FRI. AUG. 15 THOUGHTS

By far the most common question/topic around the office yesterday (other than the fate of the Yankees and Mets for the rest of the season) was a trade that a group of traders did in U.S. Airways (LCC). Thus, it is really relevant and in everyone’s best interests to take a couple minutes out and really explain what happened yesterday. Late morning yesterday, LCC was halted after they announced a share offering with the proceeds from said offering to be utilized for general corporate purposes. The stock was halted just before noon around 9.50. The pricing of the offering was announced around 1:15PM at 8.50. With more shares now outstanding and the company flat-out putting a value of 8.50 on the shares, it means that the stock should trade around 8.50. When it reopened, LCC fell to about 8.65 before rallying to 8.75. Think about that. It was holding above where the offering was. It’d be like me telling you that you could $8.50 worth of groceries from a store and you telling the cashier that you’d like to pay more for the food than the $8.50. Without going into the ‘why’ this sometimes occurs because it’d take several pages of computer space, let’s focus on what happened. The stock consistently traded in a range of 8.70 to 8.75 for about two minutes between 1:27 and 1:29. Again, note that this is above 8.50 (where it should theoretically trade). So, if you are a day trader and either (luckily) shorted the stock before it was halted or you (intellectually) did it after it re-opened in thinking it’d go to 8.50, you are watching on pins and needles in that there was a buyer at 8.70 and a seller at 8.75. Most day traders pile on to the momentum no matter what so it was to be no different here. The only difference was that it was to be exaggerated. When the 8.75 reloading seller left, countless day traders went to hit the ‘buy to cover’ key while other momentum players hit the ‘buy’ button at the same time. This created a mini short covering panic as the stock ran to 9 in seconds. The moral of the story is a recurring theme: namely, if a stock is not performing as expected, the ferocity of an immediate-term move is often fierce in the opposite direction from where it should be going. Basically, don’t think…just act.

Overnight, markets were up globally with commodities drilled; oil is down over 1% and platinum is down 6% at this writing. Other stories out are generally positive; for instance, ABK and MBI got taken off of CreditWatch. So, there should be a bid to the market today.

Reiterating-New code for the next few days if the whole story is not there due to an expansive number of ideas-
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


Good-

ABK/MBI- up on the CreditWatch story. Best trades will likely be done before 8AM wf there are bids/offers way away from the things went out last night.

PMI- should move in sympathy with ABK/MBI

LEH- Soros fund boosted stake

CY- buying back shares via a convertible; SPWR should move in sympathy

A- good earnings

ADSK- great earnings

KSS- good earnings

IRF- received 21.22 takeover bid; it is a buy thru 21.22 if it goes above there

FFHL- good earnings

Bad-

DV- bad earnings

HAR- bad earnings

JCP- bad earnings

FRI AUG 15 BEF

ANF .91/868M 1.37/1.06B 5.53/4.07B 6.14/4.53B

GU .22/57M .25/64M .95/254M 1.41/420M

JCP .42/4.28B .75/4.67B 3.25/19.41B 3.55/19.78B

NWY .09/284M .11/281M .54/1.20B .63/1.26B


Good luck today.

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