FRI. JUL. 11 THOUGHTS

In the midst of a slow earnings spate such as this, it is important to take a little time out to prepare for the very busy earnings season ahead. One of the features of our trading at Protrading Network is that we do many news-centric trades thus the inundation of earnings news during the height of earnings season is typically a highlight of the quarter. Typically, most companies base their earnings on the end of each quarter (i.e. Mar. 31, Jun. 30, Sep. 30, and Dec. 31). However, it takes the major accounting firms 2-5 weeks to properly tally the results of the major corporations found throughout the United States. Thus, the 15th of the first month of each quarter through the 15th of the 2nd month of each quarter is typically an extremely busy time for day traders who do news-centric trading. Specifically for Richard Rizzos, the blog will look a bit different during that time as many of the plays will be based off of earnings flow and occur anywhere from 7AM-11AM ET. Some days will include a commentary; other days will just have a trading lesson featured due to a dearth of time. Same quality…different theme. The watch list can also change wildly between 7AM and 11AM as stocks consistently move up and down the list based on how they perform in terms of volatility. What we try to do during that time (as we do every day) is to rank the stocks from most likely to trade to least likely to trade as there will be literally hundreds of stocks on the list on some days. But, keep in mind in this calm before the storm that the blog will be choppier with the list subject to change at a moment’s notice; the list sent out each morning will be a snapshot at the time the e-mail is sent, but be aware that you cannot just rely on the top 10 or 15 because every stock on that list will be important.

Overnight, markets throughout the world opened higher, but came in hard after reports came out that some senior Bush government officials were considering a plan which would bail out Fannie and Freddie (FNM/FRE) at taxpayer expenses which would effectively wipe out the stock market value of both companies. This will likely prove to be disasterous for those stocks today and the market will follow. As of this writing (6:30AM as I draft this), futures are not down all that much. That will change dramatically in all likelihood.

FRE,FNM- TOP DAY TRADE OF THE YEAR SO FAR. CANNOT BE CLEARER. TOP DAY TRADE OF THE YEA. SPECIFCIALLY- as of this writing, these stocks are almost flat. Cannot believe it. Really can’t. The second the system opens (6:45/6:50AM), will short these things (FRE anywhere above 7.80 and FNM anywhere above 12.50) given any confirmation. Look to hold FRE through 7 minimum and FNM to 10 ½. And those are probably high targets. After this initial crack, it will get a lot harder so if you are not at your desk by 7AM ET, be careful trading these the rest of the day. Action will be to short side largely, but anything today is possible.

COL- beat earnings; if stock opens down on weak market and market strengthens, buy thru unch.

GE- met for quarter. Warned next quarter. Says will beat for year. Looking to buy it thru unch if it opens down.

MGM, LVS- WYNN posted great earnings. Both are up, but well off of highs last night. Looking either to short LVS/MGM thru unch, but better yet if market strengthens, looking to buy MGM shortly after open if it is around 23.50 and the market is bouncing.

FAF, LFG- closed near lows yesterday. If by some chance they open higher, will short thru unch. If not, looking for A-B-A2 to short side.

LEH- if it ticks below yesterday’s low (15.63), no matter what time of day, iti s a short 15.60.

CHK, HSP- on Cramer. Looking to short CHK thru unch if it gets there.

Brokers- will likely track LEH.

Will be a lot of seat-by-your-pants trades today. Without making a specific recommendation to buy or sell a stock, GET IN ON SHORTING FNM AND FRE 7AM ET. And good luck today.

THURS. JUL. 10 THOUGHTS

The financials are officially leading the way right now for day trading with declines in Fannie Mae (FNM) and Freddie Mac (FRE) in the forefront. But, with a slew of same store sales out yesterday morning plus a spate of earnings to come, it’s important to do a little background research on inflation. One of the major benchmarks for inflation in the United States is the Commodity Research Bureau Index (CRB). Among other things, it measures the value of metals, textiles (such as cotton), livestock, fats (like butter), raw industrials (such as steel scrap), and random foodstuffs (such as cocoa or wheat). Among the statistics buried amid the soaring price of oil, the plunging value of the Dow Jones Industrial Average, and the general worries over the world’s economies is the fact that this index is up 41% in the last year. 41 Percent. Whether this is a bubble or sustainable is certainly not relevant to a day trader on any given day. What is important is that this is another piece of the big picture. Go to a grocery store. Since mid-2004, a box of San Giorgio pasta has risen from 33 cents to $1.39. And specifically, basing it since the beginning of 2008, the price went from $1.05 or so to $1.40. Yet, inflation is discussed as being under control according to official government statistics and most common economic measures. This is worth a few precious lines in this space because it is simply something else to keep in the back of the mind of the day trader. Commodity prices have risen much more than the average intelligent person can fathom. This is not an advocation to buy or sell any particular stock. However, this type of statistical change (41% in 12 months?!) is certainly something that should be monitored by the trading community because if it accelerates or decelerates, the breadth of the move of the market will be even more powerful than it has been thus far in 2008.

Overnight, markets in Asia were actually flat while European markets followed Wall Street’s lead downward amid concerns in the financials. This morning though, things look notably brighter. The CEO of BankAmerica (BAC) noted that BAC will not cut its dividend nor does it need to raise capital. Furthermore, Dow Chemical (DOW) announced a deal to buy Rohm and Haas (ROH). This is very bullish because the implication here is that merely one merger may plant the seed in the minds of many investors that some sectors much less the overall market is cheap. So, the market will likely open nicely higher. If it tries to sell off, but holds, an A-B-A2 type of day may be in order for the market to the upside. But, financials will likely lead the way.

CSE- very very weak yesterday. If it opens higher and goes negative, it is likely a short thru unch.

CHK- today’s GDP. They announced a huge share offering at 57.25 on the heels of the stock having fallen 17 points in a few days. Three trades here. If it opens below 57.25, it is a buy thru 57.25. If it opens above 57.25 and sells off, it is a short below 57.25. And the best of all is that if it ticks gradually higher in the pre-open and jus tafter the open, it is likely a buy at unchanged on short covering.

FRE/FNM- Ex President Poole out on wires indicating that these firms are technically insolvent. Stocks barely down at this writing. Think decline gets legs and looking for spot to short them, particularly pre-open.

DOW- buying out ROH; stock should trade down. Looking to buy it thru unch.

WMT/TGT- both announced better than expected same-store-sales. Stocks should trade higher; if they go negative, both are shorts.

BAC- announced that dividend will not be cut nor does it need capital. Stock traded up a dollar last night. If it opens down and market strengthens, it is a buy thru unch.

ALD- closed near a low. If it opens higher, looking to short thru 12.25

CHTT,TXI,MAR- all out with earnings. A-B-A2s all over the place here based on market direction in particular

Lots going on; focus on the broad watch list with an acute look at the financials.

Good luck today.

WED. JUL. 9 THOUGHTS

One of the most common trading concepts which is foreign to many new much less experienced day traders alike is this principle: if one is steadfast that a certain entry point will work and the trade not only does not set up but the opposite definitely occurs, a phenomenal trade can be had by doing the opposite of the original thinking! For instance, Goldman Sachs (GS) was strong in the early going yesterday but came in, trading right around unchanged for a good 20 minutes. In the interim, the market began to rally. Several people (including the author of this piece) felt GS was a good buy. However, the longer that the market moved and GS simply sat there, the higher the likelihood that GS became a short. Indeed when the market began to sell off a bit, GS was one of the leaders to the downside in falling more than two points in 15 minutes. The point here is that one always has to be nimble when trading, but especially so in day trading. Furthermore, just because all the research in the world tells you that you should be doing something, if the actual circumstances dictate otherwise, forget that homework and turn an empirical mistake into a very real profit.

Overnight, markets in Asia and Europe rebounded on the heels of Wall Street’s gains yesterday. Oil also bounced amidst reports that Iran tested some long range missiles. This morning, the market has shook off some early weakness on the Iran news with futures in positive ground as banks and oils have led the way. The tech sector is relatively weak after CEO John Chambers discussed long-range plans at Cisco. Look for selected short covering unless some sort of news pervades The Street, but also look for selected weakness in techs which bounced yesterday as an opportunity to short.

GDP- major share offering at 64. The stock traded down there in the very early going, but has bounced. Looking to buy it thru unch. Conversely, it is a short thru 64.

AA- good earnings. Likely will follow market. Looking for A-B-A2 of some sort depending on market direction off of the open

NWA- closed very strong yesterday. If it opens down with a decent market, looking to buy near unch.

MHK- warned last night after closing strong. It is an A-B-A2 depending on the direction of the market.

FNM,FRE- very strong yesterday. If they open higher and approach unch with a weakening market, looking to short thru unch.

RIMM,AAPL, GOOG, other big cap tech- tech stocks relatively weak this morning. If these open near unch and fail to rally off of the open, likely shorts thru unch.

PDO- has been crushed, down 50% in two weeks. If it opens down, looking to buy thru unch.

Brokers- all up on short covering. If market rallies, A-B-A2 on all of them off of open. For later in day in particular, shorts thru unch.

Not a ton to choose from. Low newsflow and a tug of war after a rally. Very difficult trade today. Good luck today.

TUES. JUL. 8 THOUGHTS

In the last 24 hours, the market shook off the gigantic decline in oil prices (discussed in yesterday’s blog) as the financial sector got hit extremely hard again with more shock and awe amid selected stocks. The most notable feature yesterday were the declines in Fannie Mae (FNM) and Freddie Mac (FRE). Taken from Yahoo, “Fannie Mae provides funds to mortgage lenders through the purchase of mortgage assets, and issues and guarantees mortgage-related securities that facilitate the flow of funds into the mortgage market in the United States” while “Freddie Mac engages in mortgage purchasing, credit guarantee, and portfolio investment activities in the United States. It purchases single-family and multi-family residential mortgages, and mortgage-related securities from lenders in the primary mortgage market that originate mortgages for homebuyers, including mortgage banking companies, commercial banks, savings banks, community banks, credit unions, state and local housing finance agencies, and savings and loan associations.” The companies use the government as the backer. Well, suddenly as the housing downturn worsens, it appears that both of these companies need an extraordinary amount of capital (provided of course by you and me via Uncle Sam) in order to cover losses much less maintain operations. This is but one more example of the carnage that is taking place in the financial sector. As day traders, it is simply our job to trade these stocks, but in order to do so in a micro standpoint, we need to understand from a macro standpoint what is going on. It is another lesson that just because FNM looked “cheap” to many people when it fell 50% from 60 to 30 in weeks, it easily fell 50% more to 15 in three weeks. It is also important for day traders because as we do indeed trade the micro, while it is important to have the macro in mind, it is just as important to keep said focus on the micro and not let our macro views conflict. We have to realize that stocks can indeed go lower for the optimists out there who think everything is going to be OK even from here yet for those permabears out there, there can easily be violent short covering rallies which take stocks up amidst the worst market environment in years.

Overnight, stocks in Asia and Europe were pummeled, but a continued extensive decline in the price of oil has helped stabilize the situation state-side. After trading down over 1%, futures are flat as of this writing. As far as today, look to the financials and oils. As always. If bank stocks start having trouble and/or oil get some short covering, the market is going to have major trouble. However, if oil remains down $2-3 barrel or more and the financials stabilize, all shorts better watch out. Thus, while I/we refuse to stick my/our neck out on a direction, I/we will say that the market should have a pretty good move today one way or another.

COP- warned. Stock should be down particularly with oil. Easiest trade is to buy thru unch; if market weak, A-B-A2 to the downside.

MDVN- positive phase II trial. Stock should trade higher. It was higher all last night. If not, short thru unch around 12.10.

GDP- convertible share offering. Don’t know if it gets there, but it is a buy thru unch and even a potential A-B-A2 to the upside if it opens below 68.50.

XL- closed weak. If it opens higher, likely a short thru unch if market weak. If market strong, nice A-B-A2 to upside.

ENER- announced nice deal with GM. Likely an A-B-A2 to downside.

FED- closed weak. If it opens higher and financials weak, looking to short thru unch.

FRE/FNM- very strong. Don’t see obvious trades, but keep an eye on them because the stronger they are the longer they are, the higher the likelihood the market holds. And if the market weakens badly, they will be prime candidates to be shorted.

Not a ton of newsflow. Will be busy, but on more of a momentum type trade than news trade today. As always, good luck today.

MON. JUL. 7 THOUGHTS

Briefly discussed on Wednesday was a rather bizarre occurrence that it is pervading the stock market in general and is really relevant for us day traders. There is a major and unusual dichotomy between the direction of raw commodity prices and the equities of the companies which do business with said commodities. One of the reasons for the continued rise in the price of things like oil is that the major commodities exchanges (particularly the NYMEX) have raised their margin requirements as of the close of business on Wednesday July 2. So, without going into specific numbers or percentages- you now have to put up a lot more money in order to maintain your position. What ends up happening is that a move can become accelerated in a commodity; for instance, if you’re short oil and have to have more money to keep the position, you simply exit the position. So, that does at least partially explain the last week’s run-up in the price of things like natural gas. However, stocks in sectors like steels, coals, and oil drillers have been hit very badly in the last two business days. Why? Who knows. Could be funds taking profits in sectors that work. It could be that the stocks are showing us that the commodity rally has extended too far too fast. It could be that a hedge fund is in trouble and raising cash. But, it is a very unusual phenomenon and one of the more notable features of the market to watch this week. Something will give; either way, trading in those sectors will likely be frenetic.

Overnight, markets were relatively quiet. On Friday, the European bourses were down across the board on a downgrade of European banks by Goldman Sachs. There is a bit of an uptick this morning, however. Oil is indeed significantly lower at this early writing as the after-effects of the forced margin-based buying eases. Trading should be relatively quiet state-side today as people extend their vacations with a dearth of news as not one major company is reporting earnings today. Notable exceptions would seem to be the financials and the industrial stocks.

FNB/ASBC- two bank stock which closed on their lows on Thursday; if they open higher, likely shorts thru unchanged. Conversely, if they open higher, hold to fall a little, and rally and the market holds, A-B-A2. But, the easier play is probably to the short side.

ZION- rumors of needed capital infusion late last week took the stock lower. Had one upgrade and one downgrade today. Should open higher. Likely a short thru unch if it gets there.

VRSN- lowered revenue guidance Thursday afternoon. Should open down. If it goes positive, looking to buy thru unchanged.

CALM- mentioned in “Barron’s.” Should be sharply higher. Likely an A-B-A2 of some sort, likely to follow market’s direction.

WM- an investor group announced they acquired a rather large stake in the company. It should trade higher. Likely a short thru unch if the stock goes negative, but will likely be a tricky one with buying support underneath market.

LVS,MGM, other casino stocks- all got it hard last week. If market rallies, likely A-B-A2’s to upside.

APPX- being bought out for 23 per share plus a potential $6/kicker in 2011. Nobody really knows how to interpret it. Likely a short overall, but realistically an A-B-A2 with focus on shorting it if/when it takes out 23.

RATE- warned badly. Likely an A-B-A2 of some sort.

RIMM,AAPL- big cap tech up in early going. Don’t really see a trade per se, but these will be an indicator of the strength of the market (tech sector in particular) throughout the day because they are so strong as of this writing.

Fertilizers/oils/steels- all higher in early going. Look for nuances. For instance, CHK is down as of this writing so if the sectors strengthen further, looking to buy CHK thru unch.

Good luck today.