FRI. FEB. 12- Levelling Out

I want/need to briefly discuss something which has been brought up with a high degree of frequency in recent days- namely banter about the level II screen. Many of us when trading stocks with immediate-term goals in mind tend to stare at our market maker screens all day long. And that’s fine. But I’ve had multiple discussions with several people the last few weeks over the importance of the level II screen. Personally, I think t is important, but not the go-to factor to go to when doing a trade. To me, the ‘perfect’ trade has the seven criteria found in the core methodology (www.epiphanymethod.com). Thus, what I tend to do is look for good set-ups- particularly before hours and just after the opening of trading. I then know if A does B, I will do C. If D does E, I will do F. Now what I do is to attempt to use the level II as a gauge thereafter. I know if AAPL is hovering near a high of the day at unchanged after coming out with bad news and I by some shares at unchanged, I expect the stock to gush through. That’s when my eye turns to the level II. If, say, unchanged is 197 and it trades 197 with NSDQ, ARCA, BATS, and EDGX showing 100 shares each there, I exit no matter what my original thinking was. I do this because it shows there are four big sellers there and no matter what I think, if four sellers with presumably more intelligence and certainly more money than I are dumping stock, I don’t fight it. However, if they go away, I have no problems re-entering at 197.02 without (much) fear because my original hypothesis is still intact. So, definitely use the level II as a proxy, but do not use it as a know-all be-all tool else you could miss out on something really good.

Markets in Asia were mixed overnight with Tokyo up 1.3% following a Thursday closure and Hong Kong down 0.1%. In Europe, Germany is up ¼% with London flat. State-side, futures are down sharply, however with oil and gold trading down as well. The major issue today is that on a Friday afternoon after the close of the Chinese stock market just before the Chinese New Year starts (with China markets to be closed next week), the Chinese government once again raise reserve requirements sharply. This is leading to that commodities give back plus the euro is very weak (1.355 now). Thus, futures are down quite sharply but steady for much of the morning at the lower levels. Look for commodities weakness all day today to put a ceiling on the stock market particularly ahead of a holiday weekend. Trading will be thin albeit somewhat active early and then busy again near the close. There will likely be an attempt to rally in non-commodities stocks, but keep a weary eye to the euro for clues for the markets as the day progresses.

Watch list:
02122010Eriklist.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

MOT- announced it is splitting itself up

ROVI- good earnings

CGNX- good earnings

ROL- on “Mad Money” last night

BRK/B- closed near a high

ELON- total reversal in closing near a high after posting earnings

PM- closed near a high after posting earnings

CHBT- closed near a high after posting earnings

TKLC- closed near a high after posting earnings

CLF- closed near a high

TCK- closed near a high

POT- closed near a high

WYNN- closed near a high

SWM- clarified its Philip Morris contract in noting that any alternative PM uses would be ‘immaterial’ at this time

UPL- decent earnings

A- good earnings


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

MFE- poor earnings

PNRA- poor earnings

BGC- poor earnings

CMG- poor earnings

ACL- poor earnings

BWLD- terrible earnings

CSTR- poor earnings

NILE- terrible earnings

CML- terrible earnings

CSTR- bad earnings

GRMN- in “Sell Block” on “Mad Money” last night

ASF- closed near a low after posting earnings

SWIR- closed near a low after posting earnings

IR- poor earnings

NAT- poor earnings

JOYG, FCX, X- variety of commodity-based stocks trading down this morning on the China news

CAKE- poor earnings








Earnings:

FRI FEB 12 BEFORE

DUK HCP IR

NAT PDS UPL



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