WED. DEC. 8- The Great Equalizer

Last night, the U.S. Treasury announced its intention to sell the rest of its Citicorp shares at 4.35. The final offering was titanic- about 2.4 billion shares. There are lots of things to be taken from this, but I want to touch upon the impact this had on yesterday’s broader market action. C rallied from very early in the session; in fact it got positive by 7:55AM ET and never ticked back into negative ground. The main reason seemed to be that now that the stock was out from under government control, it makes it a more viable investment vehicle for many people who viewed C as not suitable for trading or investing. The same for many funds. So, C traded well in excess of three billion shares yesterday as money flowed there. But that’s just it. As it turned out, index managers were also forced to buy it with the share float increasing. That turned the thing into a vortex which sucked up liquidity. Well, if indexers had to buy C as well as many smaller investors feeling the time was now OK to enter, this takes money away from ostensibly everything else. Ergo, there were all kinds of rumors yesterday from takeovers to widening of probes to SEC fines to commodities selling off whatever, but the bottom line is that stocks were almost forced to give back a little. Let’s put it this way- let’s say you’re an index fund manager and own $1 billion of stock of which $10 million was C. Let’s also say because of the increased share count, you now have to own $12 million C. Well, this means that you’d own $2 million less of, well, everything else. Ergo if you ever see a day whereby there’s a massive share shift in a stock, be well aware of the implications it can have for the broader tape.

Markets in Asia were mixed overnight with Tokyo advancing 0.9% but Hong Kong declining 1.4% as the Hang Seng index had rallied the day before on the positive tax developments in the U.S. In Europe, prices are very slightly higher. Oil is down slightly after topping $90/barrel yesterday, metals are getting hit to the tune of about 1% plus, the dollar is strong, and bonds continue an extensive sell-off with the 10-year yield challenging 3.20%. Stocks are honed in on Taxville with futures marginally higher. The bias still seems to be up as everything was shaken off yesterday overall with stocks equalizing out the C move. For today, the bias is once again higher despite some of the other broader markets spreading out so look for the strength to hold barring headlines coming out of Washington regarding the ongoing tax cut saga. The focus will be on small cap biotechs (OREX,VVUS). big caps in the news (NFLX), earnings plays, the myriad of share offerings, and relative strength A-B-A2 plays.

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

COO- great earnings

QLTI- received orphan drug status for QLT091001

OREX- FDA backed usage of Contrave; VVUS and ARNA may move with it

CML- closed near a high on takeover rumors

CRZO- reversed in closing near a low after providing an operations update

RP- closed near a high despite a huge share offering

GMCR- closed near a high after a brokerage upgrade

MIND- decent earnings

JNPR, CRM- featured on “Mad Money” last night

DANG- doing 17 million share IPO at 16/share, up from expected range of 13-15

FO- splitting itself up into three businesses


Bad-The following stocks have bad news and/or a weak technical pattern

MW- terrible earnings

NFLX- CFO resigned

TXN- lukewarm earnings guidance

ABMD- closed near a low after stopping a drug trial early

WTFC- closed near a low after doing a public offering at 30/share

GST- closed near a low after announcing a 12 million share offering

CEU- closed near a low amid worries over the company’s internal controls

FSLR- closed near a low

MMM- closed near a low after posting earnings guidance

WYNN, LVS- closed near a low

GS- closed near a low

RIG- closed near a low

AAPL- closed near a low

TLB- closed near a low after posting awful earnings

FSYS- closed near a low after posting awful earnings

WLT- closed near a low

RDWR- closed near a low

POT- closed near a low

MA- closed near a low

PUDA- closed near a low; announced share offering

VIT- closed near a low

SWC- closed near a low; doing share offering priced at 19.50

TGA- closed near a low

ROSE- closed near a low

VITC- indicated financial statements cannot be relied upon

GDOT- 4.2 million share offering at 61

UPI- dealt setback in Medicare carrier’s coverage denial

MNTA- 4 million share offering at 14.35


Earnings:

WED DEC 8 BEFORE

COST UNFI

WED DEC 8 AFTER

CMTL MATK SWHC


Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President