVTL PWER RMD RNOW ROVI SBAC SGMS SUN SWI SWN VAR VPRT VRSN VSEA Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
FRI. OCT. 29- Staring Into the Abyss âMan looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss.â Many of you likely recognize that quote. If not, it is attributed to the character of Lou Mannheim in the movie âWall Street.â There is a wide array of applicability for this quotation. (Spoiler alert)- In the movie, Mannheim says those words to the protagonist, Budd Foxx, just as he is about to be arrested for insider trading. But I must admit Iâve thought of these words often over the years particularly when I am alone and have some to think when I am in a delicate situation such as the day my father passed away. On a bit more mundane tone, I also think of these words every time I hit a ârough patchâ while trading. Heck, it doesnât even have to be a lot of money. Well, yesterday was one of those times for me. At one point yesterday morning, Iâd lost money on 12 of 13 trades (although only one of those losses was significant and I actually finished marginally ahead for the day when all was said and done by a few hundred dollars by doing a lot of very high-speed trades). Trading is an odds game and even if one tries to stack odds in oneâs favor by being selective and doing homework, one can still be wrong a lot consecutively. So I went to take a quick walk as I tend to do but instead, I found myself drawn to walking toward the end of the hall and I just stared into outer space in remembering those words uttered by the classic actor Hal Holbrook in his fantastic supporting role in âWall Street.â This leads to my first point- I immediately regained searing focus amid an intense calm. They say that part of the success of a successful athlete is his/her ability to hit a 97 mph fastball with a stadium full of people screaming or a free throat with 20,000 hissing- they simply blot out the noise. Itâs part of reaching way down and finding yourself so to speak in forgetting what has happened and focusing on the immediate future. It is what one has to do to avoid falling even more into the abyss. The second point is that we as traders all have been âthere.â âThereâ is not a fun place. âThereâ is the precipice of the abyss when nothing is going right trading-wise and the potential for doing things like letting emotion get in the way and not paying attention to logic can wreak havoc with oneâs trading patterns. I know traders who have as recently as yesterday lost almost five points in such stocks like MCP simply because they refused to give up and take a loss. I know traders who have recently as yesterday gone short stocks that had earnings out and had positions go against them. I know traders who as recently as yesterday did not do basic homework on stocks they were trading to actually see that the stocks they were trading had earnings out yesterday. However, they defy common sense and preparation to make their own situations worse. Donât be one of âthemâ else the abyss will swallow you up. I know. It has happened to me many times in the past. But it hasnât completely swallowed me up else I wouldnât be here pontificating after almost 15 years. Markets in Asia were down overnight with Tokyo off a sharp 1.7% and Hong Kong down just over 0.5%. The trend remained negative in Europe with the bourses down anywhere from 0.3% to 0.6% across the exchanges. The dollar is mixed with it down against the yen but up almost a full euro. Bonds are flat. Gold is down very slightly with oil down ½%. GDP is due out at 8:30AM (2.0%), Employment Cost Index is due out at 8:30AM (0.5%, Chicago PMI is out at 9:45AM (57.5), and final Michigan Sentiment is due out at 9:55AM (68.0). Futures are lower on the falling euro. For the day, the dollar should continue to rule the roost with a lot of movement in individualized stocks due to the end of the fiscal year for mutual funds. Look for a very choppy session with exaggerated movements particularly in the morning and late afternoon in the top (and bottom) momentum stocks of 2010 with an additional focus on earnings plays, coals, plays related to the BP fiasco such as HAL, and takeover rumor 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 GRRF- closed near a high after winning a Chin Broadcasting Corp. bid for China Mobile multimedia broadcasting network CSTR- great earnings MSFT- decent earnings DECK- good earnings EXPE- decent earnings BMC- good earnings MXIM- decent earnings MWW- good earnings PWER- great earnings SWI- decent earnings MIPS- featured on âMad Moneyâ last night GS- closed near a high ST- closed near a high after announcing a deal to acquire HONâs sensor business CACI- closed near a high after posting good earnings FMC- closed near a high after posting good earnings IMAX- closed near a high after posting good earnings TNAV- good earnings FMR- received $16.50/share cash buyout bid from FFH EL- good earnings VVUS- Qnexa drug remained rejected but FDA still reviewing thus hope remains it will eventually be approved Bad-The following stocks have bad news and/or a weak technical pattern FSLR- poor earnings CLF- poor earnings NUVA- terrible guidance VRSN- poor earnings GNW- poor earnings AMAG- poor earnings, cutting workforce, and thereâs a safety issue regarding one of its drugs PIP- share offering MET- poor earnings SUN- poor earnings SBAC- poor earnings MTW- poor earnings APKT- poor earnings CERN- poor earnings FLS- closed near a low after posting awful earnings CRAY- closed near a low after posting awful earnings OCLR- closed near a low after posting awful earnings CDTID- plunged in closing near a low MDAS- closed near a low after posting awful earnings OPLK- closed near a low after posting awful earnings GPRE- closed near a low after announcing a share offering VCI- closed near a low after posting awful earnings FN- closed near a low REV- closed near a low after posting awful earnings NCI- closed near a low after posting awful earnings AON- poor earnings EXAS- relatively poor results for its colon cancer drug CVX- poor earnings Earnings: FRI OCT 29 BEFORE ACI AON AXL CEG CI CMC CNX COL CVX D EL HSIC IPG ITT MRK NDAQ NWL UFS WY Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
MON. NOV. 1- What A Week Ahead This is one of those weeks that has the set-up to be dynamicâ¦although it is every bit as likely that movements will not be exaggerated. But the signs are there. Today is likely to be a low volume day ahead of a bevy of news due out later this week. With that in mind, movement can rapidly become exacerbated based on dollar movement on the rumor du jour. Tomorrow will be Election Central. Usually when one of the legislative bodies change party control, both change. But this is likely to be one of those very rare years in which we could well have a Democratic-ruled executive branch and Senate with the Republicans controlling the House. This would result in the gridlock that markets so love however would not give the result that markets seem to be shooting for (i.e. a true split). On Wednesday, the FOMC is going to conclude a two-day meeting in which itâs widely expected to discuss quantitative easing guidelines. Thursday is the highest quantity day for earnings reports this quarter. On Friday, the latest jobs report will be issued which will only serve to serve as a backstop for the QE discussion. This is certainly a week to do tremendous research to be prepared by studying all news services and scouring entities like Intrade for odds of certain events happening all the while trading particularly selectively. Tokyo was quiet overnight in falling 0.5% on the continued strong yen but Hong Kong rose sharply to the tune of 2.2% after a positive manufacturing report out of China. In Europe, prices are mixed with Frankfurt up 0.2% but London down 0.1%. The dollar is slightly stronger across the board with gold up almost 1% and oil up ½%. Personal Income and Personal Spending were both slightly weaker. ISM Index (54.0) and Construction Spending (-0.7%) are due out at 10AM. Futures are a bit higher. Off-hand, with it the start of the month and nobody sure what to do, look for a choppy relatively quiet/pensive session ahead of a potentially momentous week. Focus on small biotechs in the news such as AVNR, the mixed bag of big cap tech, fertilizers, earnings plays, M&A plays, and the small cap momentum plays from Friday. 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 CLF- closed near a high after posting earnings GMO- closed near a high after posting earnings CSTR- closed near a high after posting earnings DECK- closed near a high after posting earnings X- closed near a high FRZ- closed near a high after the Department of Justice announced it wonât take action against the company RITT- closed near a high IBM- closed near a high AGU, MOS- closed near their highs STRA- closed near a high GAGA- closed near its high upon debuting as an IPO AVNR- received approval for Nuedexta YRCW- Teamster freight members approved the restructuring plan for YRCW SUR- received $22/share takeover bid from CAN GILD- positive phase III clinical data re Viread as well as good results from Phase IIa studies of GS 9190 and GS9256 XCO- received $20.50/share buyout bid from its CEO ACOR- good earnings CTSH- decent earnings JKS- great earnings AAWW- good earnings HUM- decent earnings FTNT- rumored to have been approached by IBM about a possible takeover Bad-The following stocks have bad news and/or a weak technical pattern AAPL- closed near a low AMZN- closed near a low GS- closed near a low OSTK- closed near a low after posting poor earnings SNBC- closed near a low after posting poor earnings NUVA- closed near a low after posting poor earnings FSLR- closed near a low after posting poor earnings HSIC- closed near a low after posting poor earnings EXAS- closed near a low after one of the comppanyâs drugâs results did not come out as well as expected NR- closed near a low after posting poor earnings IPXL- closed on a low BIOD- poor complete response letter from the FDA regarding the companyâs application for Linjeta WL- to be bought out by MTB for .051372 shares of MTB GLW- poor earnings Earnings: MON NOV 1 BEFORE ACOR AGN BHI CTSH ENDP GLW HUM ICE JKS L RE SPG WL MON NOV 1 AFTER APC BKD FST HK NTRI PFG SANM VMC VVUS WFR WMS Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President
TUES. NOV. 2- Election Day 2010 (the table below is not coming out as it should...my apologies). Today is Election Day throughout the United States. The process- while a long, drawn-out and also nasty one at times also is incredible to me. The U.S. is quite unique in that it has had very little internal strife for the last 150 years so the fragile concept of casting a vote is actually a very powerful reminder of how lucky Americans are to have the rights we have. But it also raises a lot of stock market questions. The expectation is that by the end of the day today, the House will be under Republican rule, the Senate under Democratic rule (but very fractured), and the president of course a Democrat still. This raises a series of questions. First, do markets do better in midterm election years than in non-election years? According to a study by Brian Gendreau, a market strategist for Financial Network, the average gain of the Dow Jones Industrial Average over the 90 trading days following midterm elections was about 8.5% which is almost 5% higher than the Dowâs gains in non-election years. During that stretch, the only time that the party in power gained seats in both legislative bodies was in 2002- this was the only time since 1942 that the Dow fell after a mid-term election. Second, 90 days is goodâ¦but about longer? Well, the S&P 500 index has posted gains for every 200-day trading time stretch following mid-term Congressional elections since 1942 by an average of 18.3% according to the Leuthold Group. Third, how does the market typically do in the third year of a presidential cycle? According to the Stock Traderâs Almanac, records going back to 1833 indicate that the S&P 500 averages a 10.5% rally with the markets having risen in 33 of those years and declined in 11. Finally, how has the market performed under a Democratic President but a split Congress? Well, itâs only happened twice since 1900 (both times before World War II)and the market went down an average of 3.7%. Hereâs a full table with kudos to Standard & Poorâs for compiling the data: So, what is the takeaway for day traders? The key thing is to monitor if anything unexpected happens tonight, i.e. Democrats or Republicans control both legislative bodies by the end of the evening. If the expected happens, the attention will shift immediately to QE2 thoughts from the get-go tomorrow while a Democratic hold on both houses will likely be taken quite negative and a total Republican control taken in ostensibly a neutral manner as the markets are set up for gridlock with QE2 chatter dominating matters by the late afternoon anyway. Markets were little changed in Asia overnight with Tokyo and Hong Kong both inching ahead 0.1%. In Europe, equities are trading ahead as well with a little more force- about 0.5% or so on average. Commodities are very strong with gold up ½% and oil ahead 1% plus. The dollar is up slightly against the yen but getting hit very hard against the euro. Bonds are ahead slightly as well. Futures are sharply ahead. Thereâs no economic data because it is Election Day. Look for a busier day than yesterday but still relatively calm although trading will likely be particularly rumor-driven as headlines come out on things like the elections, the QE2 set to be announced tomorrow, and random things such as the JPM news yesterday. Focus on the fertilizers, the earnings plays, the rare earths, the credit card entities on the MA earnings as well as rumors of legislation to come, and anything relatively weak (particularly in the first few minutes post-NYSE 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 POT- Canadaâs Industry Dept. accepted BHP Potashâs bid NTRI- good earnings CGNX- good earnings AUMN- closed near a high AWI- closed on a high VRUS- closed near a high LF- decent earnings IRWD- positive Linaclotide phase 3 IBS-C results AGN, RFMD- featured on âMad Moneyâ last night PLX- positive preliminary top-line positive data from taliglucerase ala switchover trial RDN- good earnings NEM- decent earnings TEVA- decent earnings BP- decent earnings HAR- good earnings MA- good earnings PRGO- good earnings VSH- good earnings Bad-The following stocks have bad news and/or a weak technical pattern WFR- poor earnings HLF- poor earnings REE- closed near a low ART- closed near a low ACOR- closed near a low after posting poor earnings AEIS- closed near a low after posting poor earnings CCUR- poor earnings ROG- poor earnings BEXP- poor earnings FLS- closed near a low BORN- closed near a low BIDU- closed near a low APC- poor earnings PRXL- poor earnings VMC- poor earnings ADM- bad earnings COCO- poor earnings Earnings: TUES NOV 2 BEFORE ABC ADM AMSC BBG BP CAM CLX COCO DIN DTG EMR HAR IPXL JOE K MA MHS MRO NEM NYX OSG PFE PRGO RDC RDN TEVA THC VQ VSH TUES NOV 2 AFTER ASIA CBL CECO CQB CTRP DISCA EOG ERTS EXM HIG HTZ INT LEAP LNC MYGN OKE OPEN PBI SM SONS STEC TIE TRMB UNM WYNN XCO XEL Epiphany Trading, LLC www.epiphanytrading.com Erik R. Kolodny- Chief Markets Strategist Brendan P. Byrne- President