Monday, November 24, 2008

MON. NOV. 24- Sometimes, Bad News Isn't Taken Badly

On Friday morning, Canadian Solar (CSIQ) came out with earnings. What was particularly startling was that they were projected to have revenues of 270 million dollars next quarter yet they revised the guidance to $70 million to $85 million. One would think that on an outlook such as that, the stock would fall an extraordinary amount as the implication is that its business is evaporating. Yet, the stock actually closed higher on Friday. There are a few inferences to be taken from this action. First, for a day trade, this is the type of action – had the market been rallying, that we love to trade upon. Bad news comes out and the stock cannot go down? It is a fine example of the ultimate ‘buy thru unch’ trade- again, had the market been going with the stock at the time. Second, what does this tell us about the macro solar industry? We have a president who is very much in favor of solar energy with policies that should be good for the sector yet the company is telling us how bad business is. The implication therefore is that not only is the economy bad, but the decline in oil price has produced more than a commiserate decline in the shares of alternative energy entities. Finally, it is worth noting that the TAN (the Global Solar Energy Index) is down over 55% since the election. What this tells us is that the stock market seems to have once again moved ahead of the trend so to speak in that it anticipated the evaporation of business in the industry. So, let’s circle back to the first point: day traders must be aware of the technicals and the fundamentals when using the ‘common sense’ model. Many people had no idea why CSIQ was up (and would have been a terrific change had the macro market been going correctly). Many times, if one is short in a stock like this from, say, 15 a share, it is a case of ‘sell the rumor, buy the news.’ Be aware of an increasing type of this action on good market days in the future. Stocks have been beaten senseless. It is folly to pick a bottom, but it is not folly to realize that a bottom- even an ephemeral bottom- forms when a stock opens down on bad news and rallies…and as day traders, it is our job to be cognizant of such situations and specifically to be buying thru unchanged in a stronger market environment.

Markets in Asia fell slightly overnight as the C deal was not announced until the middle of the night. Bourses picked up in Europe with the exchanges there up about 3% on average. State-side, futures are skyrocketing on the C news. This seems a little premature, particularly after Friday’s rise. The most likely scenario today would be for some profit-taking to ensue with the averages in a mixed range after a first hour sell-off. If that sell-off does not continue, there is more to the rise than meets the eye and a A-B-A2 rise will likely take place albeit in smaller fashion than Friday’s A-B-A2 as called in this space.

Reiterating-If the whole story is not there -
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 (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

MMR, DPTR, HLX – among the smaller petroleum companies that had huge rises

C- traded up after-hours on vague takeover rumors, but then in the middle of the night last night, the government announced a bail-out deal. In theory, the deal should be dilutive, but stock up…a great trade would be if the stock breached 5 (as it was over 5 overseas) to short it anywhere below with a target of unch and an out of 5. May not totally work, but there will likely be a great trade there at some point- particularly at 7AM ETish if it should happen

XOM, CVX, SLB- among bigger petroleum companies that had explosive rallies Friday

FE, ETR, FPL- utilities help lead the charge with the petrols

AU, ABX- gold had one of its biggest percentage jumps in history on Friday; these things exploded…could be a bit of a reversal today, but certainly A-B-A2 thru Friday’s highs (19.70ish AU, 27.30 ABX) is in order too

ACI, BTU, MEE- coals strong too

X, NUE- steels closed at or near highs

DNA- Avastin passed a phase III trial for breast cancer usage

CBRL- good earnings

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

GE- filed mixed securities shelf

TGT- rejected REIT plan proposed in that they are not going to split themselves up

CBE –warned after-hours on Friday

HA, ALK- bucked the huge uptrend at end of day Friday in closing near lows; look to short thru Friday’s lows on both if they open above them (HA 3.50 and ALK 18.57)

EAT- also underperformed terribly on Friday; looking to short thru 3.90ish

CELG, ALXN- closed in middle of ranges, but notable that select biotechs did horribly








Good luck today.


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