I have two decent analogies to start this one and as a heads-up- this piece is particularly aimed at some of the newer traders to this day trading game, but it's still a good reminder for all of us- particularly me. As my mind is still on the last vestiges of my kid's Halloween candy (well, whatever hasn't been eaten or given away already), I couldn't help thinking about the argument my two kids had two nights ago. There was a mini-size Kit Kat which had two bars. I gave my older daughter (Rayna) a complete stick. However, while I did the same for my younger child (Samara), I broke it into thirds for her so that she wouldn't try to put the whole piece of candy in her mouth. Apparently Rayna missed me chopping it up and thought Samara had more than she did and threw a fit. I had to explain to her it was the exact same thing...they each had the same amount but her piece was not chopped up. Eventually, she understood and actually spent much of last evening marveling at yet fully comprehending her newfound knowledge of division- how things can be spilt up yet be the same. The 2nd principle involves laundry. I am one of those very simple kids who still marvels at some every day things and machines. I personally feel, for instance, that the airplane was the greatest thing ever invented. The fact I can travel 3,000 miles away in five hours on a commercial flight boggles my mind. In any case, I always found myself staring at the laundry whenever I've gone to a laundromat just watching the clothes in motion. Furthermore, although I don't do it at home, I still get into arguments with my wife over things like drying some stuff on low twice versus doing it once on a higher setting and chancing having it shrink. All of this leads to a point. Particularly with the market ascending the way it has, there is a bit more intra-day movement as prices have increased (i.e. a 10% decline on a 50 dollar stock is nominally more than a 10% decline on a 20 dollar stock). There's also a lot more intra-day price noise due to the increasing prices as well as the trickle back of some speculators. So, for me, my volumes have gone down a bit in the last few months but I aim to get a bit more out of the position. For instance, whereas I'd routinely trade 2,000 of JKS a few months ago in the hopes of making 20 cents or so a share, I'll now do 1,000 but I know it can go 40 cents rapidly if I play it at the right time. Furthermore, I know if I do 2,000 shares and I am wrong, there is a shot of getting hit a lot worse in a lot more rapid fashion. Thus no matter your style of trading, realize that when prices are moving around a bit faster, there's no shame on paring back your trade size in an individual trade if you can potentially get more movement out of it. First, with the increasing movement comes more opportunities. So by staying nimble, there are that many more chances to get in and out to make even more money these days. And second and more important, last I checked a 1,000 share position on a 40 cent move on JKS earns me the same amount of money as a 20 cent move on 2,000. So, yes, the very simple counterargument is that if there's the possibility of getting 40 cents rapidly, shouldn't I trade the same amount of shares as before? And I say no because inherently most traders hold on to losing positions longer than the winners in the (oftentimes vain) hope that their positions will come back ergo when wrong in this tape, one can get blistered even faster. Thus the bottom line is that when the markets are a bit more volatile in the individual stocks one trades, expect more movement and realize that one of the key secrets to immediate-term day trading is knowing when to adjust trade size downward (as well as upward) and to be in constant motion for the burgeoning opportunities presenting themselves.
Markets overnight were relatively quiet worldwide with Tokyo down 0.2%, Hong Kong up 0.2%, London ahead 0.1%, and Frankfurt flat. Gold and oil are slightly higher with the dollar a little lower. There’s a good bit of economic activity today with GDP (2.7% expected) out at 8:30AM, Existing Home Sales (4.65 million units) at 10AM along with the FHFA Home Index and crude inventories out at 10:30AM. Stocks seem to be in full-on holiday mode this morning with less than a one point range on the S&P 500 futures in the last couple of hours (it is just before 8AM as I finish writing this). Stocks will likely drift on both sides of unchanged much of the day on low turnover. The focus will likely be on the earnings plays (NKE, et al), the small biotechs in the news such as ARNA, and A-B-A2 relative strength plays particularly in the microcaps.
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
XOMA- closed near a high after a positive report from Summer Street regarding the company’s prospects for its XOMA-052 diabetes drug
NFLX- closed near a high after a positive mention on “Mad Money” on Monday night
MCP- closed near a high after announcing a product deal with Hitachi Metals
AIG- closed near a high
AMZN- closed near a high
PSDV- closed near a high
GS- closed near a high
WBC- closed near a high after announcing positive earnings
TD- closed near a high after announcing purchase of Chrysler Financial
AMED- closed near a high after a Deutsche Bank upgrade
LAD- closed near a high after a positive note at Credit Suisse
MYRG- closed near a high after a positive note at Wedbush and FBR
TIBX- decent earnings
YRCW- amended credit agreement and affirmed Q4 EBITDA expectation
PRGS- decent earnings
ACUR- closed near a high
TEX- closed near a high
ZOOM- good earnings guidance
ARMH- rumor according to Bloomberg that MSFT reportedly shifting to ARMH chips from INTC and AMD
Bad-The following stocks have bad news and/or a weak technical pattern
CPY- closed near a low after posting poor earnings
ORN- closed near a low after revising earnings guidance
RDY- closed near a low
NKE- poor earnings
RHT- poor earnings
XLNX- cut earnings guidance
KNDI- closed near a low after announcing a share offering
SCEI- 5.46 million share offering at 5.25
CPIX- FDA noted there wasn’t sufficient evidence of efficacy regarding its liver treatment drug
Earnings:
WED DEC 22 BEFORE
AM LNN WAG
WED DEC 22 AFTER
BBBY CBK MU
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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