A tenet that I’ve come to believe in day trading over the years is as follows: ‘trade entries that look the safest usually aren’t.’ Most day traders, besides getting trading confused with investing, tend to want to get in/out of things that are very high in liquidity. In my head, if Monsanto (MON) beat their earnings as they did Thursday morning, opens higher, and begins to trend lower, it makes all the sense in the world to short thru lows via an A-B-A2 pattern. Better yet, short thru unchanged. Here’s the deal: if a company has positive corporate news (and vice versa) yet the stock cannot rally, do not ask questions as to why it is not rallying. It could be any of a myriad of reasons. There could be news from a conference call, it could be that the stock had a huge move ahead of the news so people are reacting to the news by taking profits, it could be that the market is moving hard, or anything else that sounds plausible. The bottom line is that I do not ask questions; I go with what I see. I know that if I am long MON because the earnings are good and the stock goes negative on the day, right or wrong, I get rapidly nervous and get out as fast as I can…but so do throngs of other day traders which causes a mini-panic. This is why stocks like MON can fall 3 ½ points in three minutes as occurred around 9:40AM Thursday morning. Yet, most people are afraid to pull the trigger on these type of trades because of the delta of the move. Instead, it is so much easier to intra-day trade things like Wells Fargo (WFC), or General Electric (GE) because they just don’t move as fast. Don’t get me wrong; in this day and age, anything can move. But one thinks if they buy, say, 2000 shares of GE thru a high, he/she can make 15-25 cents rapidly. But, it is GE. Inevitably, it does not work because it is so liquid and the average trader will take a 1-2 cent loss. If it does work, GE typically will notch from 10.50 to 10.53, fall back a little (at which point the typical trader panics out of anywhere between half to all of it) and then oozes higher. Thus, if one is looking for the very fast buck and is not willing to hold positions for a long(er) duration of time, these ‘safe’ situations simply prevent one from winning at trading. The solution to this is to be open-minded about the universe of stocks you are willing to play and do a little bit of homework each day to understand why said stocks may be in play. You’ll save yourself the pain of 1,000 tiny losses and allow yourself the opportunity to truly earn a real living day trading.
Markets overseas were higher overnight; Tokyo was up 1% with the Hang Seng in Hong Kong up 3%. The gains extended to Europe with markets there up between 1% and 2%. Commodities and currencies are quiet. Futures were way up overnight, but an initiation of financials with an underperform rating by influential analyst Mike Mayo, now of research boutique CLSA has dameped the futures dramatically. Combined with the collapse of what would have been IBM’s largest acquisition in its corporate history along with the massive run-up in the markets recently, it seems as if a bit of a dip is in order today. Volumes will be relatively light amidst a slow news docket, but look for a bit of a weaker environment today- nothing dramatic. Use financials as a benchmark, however- if they can shake off the Mayo call, the market will resume the rally…I just don’t think it’ll happen due to his critical report.
Watch list:
04062009Eriklist.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 (preferably to the downside in a downside market and the upside in an upside market) 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
PFG- closed on its high
ZLC- major short covering rally on Friday; closed near a high
CBST- closed near a high on takeover chatter
SAH- short covering spike in this auto parts supplier; closed on a high
KIM- closed near a high after a very successful share offering
AGO- small insurer closed near a high
RHIE- continued a short covering rally Friday; closed near a high
MAA- closed near a high
ICE- among the exchange stocks strong on Friday; closed on a high
CRM- massive run-up all week; closed near a high
ARE, HME, REG, SPG, BXP, CLI, VNO, AMB- REIT’s were the strongest sector in the market Friday; all of these closed at or near their highs
MGM- Colony Capital, LLC is in initial talks with the company to provide capital infusion
PEP- mentioned positively on “Mad Money” on Friday
Bad-The following stocks have bad news and/or a weak technical pattern
CYOU- closed near an all-time low in its brief existence as a public entity
JPM, BK, WFC, USB, PNC, STT, MS, GS- wave of buying late Friday afternoon propelled most financials to close at or near their highs of the day, but there was a negative research report issued on the big financials this morning
JAVA- talks with IBM collapsed in its buyout attempt
Earnings:
MON APR 6 BEFORE
None
MON APR 6 AFTER
APOG BLUD
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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