One of the wonderful features of day trading is the ability to find what I like to call ‘niche’ trades –trades that allow me to make use of whatever common sense we as day traders have. Such a niche trade was created on New Year’s Eve. With the takeover of Wachovia Bank and Merrill Lynch, those stocks were removed from the S&P 100 index. Thus, any S&P 100 money manager who owned shares of those stocks had to sell them out on that Wednesday as their deals closed. So, WB and MER both fell hard on the close. But guess what? So did they acquirers! Shares of Wells Fargo (WFC) and Bank of America (BAC) traded sharply lower after-hours on Wednesday with BAC down to 13.65ish (about 3% down) and WFC down to 28.25ish (down almost 5% after-hours). Yet, there was no intrinsic reason for BAC or WFC to go down since the selling was sparked by the S&P 100 reshuffling. BAC and WFC, however, acquired their targets in stock deals so a decline in the WB and the MER caused BAC and WFC to occur as well. Guess what happened? By mid-morning on Friday the 2nd, both BAC and WFC had recouped all of that ground and a little more. The moral here is to keep your eyes out for situations in which the odds are stacked in your favor when doing a trade. These types of plays do not occur often, but when they do, you’ve got to be knowledgeable as to what is occurring, and how to handle it…and then have the moxie to do the trade.
Markets throughout Asia tumbled overnight with Tokyo and Hong Kong down 4%-5%. European bourses opened deep in the red, came back to unchanged, and then fell back. State-side, the focus is on JPM’s earnings, AAPL’s bombshell, and BAC’s application to the Fed for more money. Thus, the stage is set for a negative open. After what is one of the worst starts to a year for the stock market, there will likely be some sort of bargain hunting (particularly in JPM) so watch for a bounce. If said bounce does not occur by early afternoon, there will be another wave of selling around mid-day. After chopping for a bit, this afternoon could be very interesting ahead of options expiration tomorrow; either way, and it is far over my head to try to guess, there will likely be a pretty nice move this afternoon so this is not a day to step away. Also, I should note that JPM can likely be used as a proxy; if that thing can rally today, it will likely drag the rest of the market with it.
Watch list:
1152009Eriklist.zip
Reiterating-
Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
PPDI- preannounced upside earnings
RIMM, PALM, NOK- should theoretically benefit from the turmoil at AAPL
CYPB- received FDA approval on its lead drug
FRX- co-sponsored with CYPB
IDCC- announced licensing deal with Samsung
BRKR- closed strong; looking for buy thru unch if it opens down
VFC- nice reversal after earnings; looking for an A-B-A2 buy particularly thru Wed 54.33 high
TSRA- won some money in a court case
FXI- mentioned positively on “Mad Money”
JPM- beat on earnings, but issued cautionary comments; traded higher initially around 6:45AM. Trade of day will be to short thru unch particularly pre-open if it goes negative.
ASML- decent earnings
BGG- beat for quarter; sees year slightly above estimates
Bad-The following stocks have bad news and/or a weak technical pattern
TRMB- warned on earnings
FNB- closed near a low; looking to short thru Wed 8.89 low
RWT- warned on earnings
LEN- closed near low despite defending themselves vigorously against allegations of massive fraud at company; looking to short thru Wed 7.81 low
CLF- closed near low; looking to short thru Wed. 20.90 low
AAPL- Steve Jobs taking medical leave of absence through at least June
XLNX- met earnings for quarter; warned for next quarter
STSA- closed near low; if it opens higher, looking to short thru Wed. 3.39 low
PLT –warned on earnings
CVH- warned on earnings
BAC- told Treasury it’d be unlikely it’d be able to complete MER buy in December without ‘assistance;’ details due January 20
EWZ- mentioned negatively on “Mad Money”
VLCM- closed weak; looking for short thru Wed 8.09 low if it opens higher
BWA- looking for continuation down thru Wed low 19.03 on a technical basis
APH- warned for next quarter
Earnings:
THURS JAN 15 BEFORE
APH ASML BGG
JPM MI PKX
THURS JAN 15 AFTER
DNA INTC SHFL
ZZ
Good luck today.
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist of Epiphany Trading, LLC
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