Some people know this little tenet I’m about to discuss, but many don’t so I think it’s worth it to type out. Furthermore, for the people who do know (especially me), it’s always good to hammer home every now and again. I call this the “Yo Momma’ tenet. You see, I think my Mama has way above average intelligence. I’d also venture to say that since I’ve been fortunate and blessed to surround myself with very smart people, most if not all of the mothers of the people reading this are also of significant intellect. Yet, happily and thankfully, most of our mothers are not into stock trading (which may well be among the reasons why they are so smart!). They may love us and may well have interests that we don’t partake in, but they are not traders. This is the perfect cocktail for my point. My Mom has zero interest in stock trading (and I don’t blame her). She wants me to do well though and will politely try to understand what it is I do when I tell her. Well, I hate whenever anyone doesn’t understand something I am trying to explain so imagine how I feel when and if my own Mom doesn’t understand something I am trying to explain. One day a few years ago, the perfect combination of KISS and my Mom came into play. KISS for those not aware means, “Keep it Simple, Stupid.” In analyzing thousands of trades at that time (and thousands more since), I found that there was a correlation between the simplicity of the trade and my success rate/percentage/nominal income. One of my basic principles for doing a trade- particularly a major one- became this: ‘If I cannot make my Mom understand what it is I am doing in 20 seconds or less, I probably shouldn’t do the trade.’ Let’s give a case in point. This is the summary of a trade I did at 11:50AM yesterday: “The CEO of a small company named Abaxis is going to be talking on CNBC in one minute. ABAX is a company which provides portable blood analysis systems to clinicians. CNBC is focused upon the fact that the CEO is going to put up several hundred million dollars to improve the healthcare industry and his company in particular. The stock is at the high of the day while the market is rallying Thus, a lot of traders may look to clamor in based on what the CEO says and as the stock doesn’t trade a lot, a few buyers with no sellers could cause the stock to rally a lot rather fast.” That makes a lot of sense to me…and to my Mom when I explained it to her. Sure enough, I made 20 cents in the trade on average. Compare that to this explanation: “Well, AAPL has a high of 185 and a low of 181. I know it’s in the middle of the range at 183.07 and I know the market is rallying, but I think it’s a short. See, 183.11 is a reloader on the offer while there is a big bid at 183.02. There’s no real news on it, but I really think it’s going to go. The stock is coming up to this resistance level. That said, on the minute chart, there is some support in here so that makes me a little nervous. But, that level II looks great.” Um, OK. Now, don’t get me wrong. I am sure there are people out there who can make money consistently trading like that. Quite honestly, I haven’t met them. But, I am not being facetious when I note it is possible they do exist. With that in mind- as I am not the brightest bulb in the box- if my Mom would not understand that explanation because I sure don’t, why should I do the trade? Put another way, if a stock is in the middle of a range and there is literally no coherent reason to do a trade, why do the trade? Why not focus upon things like speculating that ABAX will go up when the CEO will be on TV rather than a random movement in a random stock? Thus, next time you talk to your Mom in between “hello” at the beginning and “I love you , Ma” at the end, take 60 seconds and explain your reasoning behind your best trade of the month and your worst trade of the month. And realize that merely explaining the logic behind the two trades will make a lot of things clearer for you as you put into words what it is you’re doing and why.
Markets overseas were strong overnight. In Tokyo, prices were only up about ¼%, but Hong Kong was up 1 ½%. European bourses are up 1 ½% to 1 ¾%. Oil and gold are up while the dollar is notably weaker. There are two major catalysts. First, The Australian Central Bank raised interest rates overnight. This is widely perceived as a good thing because it indicates that there could be some legitimacy to a strengthening world economy. The second thing is an article in The Independent out of London in which the world learned that there have been high level discussions between governments of Middle Eastern, Asian, and European nations to price oil in something other than dollars. The Saudi Arabian government has denied the story, but nobody believes the denial as the dollar is tumbling; in the interim, the weakness is good for U.S. companies as their profitability will go up. Futures are nicely ahead amid all this bullish news. The tone will likely hold all day in a relatively slow session in the proverbial quiet before the earnings season storm. Focus on the stocks in the news and do some ‘relative’ strength/weakness trades as the tone has been prevalent so if something is not acting right, go with it.
Watch list:
10062009Eriklist.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
CRUS- good revenue guidance
FONR- good earnings
DINE- paying a $2/share dividend
COF- closed near a high
GS, JPM, WFC- helped lead market charge yesterday in closing near a high
LVS- very strong in the casino sector; closed near a high
NTRI- announced distribution deal with WMT
BEE- signed a purchase and sale agreement for disposition of the Four Seasons in Mexico City
ROIAK- closed near a high
CRM, STD- on “Mad Money” last night
ICTG- to be acquired by SYKE for $15.38…$7.69 in cash and $7.69 in stock
RDWR- boosted earnings guidance
CHTT- good earnings
SMTL- raised revenue guidance
ACAD- presenting at securities conference; notes it is still committed to Pimavanserin
Bad-The following stocks have bad news and/or a weak technical pattern
MOS- missed earnings and not providing guidance on potash sales volume; POT and MON likely will move with MOS
EXTR- poor revenue guidance
RBN- issued an earnings warning
AONE- suffered a reversal today from its recent run-up; closed near a low
FOLD- closed near a low after issuing negative drug news yesterday
RIMM- very weak relative to the NASDAQ yesterday; closed near a low
FSLR- closed near a low
TISI- bad earnings
SQNM- in an 8-K, it revealed it is in contact with a California attorney and the NASDAQ stock market thus the rumors now start of a delisting
MDRX- lowered earnings guidance
STJ- warned on earnings outlook; ZMH, MDT may move in sympathy
MI- warned on earnings outlook
Earnings:
TUES OCT 6 BEFORE
CHTT PBG
TUES OCT 6 AFTER
YUM
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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