One of the most common questions posed to me is as such: if a stock has an offer at a whole number (say 90) with its high of the day being that number, how do you know when you’re wrong and when you’re right in buying a stock at that price? I’m going to set some parameters here as well to try to get as many as possible on the same page. Let’s also say that it’s a near perfect set-up in my eyes. The high is 90, the low is 89, and the high is 90. 90 is the same price where the stock closed the previous day. The company’s CEO has resigned so the stock has shaken it off. There is significant liquidity at 90 with a refreshing bid at 89.97. The market is rallying. Finally, the stock is in a narrow range of consolidation between 89.90 and 89.98 for a few minutes. What I will do in this situation for a 1-2 time minute horizon-type trade is look to buy ½ of my desired position at 90 and then more just above 90 (say 90.03-90.05 limit) if I am right. However, if I am wrong in that 90 refreshes, I will look to sell ½ to the refreshing 89.97 bid and the rest if 89.97 went away. If it rallied back towards 90 a 2nd time, this time I would not buy a share at 90; rather I’d wait until it breached that level because odds are that the 90 seller is still there. The bottom line is that whole numbers such as the example described herein are important and can work against you, but they can also work for you. By testing it lightly, you won’t lose too much if wrong yet have a piece of the stock if right and it streaks with you unable to attain more shares. Furthermore, if wrong, by being patient for a breach of the figure on a 2nd attempt, it’ll keep you from repeating a mistake and give you that much more confidence to buy the thing as long as the proper set-up is there.
Markets were generally quiet overnight worldwide with Tokyo down 0.1% and Hong Kong off 0.6% but London and Frankfurt are both up 0.2%. The dollar is notably stronger with it up a full euro. Oil is down slightly but gold continues its ascendancy above $1,400/ounce. Futures are down slightly after an interview by Bernanke on “60 Minutes” and some European debt worries. For the day, look for the market to remain in a relatively tight range but with a lot of noise within that range. The focus will likely be on the merger stocks in the news (RDWR, et al), the myriad of stocks from a major hematology conference over the weekend (such as MITI), bigger biotechs on various news stories (HGSI, AGN for example), and the small cap momentum plays from Friday.
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
WLT- closed near a high after announcing a buyout bid for Western Coal
ITW- closed near a high after raising earnings guidance
GNTX- closed near a high on a U.S. proposal by the DOT to require back-up cameras for automobiles
SHZ- closed near a high after raising its 2010 and 2011 sales outlook
PAY- closed near a high after posting great earnings
DEXO- closed near a high after a brokerage “Buy” initiation rating
AGN- FDA backed wider use of AGN’s lab band to treat obesity
ARG- closed near a high
KIRK- closed near a high
SODA- closed near a high
DNDN- closed near a high
MOS- closed near a high
BIDU- closed near a high
LMLP- closed near a high
HRC- closed near a high
DECK-closed near a high
OCLR- closed near a high
KSS- featured on “Mad Money” last night
VRGY- received unsolicited $12.15/share cash offer from Advantest
VVUS- positive phase III Avanafil results
GERN- positive Telomerase clinical data
CYCC- positive CYC065 data
SGEN- positive Brentuximab clicical data
CBRX- positive phase III Prochieve data
NVMI- Foundry to adopt NVMI’s CMP solution
BKS- hedge fund manager Ackman ready to finance Broders acquisition of BKS
RDWR- rumored to be in acquisition talks with RVBD
RMBS- renewed patent license agreement with Elpida
GOOG- GroupOn acquisition bid rejected
MITI- positive phase II Blinatumomab results
MEE- CEO to retire; company now rumored to be in play as an acquisition target
Bad-The following stocks have bad news and/or a weak technical pattern
HGSI- announced FDA will extend Benlysta PDUFA date to March 10, 2011
NFLX- closed near a low amid a variety of negative commentators regarding the stock on CNBC
CISG- reversed early strength in closing near a low despite publicly announcing purchases of the stock by the CEO and CFO
MOTR- closed near a low
AVGO- closed near a low after posting poor earnings
CMG- closed near a low after a brokerage downgrade
Earnings:
MON DEC 6 BEFORE
None today
MON DEC 6 AFTER
PBY
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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