Sometimes, a little common sense is needed to trade. Mind you, I emphasize the phrase ‘a little bit.” Not a “lot.” “A little bit.” Today is one of those days. We’re ahead of the kickoff of summertime, a much-needed holiday weekend, it is supposed to be nice overall in many parts of the country weather-wise, traders are tired, and very few of us want to be in front of computers. This is going to lead to sparse trading crews with many people leaving mid-day to get an early jump on traffic much less to get outside and enjoy what will hopefully be a peaceful few days for us. As a tangent, remember why we have Monday off- yes, barbecues are wonderful, but even more wonderful is the honor we are bestowing to the many people who have perished to allow us to do things like throw a burger on the grill. Back on point, in what has been a very volatile environment, illiquidity will rule the day today. Spreads will be quite wide on many stocks with trading volumes lower overall. Typically on a day like today, much of the activity will occur by 11:30AM with things quieting down dramatically thereafter. After 11:30, of two things usually happens. First, the scenario of nothing happening is very much in play. When I say “nothing,” I mean stock prices just don’t move which makes trading difficult. The other option is that prices can be pushed up or down much easier due to a dearth of participants so random volatile moves can occur albeit on low levels of activity and in highly illiquid conditions. That second condition always intrigues me in enticing me to stick around “just in case” as many of my better days occur in conditions such as this because the moves are much smoother when they happen due to the lack of activity. Thus, it is best to get the bulk of your trading done before the noon hour. If you do stick around, be prepared to do a lot of busywork at your desk…but also hope for the latter scenario when prices can and indeed do move which can lead to some very nice profits. Circling back to my point, today is a day to not question why things aren’t trading as normal, why volumes aren’t high, why one is not getting a lot of fills. Just go with it. But with that in mind, trade with much smaller sizes than normal, aim to go for a little more juice in a move, be prepared for what could be a wonderful (or dull afternoon) and be prepared to get out immediately if wrong about a trade because the low volume environment can be even more restrictive than normal in providing any chance of a good exits if holding on to a loser. In short, use common sense in trading smaller, keeping losses extra tight, and holding off on trading if things get very quiet this afternoon.
Markets world-wide are higher with Tokyo and Hong Kong both ahead about 1.5% and the FTSE and DAX up about 0.7%. The euro is marginally higher with oil and gold both ahead as well. It’s actually a relatively placid morning which (unfortunately for traders) sets up for the dull scenario above. With AAPL up over 5, look for the markets to open higher. As long as there is a dearth of news and a lack of movement in the euro, look for a very narrow and quiet session with an upside bias. Focus on a few relative weakness plays as well as techs to see how they perform with the AAPL gain. Trade smaller than normal…and keep all stops very very tight due to what promises to be very illiquid conditions as the day progresses.
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
JCG- decent earnings
OVTI- good earnings
HEV- agreed to joint venture with Wanxiang (the largest auto parts supplier to the Chinese car industry)
MENT- Carl Icahn took a 7% stake in company
NLY, AAPL- mentioned on “Mad Money” last night
ESL- good earnings
CSTR- closed near a high after posting earnings guidance
FSII- closed near a high after posting great earnings
NTAP- closed near a high after posting great earnings
GS- closed near a high
MON- near island reversal in closing near a high after posting an earnings warning
POT- closed near a high
MOS- closed near a high
AMZN- closed near a high
RIMM- closed near a high
BIDU- closed near a high
IBM- closed near a high
CREE- closed near a high
SNDK- closed near a high
SPWRA- closed near a high
AIG- closed near a high
FCX- closed near a high
CLF- closed near a high
WLT- closed near a high
X- closed near a high
BUCY- closed near a high
DVN, OXY- closed near a high
FSLR- closed near a high
AFL- closed near a high
XOM- closed near a high
JPM, PNC, WFC- closed near a high
DECK- 3-1 stock split
Bad-The following stocks have bad news and/or a weak technical pattern
BCSI- terrible earnings
GES- poor earnings
AUXL- closed near a low on reimbursement worries re its business
Earnings:
FRI MAY 28 BEFORE
MENT
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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