I made a pretty good trade late last week and have been asked about it repeatedly. So, let me try to explain it. When I was kid and complained of wanting something to do, my parents used to give me coin wrappers, a bunch of change, and put me to work. I’d separate out pennies, nickels, dimes, and quarters. And the deal was that if I ever found old school wheat pennies, I could keep them. This was not a bad deal for a young child or for adults who always had change yet didn’t want to wrap the change themselves. Of course, as I grew a little older, wheat pennies weren’t enough but I was definitely delegated the rolling coins chore whether I was bored or not. So when I saw my first Coinstar (CSTR) machine at a grocery store, I was furious with myself for not having thought of the concept. For those who don’t know, one can take a bucket of change accumulated over a period of time, dump it in the machine, and you get back solid dollar bills (and bigger coins than, say, pennies). This of course is done for a small fee aka revenue stream for CSTR. Well, the folks at CSTR were smart in that they realized a lot of the kids like myself who now have kids and go to the grocery store but don’t want to go to a video store just may rent a $1 video from the store. So, they began putting video kiosks next to the coin change kiosks. Next, they have recently (less than three months ago) decided to go up against the likes lf NFLX in offering a streaming video service. In a very optimistic conference call, they made some bold projections. Well, on Thursday, they announced those prognostications would not come to fruition and the stock got bludgeoned. Initially, NFLX went down because of fears to the whole video streaming industry but it didn’t take long for most to ferret out that this was a CSTR problem rather than an industry problem. Doing basic analysis such as this can put many a day trader ahead of the game. That morning, the stock opened down about 70 cents at 190.81. It fell a little more initially and then came roaring back. As the stock was about to go positive, I bought shares at 191.40 average (down 10 cents on the day). The reasoning was that many shorts hadn’t done due diligence; in fact, this could be viewed as a positive development for the company because what if NFLX’s business model is good while CSTR’s was not? Who knows for sure? But I know this- when the stock got positive, a lot of nervous shorts who thought the stock would decline on CSTR’s announcement scrambled to cover. The stock raced two points over the course of the next two minutes. It could have gone four. It could have gone one. But I put myself in a position to make a decent trade by doing some rudimentary work. So as earnings come flying out, it’s crucial to know relationships such as this, competitors of the entities reporting, and in fact to understand the basic nature of relationships such as the symbiotic competitive nature of CSTR versus NFLX.
Markets overnight were stronger in Asia with Tokyo up 0.4% and Hong Kong up 1.1%. Prices are a bit more muted in Europe following yesterday’s run-up with London down 0.5% and Frankfurt off 0.2%. The dollar is quite weak with the levels of 82 yen and 1.35 euros now in danger of being breached. Commodities are stronger with gold and oil both up ½%. Futures are a tinge stronger on the heel of good numbers of AAPL and IBM but poor numbers from GS. Housing starts came in below estimates at 529K (550K expected). For the day, there will likely be a lot of choppiness with a lot of movement in individual stocks. The focus will likely be on all of the earnings plays, the financials off of GS and WFC movement, tech off of AAPL and IBM much less CREE, fertilizers off of the MOS story, and the solars off of yesterday’s strength.
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
ARIA- closed near a high after releasing good results for its cancer drug
TRCI- closed near a high after receiving $5.50/share takeover bid from CCIX
LDK, JKS, CSIQ, FSLR- closed near their highs in a very strong solar sector
AVT- closed near a high after being upgraded by Longbow
RIG- closed near a high
NFLX- closed near a high
CLWT- closed near a high
CRS- closed near a high
AAPL- good earnings
IBM- great earnings
WDC- good earnings
NUVA- announced insurance policy coverage change regarding XLIF procedure with CI and HUM backing it
HBHC- decent earnings
IBIO- closed near a high after establishing a collaboration agreement with Fiocriuz/Bio-Manguinhos for new vaccines
SLB- featured on “Mad Money” last night
ATHX- plan on publishing joint study on spinal cord injury with Case Western Reserve this month
Bad-The following stocks have bad news and/or a weak technical pattern
CMA- closed near a low after announcing acquisition and earnings
YOKU, DANG- closed near their lows after receiving a slew of lukewarm brokerage initiations
MOS- Cargill announced distribution of MOS stake
CREE- terrible earnings; VECO may move with it
LLTC- poor earnings
NKTR- share offering
DRH- share offering
VRUS- share offering
DEPO- will engage in mediation to resolve ABT dispute; also made negative comments about DM-1796
OMN- poor earnings
ASML- poor earnings
BK- poor earnings
USB- poor earnings
MTG- terrible earnings
NTRS- poor earnings
GS- poor earnings
WFC- poor earnings
Earnings:
WED JAN 19 BEFORE
ADTN AMR APH
ASML BK GS
HCBK IGTE NTRS
STT USB WFC
WED JAN 19 AFTER
EBAY FFIV KMP
RJF SLM STX
XLNX
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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