This morning, we are having massive problems with Internet connectivity in the W. Babylon office. A major assist goes to Rob Mastropaolo for attempting to help me, but we could not figure it out. We unplugged the routers, the modem lines, the modem itself...I called Cablevision and spoke with them for half an hour. Nothing. So, I had no choice but to come home as I had to/needed to to get the blog and watch list done for the benefit of all. My computer is much slower at home than in the office so I am kind of falling on the sword here, but we do have a business to run and my hope is that everybody can benefit from this research. I am having problems logging on to the chatroom from my computer at home so I do hope the Internet problems can be resolved imminently with people there who are much much much more tech savvy than I can ever hope to be.
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One type of play which has become more and more common among day traders in recent weeks is really an extremely old school type of trade. It is actually quite simple to explain and quite simple to observe yet many people don’t do the trade out of a simple disbelief as to what they are seeing on their screens. The type of trade is a ‘relative strength’ play. Basically, one should pay attention to the broad array of stocks on the watch list, but particularly on days in which the broader market is up or down significantly. Oftentimes, there is a reason for such divergent action and the move becomes exaggerated. If the Dow opens ahead 100 points with the S&P up 10 handles and the NASDAQ up 20 yet you see something barely above the unchanged moniker, oftentimes, that makes for a good short. And vice versa of course. There is nothing more appealing to me as a trader than watching the market open down, having a company issue bad earnings or have that CEO resign and watch the stock gush through unchanged on the upside as shorts scramble to cover should the stock go back towards unchanged in the first place. The point is here is that the play is that much more powerful when there is a reason/story behind the action. For instance, on the afternoon of October 1, Standard and Poors announced that First Solar (FSLR) would replace Wyeth (WYE) in the S&P 500 on a day to be determined based on when Pfizer (PFE) officially closed on its deal to acquire WYE. FSLR closed ahead 4% on October 2 in a reaction to the news. Well, on Wednesday Oct. 14, as Dow 10000 was the focus of all the financial world with most market barometers up over 1% across the board, shares of FSLR traded weaker amid concerns about losing some business from a major customer. At 12:50PM, the Federal Trade Commission announced that the PFE/WYE deal would close the next day. FSLR instantaneously leapt several points. The stock spiked either because people had done their homework and blindly bought FSLR and/or a few S&P 500 managers scrambled to buy stock as they had to own the stock by the close of business the next day. But, when takes a step back, there was no real reason for it because the news was old. So, as it stagnated around 155 (just about 70 cents above the previous day’s close), many people who got long on that news paniced a bit once it broke 155 as there was nothing else to keep it up. The stock had been deeply negative before the news and nothing dramatically new happened other than a confirmation of the date the stock was going to go into the S&P 500. Therefore, the ‘unchanged’ benchmark was a bullseye for the thing with it realistically having a shot to go back deeply negative. Always keep an eye on what should and should not be…oftentimes, what to the naked eye ‘should not be’ becomes the greatest trade of the day.
Markets were mixed in Asia overnight with Tokyo nudging ahead and Hong Kong down about 1/3%. The tone got decidedly weaker in Europe on the heels of the negative BAC and GE earnings with the bourses down about 1/3%. Gold is down slightly as is oil with the dollar again higher. For today, on an options expiration Friday, the markets are going to open lower. It is GOOG versus IBM, GE, and BAC. But, I think this one may be a bit more eventful than recent times so be prepared for anything on the open. Focus on the financials, techs, and stocks in the news.
Watch list:
10162009Eriklist.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
GOOG- great earnings
CYT- great earnings
TPX- great earnings
BWLD- closed near a high
AXP- closed near a high after announcing credit data intra-day yesterday
OPTT- closed near a high
SVNT- closed near a high on vague takeover rumors
GRO- formed strategic partnership with PGG Wrightson
VISN- recommended by Robert Hsu’s “Asian Strategy” after the close yesterday
BRKS- good earnings
FLIR, XLNX- mentioned positively on “Mad Money” last night
MHR- closed near a high
ROYL- closed near a high after announcing a natural gas find
MANH- closed near a high after a positive mention at Raymond James
HAL- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
IBM- decent earnings, but whisper numbers above estimates so when company didn’t blow away analyst estimates, stock sold off after-hours
AMD- decent earnings, but same story as IBM…they are losing money and forecasts not as good as hoped
ELY- warned on earnings
JNJ, YUM- mentioned negatively on “Mad Money” last night
SLT- closed near a low after announcing a convertible offering
AMED- closed near a low after negative discussion at Citron Research
CRIC- IPO debuting on low end of range – 18 million shares at 12
BAC- poor earnings
GE- poor earnings
MTG- poor earnings
Earnings:
FRI OCT 16 BEFORE
BAC FHN GE
GPC HAL MAT
MTG
FRI OCT 16 AFTER
none
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
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