This post is going to be one of the ones that fall under the “this is so obvious that you shouldn’t write about this, Erik,” but sometimes what seems obvious on the surface is not so obvious. Let’s say you were in the market for a new car- let’s say a Toyota Corolla for simplicity. Furthermore, let’s pretend that there are three Toyota dealers within a mile of each other and you went to each one. If the prices at each dealer ranged from $55,000 at Dealer 1 to $57,500 at Dealer 2 to $60,000 at Dealer 3, I’d have to guess you’d start looking for another car. If the prices were $17,000 at Dealer 1, $18,000 at Dealer 2, and $19,000 at Dealer 3, you’d take some time to do some homework and figure out exactly what type of car you wanted and where you want to buy it. Now pretend that Dealer 1 offered you a price of $100, Dealer 2 was $200, and Dealer 3 was $250. Also pretend you’d done your homework and you knew all of the dealers and cars to be legitimate. Well, speaking for me, I’d buy all three cars on the spot out of fear that they’d be gone at that price imminently in worrying about asking questions later. I’d do so amid the hopes I could keep one of the cars for myself and then sell off the other two for a nice profit due to what appeared to be an artificially low price based on what I knew after the extensive homework I’d done. In the day trading world, if AAPL is trading at 250, nobody is going to buy shares for 275 on a given ECN. Someone may buy it for 250. But if the stock could be bought at 249.95 with the knowledge that it’d quickly go through 250, who wouldn’t buy as much as they could? Going back to the high frequency theme, by being able to beat the average trader to the punch and ostensibly knowing what’s on the book, stocks can and indeed do act like this. This is the reason that many times recently, a stock at a rigger spots will blow right through it. If it’s good, who wouldn’t want to be in it thus a computerized algorithm swipes the shares as rapidly as possible. As a for instance, I was showing AAPL at 249.87 to 249.90 just after 10AM yesterday. I saw the stock tick 249.90 bid and placed my order to buy a couple thousand shares at 250. In the fraction of a second it took me to hit the buy button (with the stock at 249.92 offer), the stock was already 250.10 on its way to 241.86 six minutes later. Now, I am the absolute first to admit when I miss a stock because I am too slow. It happened about once or twice a day on average last year. Yesterday, it happened on 11 separate occasions. All 11 were winning trades. Lookit, I am not complaining…this is the game now. But be aware that if you’re waiting for a precise entry spot, one of the major adaptations to what has happened in the last couple of weeks is that you have to be faster than ever before in your order placement.
Markets in Asia were mixed overnight with Tokyo gaining 0.4% and Hong Kong down 0.2%. Markets were lower in Europe overall with London off 0.4% and Frankfurt down 0.6%. Gold and currencies are flat with bonds up a tinge. CPI data came in as expected with retail sales missing estimates slightly. There are a number of small takeovers today as well which is quite bullish for M&A, but the interesting feature of the day is that Dow futures were up 87 overnight; they are now down 20. I’ve written about this phenomenon in this space before; it’s certainly something to be aware of today. If markets don’t sell off initially, look for a very nice bounce today on low volume. Focus on the deal stocks in case the prices get out of whacked with the announced takeover strikes the earnings plays, and particularly any relative strength play early on if the markets gap a bit lower.
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
ADSK- good earnings
NVDA- good earnings
TRBN- being acquired by EBS for $1.365 cash plus .1641 shares of EBS or approximately a net value of 4.55 per share
NFLX- closed near a high
MMYT- closed near a high; was best performing IPO in three years
POT- closed near a high
LVS- closed near a high
CAGC- closed near a high after reporting good earnings
ALY- being bought out for 4.25/share in cash or 1.15 shares of England’s Seawell
UNCA- being bought out by 21/share in cash by IBM
SUP- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
JWN- poor earnings
BYI- poor earnings
DV- poor earnings
TSTC- terrible earnings
CAVM- closed near a low after CSCO’s poor earnings
JCP- poor earnings
Earnings:
FRI AUG 13 BEFORE
CTFO JCP
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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