MON AUG. 3- What Appears Easy Usually Is Hard

There was recently a trade that seemed so easy that it became too hard for me to even contemplate doing. It is also a fine example of why I seek to try to trade stocks in which there are a few 20 cent bars readily apparent on a five-minute chart. Lincoln Financial (LNC) came out with earnings between Wednesday’s NYSE close and Thursday’s NYSE open as did a few other major insurance stocks (HIG Wednesday night and CI on Thursday morning). CI and HIG rallied very hard as did LNC initially. Then, around 9:45AM, LNC totally stalled out just below 20 (up about 2 points or 11%). It traded in a tight range for the next three hours or so, hovering just below 20. Thus, it became a ‘watched pot which never boils’ type trade. Confirmation of this was received when I observed a comment on the chat room in which it was stated that Briefing.com had a bulletin which indicated that LNC could be a major breakout trade above 20. I immediately scoffed at the notion and was correctly questioned as to why I could contradict something seemingly so innately obvious. I went into a bit at the time, but let me explain a bit more clearly now: let's say you get all those people – many from people following Briefing (i.e. smaller day traders) buying 20s. What oftentimes happen is that (as described in detail on Monday’s blog), there is usually a bigger hedge fund and/or an automated computer program which sweeps the 20’s and then offers the shares out at 20.01 to 20.05 to all the day traders which missed the 20 entry. Then, many people who are long become nervous and pitch it back out (G-d knows I would) when it inevitably doesn’t rally hard. Suddenly, one’s exit is 20 at best and 19.90-95 at worst if a mini-panic sets in. Really think about this; it took me many years and many thousands of dollars to understand. I mean, how many algortithms/high frequency/ hedge fund players know what we as day traders are trying to do? Again, oftentimes in cases like this, a program buys as man shares possible at 20 and immediately offers 20.03/20.04. If the program bought 50000 shares, that is $1,500 to $2,000 for the person who did it. A ton of little day traders like myself see that Briefing thing and buy our piddly 2000-3000 shares to play with the big players. When it fails to go immediately, we (certainly I) get nervous...now it goes below 20... I have no clue if it goes to 19.98 or 19.78 so I sell for a small loss. As do others. And it fails...before resuming the real move in time. But of course I am not a LNC analyst continuing the example so I don’t know if the ‘real’ move is higher or lower over the course of a day or a week. All of this is too ornate for me so I avoid those situations simply by paying attention to the ’desire to have the ability to make at least 20 cents per share easy’ tenet. It is precisely why I do things like preach the importance of understanding the news – particularly earnings and things affecting microcap stocks. It is much easier to short an INO (after it had been up 200% plus percent the day before and filed a follow-on share offering) when INO could not budge the morning of a massive market rally and nail it for 24 cents a share quickly on massive share size –all the while being told things like “that is too whippy” by someone who simply didn’t do his homework and wasn’t ready for the momentum that trades just after the opening bell tend to bring. That is the type of person who scrambles to try anything later in the day…the type who scrambles for a three cent move in INO later after he is down significant money…and more relevantly, the type of individual who the computer programs and major day trading hedge funds target in plays like LNC. The net of all of this is that stagnation is a great thing, but remember that the necessity of only doing plays in which one has the chance to make at least 20 cents easy is every bit as important.


Markets in Asia were generally higher overnight with the Hang Seng up 1%. The trend follow through in Europe as HSBC posted unexpectedly strong results with the bourses all up 1% to 1.5%. Re-flation as a theme occurred in the commodity sector as well with things like oil and gold up nicely. Futures are strongly higher as the bull market roars onward. As it is Monday, look for things to be very busy in the early early going but quickly slow as the day progresses. Trade actively in the pre-open and in the first hour. The market will likely maintain its early gains; look for any signs of weakness as shorts as the advance is broad-based. Should the markets not give anything back in the first 1 to 1 ½ hours of the NYSE trading session, the gains will likely maintain and build as August commences.

Watch list:
08032009Eriklist.zip

Reiterating-
Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
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

TEN- closed near a high

THO- closed near a new trend high

ARM- closed near a high

TSPT- signed agreement to market its Intermezzo drug in the U.S.

OSK- received additional $1 billion order from U.S. Army

C.NA- good earnings

HUM- decent earnings

B- decent earnings

TSN- decent earnings

ONTY- announced presentation of positive Stimuvax data at World Conference on Lung Cancer

MRNA- reported positive in vivo data demonstrating that its UsiRNAs are highly potent against metabolic and oncology targets

SVA- positive update on its H1N1 vaccine trials

MRO- decent earnings

FE- decent earnings

CLX- decent earnings

TAP- decent earnings






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


HURN- pre-announced bad earnings, restating past earnings, and the CEO resigned

ANDS- island reversal after positive drug news

GENZ- closed near a low after FDA indicated it will have to reassess one of GENZ’s facilities

SYNA- closed near a low after posting terrible earnings

SVNT- received note that its Krystexxa cannot be approved by FDA at this time

OSIP- negative data on Tarceva data

RPRX- suspended dosing of Proellex and indicated short-term liquidity issues

ASF- poor earnings

JRCC-poor earnings guidance

GMCR- offering four million shares

MGM- poor earnings





Earnings:

MON AUG 3 BEFORE

ASF B CLX

FE HUM JRCC

L MGM MRO

TAP TSN

MON AUG 3 AFTER

APC ARNA CHK

CRK CTX EXR

FST HLF HOLX

MWA PFG PHM

PPS RE SM

STEC UPL VMC

WMS



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