WED. SEP. 16- Trading Unchanged

One of the more common impetuses is to buy or short a stock through unchanged on the day. This is a fantastic idea if there is a trigger. The reasoning for this is actually amazingly simple. Let’s say IBM has fallen 20 points in 10 days. On night 10, it issues a press release indicating earnings will come in below expectations. The next morning, it opens down 50 cents, but slowly begins upticking. My thinking is that I want to buy it through unchanged, i.e. last night’s close. In a real-time example, AIG (AIG) was down initially last Friday morning after a downgrade by Wells Fargo, but once the stock gradually got to unchanged on the day, it spiked 65 cents rapidly once it got positive on the day. The reason for this phenomenon is two-fold. First, the stock had been beaten down so much in recent days that it is entirely possible that the news is factored in. But second and more important, the stock could not go down on bad news. Why is this? See reason one, but really, who really knows? What I do know though, however, is that if people come in short, enough of them will panic out of their positions if the stock gets positive on the session after bad news is released. Thus, stocks in this type of situation can get a very quick pop higher as shorts rush to cover and a few momentum buyers come in. However, in this age of scalping, it is important to note that this trade works best the first time particularly early in the morning when emotion is the most raw, i.e. the fear of those short versus the greed of those trying to jam this type of situation higher. As the day progresses and people get more settled in, this type of play tends to work less and less with the loan exception to the rule being that if, say, AIG exploded thru unchanged, traded between flat and say up 40 cents for two hours and suddenly the S&P 500/Dow begin selling off, AIG can likely be shorted through unchanged on the downside as the greedy longs become scared longs in the market sell-off. This explanation brings me to my point. What one should not do is simply to do a trade because it is at unchanged on the day as their sole reason for doing a trade. Again, as time wears on and a stock trades on both sides of ‘unchanged,’ the trade entirely loses its meaning. For instance, SVA went over or below unchanged five times in a 20-minute pocket last Thursday afternoon. The stock had already traded in negative and positive territory by decent margins during the day. Thus, as the stock chopped around unchanged, doing a trade at the flat-line simply because it was there truly was a random reason to do said trade. So please be aware that certain things are much more meaningful at certain times and buying or shorting a stock because it is “unchanged” on the day is certainly one of them- particularly when it has been above and below the unchanged marker a number of times already.

Markets overseas were strong. In Asia, Tokyo was up 0.5% while Hong Kong was up 2.5%. Markets in Europe are all up about 1% to 1 ¼%. The dollar is notably weak, bonds are notably strong, and gold is soaring higher by 1%. The futures, however, are only marginally higher which is a bit perplexing. On the tech side, AAPL and AMZN are sharply ahead in the early-going amid positive media buzz for AAPL and an upgrade for AMZN. Thus, it’d make intrinsic sense that there should be a chicken-egg relationship between those two stocks and the NASDAQ; the question of course is will AAPL/AMZN grad up the NASDAQ or vice versa? I think one has to go with the trend here. Barring a complete meltdown of the dollar, the gentle upward bias should continue. Focus on the big cap techs and the microcaps- particularly with news. And as has been so often the case recently, if the market continues to not vacillate wildly, please do not scalp; if prices aren’t moving, it’s likely whatever you’re in won’t move wildly either.


Watch list:
09162009Eriklist.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 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

ROG- pre-announced earnings to the upside

SLAB- pre-announced decent earnings to the upside

MSO- closed near a high

OMTR- being bought out by ADBE for 21.50 in cash

RMBS- pre-announced earnings to the upside

AAPL, FLEX, MSO, AMT, LVS- all mentioned positively on “Mad Money” last night

NTCT- up nicely after-hours last night after announcement of entry into S&P 600 on 9/23

DIET- closed near a high

REXX- closed near a high

SVNT- confirmed early 2010 target for Krystexxa resubmission

CVM- got approval to commence a swine flu drug trial

AMZN- upgraded by Bank of America/ Merrill Lynch

KERX- received orphan-drug designation for KRX-0401 for treatment of Multiple Myeloma






Bad-The following stocks have bad news and/or a weak technical pattern

ADBE- neutral earnings, but announced major acquisition (of OMTR)

ZOOM- closed near a low in a reversal of some of Monday’s gains

CGA- poor earnings

CVH- closed near a low in a very weak healthcare group

AGCO- lowered guidance; DE, CAT may follow










Earnings:

WED SEP 16 BEFORE

none
WED SEP 16 AFTER
CKR DBRN MLHR
ORCL






Good luck today.

Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner