Many times, we’ve heard the phrase “buy the rumor, sell the news” or vice versa. But how many of us truly know what it means for day trading purposes? For those somehow not aware, there is inevitably a move in a stock leading up to a major event as bigger players place bets as to how said event will turn out. For instance, as Apple (AAPL) has turned out device after device after device, the stock has run-up to each recent release with it pausing or even declining a little upon the actual date of device release. Nobody (or at least almost nobody) knew what the numbers would be but the perception was that the numbers would be great. So entities buy in anticipation of the fun event and then when the event happens, what other trigger is there to keep things going in the immediate-run? On an emotional level, my adrenalin and excitement level were/are always higher as summer vacation approached as a kid and in the two days before attending a major concert or athletic event than while actually starting summer break or while in the 1st hour of a U2 concert. Conversely, my dread and worry levels tend to be higher in days leading up to the passing of a loved one when death seems fairly certain than in the hour after the inevitable horrible event. The plays on emotion are applicable to trading as well and perhaps personify why stocks should not be shorted on the way up or bought on the way down if you’re a day trader. Instead, wait for the trigger and act on that. For instance, the day British Petroleum (BP) eliminated its dividend (June 16, 2010), the stock staged a nice bounce. Why? Because the news was expected so shorts rushed to cover when the event happened. Conversely, Apple (AAPL) fell almost 10 points from Thursday morning when lines began to form for its iPhone 4 to Monday morning as the company’s device sold admirably, but there was no new immediate-term trigger to spark the stock higher. Thus, as we had into earnings season, be ready for this phenomenon particularly in stocks that have had large run-ups or declines ahead of their earnings. If they keep going, but then turn on a dime intra-day, look to go with the turn through unchanged. For instance. if XYZ has run up from 10 to 30 this quarter, beats earnings expectations dramatically, opens at 30.25 the day of release and looks to go negative, don’t be worried about shorting 30. Conversely, if a stock falls from 30 to 10 in three months, misses earnings estimates, opens at 9.90 but traded 9.99, be ready to buy 10 and 10.01. In short, the whole rumor leading to news concept can be a very good one to properly utilize by day traders- but only by being patient and on entities that are moving.
Markets overnight were predictably lower across the board with Tokyo down 2% and most of the European markets down about 1%. The yen is the strongest currency across the board with the dollar falling below the 88 yen level, oil is down 1.4%, and gold down 0.5%. Bonds are slightly higher. Futures were down very sharply overnight, bounced all the way back to positive, but have seen those losses resume about halfway back on poor jobless claims data. For today, look for a bit of a bounce. There will likely be a little more pressure initially on stocks but the ‘tells’ such as AAPL, GS (despite a cutting of estimates by JP Morgan) and BP (despite the hurricane) all leaning higher. Furthermore, the late day selling yesterday seemed a little artificial end-of-the-quarter-like. Focus on big cap tech as well as relative strength plays particularly in the first hour or two. After that, it will be choppy and much quieter ahead of the jobs report tomorrow.
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
SWHC- decent earnings
GYRO- closed near a high ahead of a story that the company will receive a $100 million payment via winning a lawsuit
ARNA- signed marketing and supply agreement with Eisai for lorcaserin
STZ- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
DNDN- Center of Medicare and Medicaid Services receive informal inquiries for a determination of autologous cellular immunotherapy therapy of prostate cancer thus the government is trying to determine if Provenge is necessary or reasonable
APOL- poor earnings
GS- closed near a low
WYNN- closed near a low
TSLA- closed near a low in a massive intra-day reversal
CLF- closed near a low
POT- closed near a low
GOOG- closed near a low
FCX- closed near a low
PNC- closed near a low
SAB- closed near a low
AMED- received notice of a formal SEC investigation
Earnings:
THURS JUL 1 BEFORE
STZ
THURS JUL 1 AFTER
None today
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
www.epiphanytrading.com
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