FRI. OCT. 31 - Don't Try To Fight The Trend

On September 25, there was a blog written about Warren Buffett’s foray into Goldman Sachs:

Sept 25th, 2008 - Buffet 2nd I-Bank Foray

On October 1, Buffett bought a stake in General Electric as well.

Now, the point of this post is not to dump all over Warren Buffett as he is clearly one of the world’s greatest investors. Furthermore, his time horizon for a trade is years rather than the minutes or even seconds in which we trade. But this leads to the point of this piece: Warren Buffett with his style of trading does not care if he gets in or out with precision nor does he care if he gets in and out early. We as day traders cannot simply open our hands to a falling anvil when buying a stock nor can we try to stop a rocketship in shorting a stock as it rallies. We all know this, but it is everybody’s inclination to say “this moved so fast, I am going to (take) or (give ‘em) some here.” It is the absolute wrong thing to do in this volatile environment. On Wednesday afternoon, for instance, day traders buying shares of stock in those last five minutes in which the Dow fell 400 points in waiting for a bounce which did not come until yesterday morning lost significant amounts of money. Traders who shorted stocks such as Intercontinental Exchange (ICE) up 15 yesterday weren’t loving life as it gapped up points in moments (trading to up 23 or so at one point). Preparation and precision are essential –more than ever- to succeed in this profession. If you do not do your homework and/or if you simply buy/short something in hoping for the best simply because something has moved a lot, you will lose net-net. So, follow the Boy Scouts mantra: “Be Prepared;” furthermore, do not try to be the entity which stops a stock’s move because inevitably, you will get run over by the force of said move.

Despite an interest rate cut in Japan, the Nikkei fell 4% in Tokyo with weakness elsewhere. Even more notably is that the bond market is sharply higher while the oil market is 4% lower this morning. This portends weakness for Wall Street. It is the last day of the month so things will likely be very choppy with most of the trading to the downside yet the declines probably will not be overly dramatic.

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-

AKAM- great earnings

CHK- missed earnings, but beat whisper number so stock up after-hours yesterday

ESRX- good earnings

WYNN- beat slightly, but has had huge run-up…watch this and LVS/MGM

SWN- solid earnings

MFE- good earnings

THOR- outstanding earnings

ICE- rallied tremendously on last tick; should open down…if it opens close to 87, short it; conversely, if stock trends higher throughout the day, buy it thru unch

MIL – good earnings

MALL- huge percentage gain on short covering; closed near a high thus looking to buy thru yesterday’s high around 4.20

LHCG- rallied sharply on upgrade

MBT- has had tremendous rebound last few days; the stock will likely go with the market today, but exaggerate the broader market’s move widely

EYE- beat earnings and raised expectations slightly
Bad-

ERTS- warned dramatically on its outlook

KLAC- bad earnings

PSYS- poor earnings

TSRA- warned in its outlook

BARE- horrible earnings warning

AMP, AIZ, PRU, HIG, CI- among the insurers which declined yesterday on liquidity concerns…looking to short them all through yesterday’s lows and or A-B-A2 to upside if they cannot break initially

SMMX- closed very weak; looking to short thru 4.05

PETM- in “Sell Block” on “Mad Money”

PL- closed very weak in the wretched life insurance group

SHS- closed near a low after poor earnings

HIL- closed very weakly

CMI- missed earnings and cut outlook

GS- notably weak on follow-through from yetserday

Earnings:

FRI OCT 31 BEF

AEP AIV AOC

AXL B BKC

CCC CLX CMI

CVX EYE KBR

MDC MDU NYX

PEG PGN RSG

SMG WY

Good luck today.

THURS. OCT. 30 - Our Partners Overseas

Among the original non-interventionists were Thomas Paine and George Washington. George Washington was not an isolationist, but again, he was a non-interventionist in that he rejected protectionism but wanted the embryonic U.S. to stay out of political matters with foreign nations in warning of “entangling alliances.” Keeping politics out of this in focusing on economics, the world is as entangled as it ever has been. And that certainly applies to the world’s stock markets. More than ever, the wave of problems in Iceland or the failure of the carry trade in the Japanese yen by the hedge funds affects the domestic equities markets dramatically. Two major points here for day traders: First, markets throughout Asia and Europe rallied dramatically more over the last few years than did domestic markets. Thus, the net changes on any given day tend to be much more dramatic overseas than domestically. Many seasoned traders never pick up on this as a common refrain recently has been “if Hong Kong is down 12%, why aren’t we down 12%?” Well, the Hang Seng rallied 300% in four years so the ride down is that much scarier due to the steep ascent in recent years. The other major point here is that many times, we don’t know what the chicken is and what the egg is. Put another way, do foreign markets lead us or do we lead foreign markets? In dramatic times, the U.S. tends to be the leader because the rest of the world looks to us simply put. Thus, the U.S. market tends to be the first to rally after a major decline and vice versa. So, definitely pay attention to the worldwide markets as the impact on our market can be dramatic, but be very cognizant of the data upon which you use in making early morning decisions in particular.

Overnight, markets in Asia were up dramatically- about 10% to 13% across the board. The gains continued in Europe- 1% to 2% across the board. State-side, futures are up dramatically in an attempt to gain back most of the ground we lost yesterday afternoon on the GE rumor. Look for a relatively strong day today as well with a little narrower trading range as yesterday afternoon’s last minute sell-off evaporates.

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-

FSLR- beat earnings and raised guidance slightly; STP, SPWRA, et al back in play today

MET- met earnings, but that is terrific in this environment

NLY- beat earnings slightly

AMP- decent earnings

CNX- strong all day yesterday

LVS, MGM- short covering spike yesterday; will be in play today

TGT- Ackman on CNBC this morning; will likely be a play before 8AM as he discusses it positively

WHRTD- announced reverse stock split; stock up a lot yesterday…very fluky, but will be a huge mover in all likelihood one way or another…will buy at 4ish if it opens below there and rallies

SPLS- announced positive earnings

ENR- good earnings

ICE- good earnings

SGR- good earnings

OIS- good earnings

MOT- great earnings

MYL- great earnings

OI- solid earnings

CI- decent earnings

OCR- raised guidance

XOM- beat solidly on earnings

FR- solid earnings

Bad-

V- beat earnings slightly, but stock traded lower after-hours

CME- beat earnings slightly, but getting hit anyway

PRU- missed earnings

BGC- poor guidance

SYMC- warned on balance of year

MUR- beat on qtr, but warned on year

CGNX- warned on next quarter

EQR- beat slightly on quarter, but warned slightly for next quarter

BBBB- warned on quarter

BRKR- closed on low

VOCS- closed on low

CAH- weakest of the weak healthcare stocks yesterday

SPW- closed near a low after posting poor earnings

MTW- very weak yesterday

ELN, BIIB- announced a 3rd brain ‘mitigating circumstances’ issue with their joint drug

MAS, TRN- cautionary notes on both on “Mad Money” last night

WFR- CEO resigned

AVP- bad earnings

APA- missed, but beat whisper number

ENER- was way up last night, but downgraded this morning

Earnings list:

THURS OCT 30 BEF

ABC APA AVP

BCO BJS BLL

CAM CBS CI

CL CMC CTL

CVS D DBD

EK ENDP ENR

EXPE FAF GNK

HSC ICE IGT

IP ITG JAH

LINTA LZ MOT

MRO MYL NVO

NWL OCR PAG

PDE PTEN SCG

SGR TE TRW

WMI WYN XOM



THURS OCT 30 AFT

ACS AKAM BARE

BMC CHK CPT

CTX DNB ELY

ERTS ESRX FBN

IDCC KLAC KND

MCRS MEE MFE

MHO MIL MNST

O OII OSG

PSYS SBAC SGMS

SPN SQNM SWN

THOR TSRA UNM

VSEA WRI WYNN



Good luck today.

WED. OCT. 29- RIP Bear Market

Hopefully, none of the Richard Rizzos were surprised by the rally yesterday. As discussed in detail the last two days, the tone of the market distinctly changed on Friday when the markets failed to react to the panic overseas after opening limit down on the futures. Then, while there was a collapse at the close yesterday, there was a relative dearth of selling pressure. Well, with Asia rallying and the Fed’s money being put to work, that was enough of an impetus to get things going and as sellers continued to step to the side, there was a stampede higher yesterday afternoon. Harking back to the embryonic stages of the rally were sharp gains throughout the world. Following the gains in Hong Kong in particular, there was a rather bizarre action in Germany as there was a massive short squeeze in Volkswagen- which for a time became the entity with the highest market capitalization on the planet. Now, that is a short squeeze! The rabid short covering of some hedge funds over there further helped to create the frenzy here. This is why we issued an A-B-A2 rally forecast yesterday morning following a sharp sell-off. Mind you, we would not go so far as to say we called the bottom based on the comments in Monday’s blog, but were certainly ready for that rally yesterday- particularly as day traders throughout Wall Street kept trying to short the market on the way up. So, what happens now? First, operate/trade under the assumption that a bottom has been reached. It does not mean we’re off to the races per se, but the environment is completely different now. In the immediate-term, expect very choppy action with prices continuing to swing wildly, but with more of an upside bias. Namely, do not keep looking for massive sell-offs; rather, start looking for a more cohesive rally with the declines increasingly shallow as investors buy into the government plan.

Prices in Asia and Europe continued to rebound overnight with markets sharply higher worldwide. Today will be very choppy; the Fed has their meeting at 2:15PM. While a 50 basis point cut is widely expected, most entities do not know how to position themselves properly with any certainty. The most likely scenario is that the rally continues initially with some profit taking thereafter. That said, there does seem to be a bid so do not look for gigantic gyrations of either side of unchanged for the major indeces at least until 2:15PM when a likely A-B-A2 develops based on where the market is at that time.

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-

APOL- good earnings

BMRN- good earnings

CMP- good earnings

FLS- good earnings

MS- total reversal yesterday; if it opens lower, looking to buy thru unch and/or an A-B-A2 to the downside if it opens negative and the market is weak

DIN- stunning gains last two days after they were able to sell a number of franchises to raise capital; the stock will likely go with the market

TGT- strong gains following news that Ackman wants to try to enhance value of company; could be more gains today if market OK

STI, JPM, BAC, USB, WFC- among the strongest banks yesterday; will likely lead market today one way or another

VNO, SPG- among the REIT’s that were very strong yesterday

AMGN, CELG- among biotechs which were very strong

AAPL, BEBE, AVAV – on “Mad Money” last night

HES, XOM- among the many oil stocks that had panic short covering

EVC- massive short squeeze

NXY- terrific earnings

Bad-

BEC- missed earnings

DRIV- missed and warned yet stock didn’t break down last night…if it opens down and the market rallies, look to buy thru unch

MOLX- missed and warned earnings

VPRT- atrocious earnings

FISV- bad earnings

LVS, WYNN- among other casinos, managed to finish down yesterday. A massive immediate-term move will likely occur; either both of these entities will explode on short covering or LVS in particular may not make it. Certainly a sector to watch

KNDL- closed on its low after PRXL had terrible earnings

ECOL- closed on a low after announced a government contract was delayed as the U.S. Army Corps of Engineers announced a lack of funding for the fiscal year

GLW- bad earnings

SEE- missed and warned

Earnings list:

WED OCT 29 BEF

AET AG ANR

BPO BRY BWA

CAH CETV CINF

CMCSA GLW GRMN

HAR HERO HES

IMA JNY KFT

LAZ LM MCO

MDP MGM MWV

NBL NEM NXY

NYB OC ODP

PG PX Q

SEE SLAB SPR

SPW SU SVVS

TWI VPHM WEC

WPI




WED OCT 29 AFT

AAP AEM AMP

AW BGC BMR

CA CBT CGNX

CLF CME COG

CW CYH DPL

DTE DVR EQR

FR FRT FSLR

GVA HBI HIG

HIW HLX HRS

ITRI JDSU MET

MUR MXIM OI

OIS ORLY PRU

ROG STR SYMC

TRN TSO V

VCLK WLL







Good luck today.



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TUES. OCT. 28 - A False 'Rest'

“Seinfeld” references. Discussions of football games. Bad (and good) jokes. These are some subjects of discourse that have been ostensibly not noted in trading rooms across the country for the last several weeks…until yesterday. The market once again shook off horrible declines in Asian stock markets while the yen in particular strengthened as domestic equities failed to follow through – at least until late in the day when fund selling came back in. However, with the drying of the selling pressure has been a complete absence of investors waiting to say “me first” in plunging back into the stock market waters. Thus, what occurred was a sort of vacuum of action for a chunk of the day; a few brave souls dipping toes only to get them bitten by jellyfish so to speak. This type of action was gently hinted at with the last lane of the blog yesterday; there is change in the market in the immediate-term. People are conditioned to sell into any rally however thus with a relative dearth of buyers, prices could not really move a lot net-net yesterday. Will this continue? Who knows with any certainty. But the point today is the same as yesterday: this is a different environment all of a sudden – one way or another- so be attuned to increasingly whippy action on both sides as the market attempts to sort itself out ahead of the elections as the forces of a tidal wave of government money versus hedge fund selling become that much more of a vicious war. This will likely make yesterday's action a very very brief respite.

Overnight, markets finally bounced world-wide. Prices in Hong Kong bounced 15% with prices up sharply across Europe as well. State-side, futures are higher- all the way up to levels- wait for it- not seen since yesterday afternoon at 3:45PM. For today, we may well have that rally that was so anticipated yesterday. There will likely be a sell-off a some point as many investors/funds take the opportunity to sell, but it’d seem that if that sell-off isn’t aggressive, we should have a pretty good A-B-A2 upside day.

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-

ATHR- beat earnings slightly

CF- beat earnings and announced massive buyback

FIS- fantastic earnings

PCX- good earnings

RCI- good earnings

SCHN – great earnings

SII- great earnings

DFS, MA, V- massive settlement in lawsuit going to DFS

VLO- good earnings; CEO made comments about the stock being undervalued

Bad-

MTH- missed earnings horribly

PCL- beat on quarter, but warned on year

PRXL- warned horribly

BWLD- warned on its outlook

PLD- continues it decline; looking to short thru yesterday’s 10.40 low if it opens above there

SRZ- looking to short thru yesterday’s 3.34 low if it opens above there after it was weak yesterday

MS- weakest of brokerage stocks after Mitsubishi Bank says it may need financing; looking for a short thru unch if it opens higher

CCC- looking to short thru 10.10 if it opens higher

C.NA- closed on its low; looking to short thru 11.90 if it opens above

HIG- closed on its 19.77 low; would short around 19.75 if it opened higher

X, ACI- mentioned negatively on “Mad Money” last night; X posted earnings as well

AIV- broke to another new low

NXY- closed near its low

PPO- another REIT horribly weak

MMR- oil exploration company near a low

LBTYA- the media company keeps falling

BMR- closed near a low

TSN, SFD- among poultry companies closing at or near their lows while down substantially; industry in trouble as financing drying up

MFC- closed on its low

SLB- one of the weakest of the big-cap oil companies; broke to a new trend low on close

CI- among the weakest of the insurers in yesterday’s trading

MAS- bad earnings

WHR- warned; cutting jobs

Earnings list:

TUES OCT 28 BEF

ACH AMED ASH

BYD CHKP CP

CRS CVG EL

ETR FMX GPI

IPG KDN KSU

MAS MHP MLM

MSO OXY PCX

RCI RCL ROC

SAP SCHN SEPR

SII TIN UA

USG VLO VSH

WDR WHR X


TUES OCT 28 AFT

ACE AMX APOL

BBOX BEC BMRN

BXP CAI CBI

CEPH CPHD CMP

CTX DRIV DWA

FISV FLS FMC

FORM JLL LNC

MCK MOLX MTW

NETL NLC STM

URI VPRT WBSN

WLT WRB XRAY



Good luck today.



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MON. OCT. 27- Is The Bottom Finally Finally Near?

As crazy as it sounds, Friday was actually a respectably decent day for the stock market. The Asian and European markets were routed earlier, futures were limit down coming in, and the news media was all ready for a meltdown. Instead, what happened was a sharply down day to be certain, but volumes were lighter than they were on Thursday and seemingly random sectors and stocks higher (insurance stocks, certain oil stocks, and such). With the dollar at multi-year lows against the yen, oil falling despite an output cut by OPEC, and the bond market up (but well off of its highs), one would have thought it’d be historically bad. It wasn’t. That makes it good. An interesting history lesson here would be to go back to 1973. The Dow topped out at 998 in October 1973, fell to 573 by October 1974, rallied to 692 the next month, and bottomed out at 570 in December 1974. The Dow was up 38% the next year.

Data table here:

http://finance.yahoo.com/q/hp?s=%5EDJI&a=09&b=1&c=1971&d=09&e=31&f=1977&g=m


The catalyst for that decline was the oil crisis, but once the economy accepted the shock, prices rebounded violently. Now, circumstances are entirely different this time of course, but the excesses are being totally worked off and the potential for a bounce exists as people begin studying history and playing all these what-if games. Add in to the mix that while there was precious little buying pressure on Friday, the selling volume just was not there. Thus, if things stabilize with no more major shocks to the system particularly following a further Asian collapse overnight. Money from the TARP begins flowing this week, the Fed will be out cutting rates in all likelihood at their meeting, and let’s not forget that next week is an election week so it is in the best interests and hopes of the incumbents to see an up market this week to make a fresh impression on the minds of voters. When everyone sells who wants/needs to sell, it creates a vacuum once things change. The nut of all this: be extremely careful on both sides, but be aware that what has worked in the past may not work in the future as Friday was the first day in a long time that the market had a shot to be drubbed…and it just wasn’t. Again, this is not a clarion call for a market bottom, but it is a clarion call to be extra-observant of any reversal particularly in a week in which reversals historically occur.

Overnight, Asian stocks further collapsed. Korean authorities cut interest rates by a record amount to no avail. Prices were down anywhere from a couple percent to as muc has 12% in Hong Kong. European bourses are weaker as well with prices down 3%-5% across the board. State-side, futures are well down, but not as much as one would think. This is one of the most critical days in one of the most critical weeks for the stock market in several decades. If the market holds opening levels, we may be in for a gigantic reversal today. However, if the first hour is sloppy with no signs of a bounce, it will likely hte beginning of the end of this process with a gigantic decline. VOlumes will not be all that heavy at first; there will be some forced selling and people afraid to step in. However, again noting, if the volume is exceptionally low on the initial downdraft and a few buyers come to play, it could well be a vacuum higher.

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 based on direction of the market unless specified


Good-

NIHD- major reversal on Friday; if it opens lower, looking to buy thru unch and/or A-B-A2 to upside if it opens higher

MET, PRU, AFL, HIG- among insurers which were up Friday in a weak tape; look for more strength today if market is good

ACV- on “Mad Money” Friday

BEAV- upside earnings

HUM- raised guidance for fiscal 2009

SOHU- good earnings and raised guidance

Bad-

PLD- closed near a low on Friday; it was very weak..if it opens higher, looking to short at 12

LVS, WYNN- very weak once again on Friday; news in one of them will affect the other in all likelihood

TKR- bad earnings Friday and closed near a low

CAH- weakest of the healthcare stocks on Friday

JWN- weakest of the retailers on Friday

RJF- weakest of the brokers on Friday

MAC- did not bounce Friday; looking for short thru 21.95 if it opens higher and/or A-B-A2 to upside if it does not go down fairly soon after open

HLF- fell to a new yearly low on Friday

HPC- extremely weak on Friday; looking for short thru 13

NFLX- continued extensive downtrend; will likely follow market today

SAFM- weakest of poultry producers

LBTYA- weakest of media companies on Friday

FITB- performed wretchedly on Friday; looking for short thru 7.80

THOR- warned of its devices failing…can cause death

Earnings list:

MON OCT 27 BEF

ACI BEAV EXP

FPL HUM L

LO ONB PENN

PBKS SOHU TDW

VZ




MON OCT 27 AFT

ACF AFG ALB

ATHR BBD BWLD

CF CR EWBC

FIS HPC MPG

MTH PCL PRXL

RCII SLG UHS

VRTX WMS


Good luck today.



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