I’ve written time and again in this space about the carry trade. I’ve spent quite some time educating myself about it and have encouraged every trader to attain a thorough understanding of it over the least few weeks because of the sheer importance of the concept. For those new readers in particular, a carry trade occurs when an entity uses one investment conduit as an offset to raise money for another investment conduit. It is the opposite of a hedge, i.e. insurance. The most rampant form of carry trade this year has been to short the dollar, buy the yen, and go long of oil, gold, and U.S. equities (hereinafter referred to as “risky assets.”) Thus, the major worry among many stock jocks is that once the carry trade reversed, it would sink the ever-rising American bull market in equities. Many big-time entities have used their short of the dollar to borrow funds to buy riskier assets. So, the theory went that with gold down $60 an ounce, the dollar sporting massive gains, the yen ending its worst one week performance in years against the greenback, and oil down over $1, the American stock market would have that long-awaited 1,000 point decline as it was one of those ‘risky assets’ the dollar was being used against. Except that is not what happened. Instead, what happened was a traditional response to positive economic news in the U.S. in a low interest rates environment- equities rallied, the dollar soared, and bonds fell. This could portend the end of the carry trade, but for traders what it clearly shows is that equities are strong. Mind you, as day traders, we should only pay attention to the numbers in front of our screens, but what the very important Friday session told us if nothing else was that an expected sell-off does not always take place (and vice versa) as well as to void the thinking that the end of the carry trade would end the rampant bull market in U.S. equities.
Markets overnight were wildly mixed in Asia with Tokyo up 1.5% on the weaker yen and Hong Kong down 0.8%. In Europe, most bourses are down ¼% to ½%. Oil is down 1% and gold is down 2%. The dollar is slightly weaker across the board. There’s a mish-mosh (to use a scientific term) of action/news this morning with selected techs, financials, and agriculture stocks up sharply yet big caps like GS are down. All of this signals a very choppy session with a bid underneath and a ceiling over current levels. Look for a trading range overall with a focus for day traders on stocks in the news and those with relative strength/weakness.
Watch list:
12072009Eriklist.zip
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
BIG- closed near a high after posting great earnings
TRGT- closed near a high
GS- closed near a high
GSM, PCL- featured on “Mad Money” on Friday night
SNTS- received FDA approval for immediate-release Omeprazole tablet
NYB- acquired the deposits and much of the assets of AmTrust Bank; also announced 60 million share offering
MHP- closed near a high
DTG- closed near a high
BEAV- closed near a high
MDR- plans to split itself into two companies
POT- upgraded by Goldman Sachs
DOW- mentioned positively in “Barron’s” over the weekend
ASIA- announced acquisition of Linkage
AKAM- boosted earnings guidance
NVDA- INTC scrapped its graphics chip which reduces forward-looking competition outlook
AXP, COF- upgraded by Bank of America this morning
SPWRA, STP- upgraded by Barclay’s
KERX- positive phase ½ study for its KRX-0401 Perifosone
Bad-The following stocks have bad news and/or a weak technical pattern
NEM, ABX- among the weak gold stocks on Friday; they are trading lower again with gold this morning
MET- guidance for 2010 was slightly lower than expected
ALTH- poor news regarding Folotyn over the weekend
CF- boosted takeover offer for TRA
SOMX- Silenor did not meet the approval standard for efficacy
Earnings:
MON DEC 7 BEFORE
KR
MON DEC 7 AFTER
CASY PBY
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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