Yesterday morning, I had a fairly good trade monetarily yet my focus was on the fact that I made two pretty big mistakes and what I could take from it as well as exactly how “big” the mistakes were. First, the trade. With Netflix (NFLX) trading in the low 196’s after Jim Cramer on “Mad Money” noting the night before to sell half of one’s position after the massive run-up, I placed orders to short the stock 2 ½ to 3 points above prevailing market price at 7:59AM ET. At just after 8AM in a span of 2-3 seconds, I got filled at 198.50 and then more at 198.99. Within a second, it actually traded to 199.80ish. Shortly thereafter, the stock went halfway between where it was and where it went at 8AM. I covered it in several different pieces between 197.45 and 197.75 over the course of the next five minutes, netting well over a point (1.20ish) on the trade. A few minutes later, it was 195 (on its way to its eventual low of 191.34- a difference of five figure money for me). In the interim, I had just written in the blog that I looked for strength to hold in the markets for the day yet negative comments at that time from Trichet actually hammered the market. I have gone over and over both of these mistakes in my head. I could go on here and note that NFLX was in the low 196’s because of negative media attention and I should have held it. I could also go on to note how I beat myself up for a couple of hours on NFLX. I also could have stubbornly gotten long the market and gotten drubbed. You know what it nets out to? I don’t either, but it wouldn’t have been big money. That’s my point. Trading the way I do (i.e. a time horizon of 1-2 minutes), I do not truly know with 100% certainty if NFLX would have gone back to 195 or 191 or 203 if somebody came out and upgraded it. When I made the market call and posted it (although I was eventually right), I was totally incorrect in the immediate-term but by not being stubborn, I saved myself the pain of losing. But what I did right among all these mistakes was sticking to my game. I learned some time ago besides trying to be disciplined and well-studied a little nugget along the way- if I earn a little bit of a move but do a lot of times, I’ll be OK. Thus, yes, I did truly think about why NFLX did what it did while getting frustrated that I didn’t foresee the down blip nor capture the subsequent rally the way I wanted to. But I also realized something yesterday that has rattled in my head a little, but this is the first time I’ve written about it in this space- it’s OK within the context of my style of trading that I made those mistakes. If my goal was to make 3-5 points in NFLX, it’s not OK. If my goal was to close my heads and totally stick to my guns in staying long no matter what today, it’s not OK. But I am the kid who if given a choice between a penny and a million dollars on the flip of a coin or a sure $500,000- I won’t even consider the gamble. Won’t even register in my mind. I’d take the $500,000 and not care (too much) how the flip would have turned out. Same here. So the moral of this is piece is as follows: within whatever style of trading you do, you’re going to make mistakes. You should learn from them in making your trading better. But definitely understand the context through which the mistake is made. My game is not to guess whether NFLX will go up or down 3 more- it’s to take what is given to me in front of my face. Psychologically, understanding context allows one to clear one’s head fairly rapidly particularly when realizing that if the mistake is caused by something you don’t focus upon as part of your trading yet you’re earning a living. Well, guess what…learn from the mistake but a lot of times, it may not be a mistake that is completely fixable within the way you trade.
Markets in Asia were quiet overnight with Tokyo up 0.1% and Hong Kong down 0.6%. European bourses were flat until the jobs report came out which has sparked a downside move there to the tune of about 0.5% on average. The dollar is getting pummeled with bonds down 12 basis points from the intra-morning high on the 10-year. Gold has breached $1,400, up 1%. The main culprit this morning is a terrible jobs number which came in well below even the lower band of the range of estimates; this puts the economic recovery back in doubt. Factory orders (-1.2%) and ISM Services (54.5) are due out at 10AM. Futures are down but not getting thrashed. Look for a very volatile morning with a mild attempt at a rally early on. If the rally fails, the markets will give way to a slow bleed otherwise it’ll likely simply remain choppy. The focus will be on retailers, relative strength plays in the early going, the casinos on LVS’s news yesterday, and small caps in the news such as YGE and OREX.
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
GS- closed near a high
AAPL- closed near a high
FCX- closed near a high
RIG- closed near a high
PUDA- closed near a high
FSLR- closed near a high
KUTV- closed near a high
CEDC- closed near a high
LOCM- closed near a high
WHR- closed near a high
AOSL- closed near a high
HSII- closed near a high
SXCI- closed near a high
ANF- closed near a high after posting good earnings
FNSR- closed near a high after posting good earnings
TGT- closed near a high after posting good earnings
KKD- closed near a high after posting good earnings
ARG- closed near a high after being featured on “Mad Money” last night
PAY- decent earnings
CISG- approved $100 million stock buyback program and announced aggressive CEO and CFO purchases
Bad-The following stocks have bad news and/or a weak technical pattern
ARO- closed near a low after posting bad earnings
POT, MOS- closed near their lows
PVH- poor earnings
AVGO- poor earnings
GDOT- share offering
TOO- share offering
WLT- announced acquisition of Western Coal; it’s a combination stock/cash deal
BIG- poor earnings
OREX- FDA briefing documents seemed to be negative on Contrave ahead of next week’s meeting
Earnings:
FRI DEC 3 BEFORE
BIG
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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