A columnist at Bloomberg named Rich Yamarone recently wrote a piece about quantitative easing. For those not aware what quantitative easing is, it is ostensibly a program designed to pump money into an economy without using traditional means such as the lowering of interest rates to do it. The first quantitative easing package entailed delving out almost a trillion dollars on various projects and bailouts over the course of the last couple of years. The debate is whether there will be another quantitative easing program (nicknamed “QE2”) as well as what type of impact it will have on the economy. In any case, Yamarone’s story encapsulated a very popular and logical view that the program won’t help. Below is the first part of his recent column:
“Every year as it begins to get cold in the northeast, oak trees drop acorns. The annual bounty helps countless squirrels, chipmunks, rabbits and other rodents en¬dure the bitter winter months. Let's say oak trees dropped 1.3 trillion acorns last winter and that an industrious squirrel hunted and gathered far more nuts than he needed. He sought to loan some to others, but the neighboring chip¬munks and deer already had plenty. The Nuts, Acorns, and Seeds Administration, surveying the landscape, found the level of acorns unchanged at 1.3 trillion. Wor¬ried about another tough winter, it recom¬mends that trees drop another 2 trillion acorns.”
Yamarone’s point is that the Federal Reserve is on the verge of making even more money/financing available yet there is precious little desire for those who already have money in the coffers such as the nation’s banks to take it. It becomes a function of eating cake at a birthday party. The first slice may well be delicious, but if there are 17 entire cakes put in front of you, you likely won’t be eating all of the sweet goodness even if it’s there. What’s important for day traders to take note of is that the stock market has been trading on the opposite side of that view. The consensus reason for this is- continuing with the analogy- it’s always good to have the cake (or acorns!) just in case. It’s ostensibly the crux of the old maxim that one should not fight the Fed. If there is a negative economic report such as the jobs report from last week, the market upticks. Furthermore the prospect for a QE2 causes the dollar to weaken which has also caused the stock market to rally recently. It becomes self-serving. The mystery will likely be solved at next month’s two-day Fed meeting. In the interim, continue to monitor every piece of economic data that comes out but be aware that for the next several weeks that the market will likely trade in accordance with how it views the prospects of a 2nd quantitative easing program and the details of said program rather than the prospects for the broad economy.
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-
Markets were up in Asia overnight with Hong Kong up 1.5% and Tokyo ahead 0.2%. The party continued in Europe with London up 1.2% and Frankfurt up 1.5%. It’s the same trend in all the external markets with the dollar weaker across the board, gold up 1% and oil up over 1%. With the INTC and JPM numbers out combined with QE2 hope, futures are once again sharply higher this morning. Use INTC and JPM as benchmarks for the market today but look for the gains to hold overall. Focus on the techs and financials on the heels of those two stocks, the casinos on the MGM news, the selected small biotechs in the news, and the momentum plays from yesterday.
Good- The following stocks have good news and/or a strong technical pattern
INTC- decent earnings
CSX- good earnings
RIG- closed near a high after the Gulf drilling moratorium was lifted
CRM- closed near a high
GS- closed near a high
OGXI- closed near a high
MOTR- closed near a high
RNOW- closed near a high after raising earnings guidance and installing a new COO
ININ- closed near a high after raising earnings guidance
AMZN- closed near a high
AAPL- closed near a high
GERN- closed near a high after obtaining stem cell patient number one
ASTI- closed near a high after announcing agreements with Manville and Votum
ALKS- announced FDA approval of Vivitrol
VRTX, VRUS, CSCO- featured on “Mad Money” last night
EXFO- decent earnings
GMCR- rumors floating it is an acquisition target
CTDC- closed near a high
PLCE- closed near a high
ULTA- closed near a high
ADTN- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
MGM- guided lower on earnings and announced 41 million share offering
LLTC- bad earnings
CVX- lowered earnings guidance
MY- closed near a low
Earnings:
WED OCT 13 BEFORE
DPZ HST JPM
WED OCT 13 AFTER
APOL
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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