erikrkolodny
ET Sponsor
Abbott and Costello. Laverne and Shirley. Batman and Robin. If you cannot tell, the theme for todayâs piece is pairs. Pairs trading was very much in vogue during the late 1980âs in particular. The concept of âpairs tradingâ was started by a quantitative analyst from Morgan Stanley named Gerald Bamberger in the late 1980âs. Bamberger discovered that certain equities- particular in the same sector if they were direct competitors- tended to correlate in their day-to-day price movements. For instance, KO and PEP and F and GM are but two famous pairs. To this day, pairs trading is often done with the thought that if a spread between two particular equities gets too wide, the spread comes in, i.e. if PEP rallies, KO should rally as well. The problem for day traders, however, is two-fold. First, there can be a lot of noise intra-day. Spreads can widen and come in intra-day seemingly randomly so it makes it hard to game the system. But the second issue is of more import- one must pick the right pairs. For instance, if one traded Reebok and Nike some time ago (or DELL and IBM most recently), seemingly equal competitors can diverge rapidly, i.e. Nike became the dominant shoe entity while IBM dwarfed DELL. Which brings me to my point: many traders recently have been trading GS and MS together along with the banks as a whole together. And much more often than not, if one is rallying, some of the others in the sectors do not necessarily catch up. This is because of the aforementioned two points: we may well be witnessing â namely the weak are separating from the strong in the financial sector and things are vacillating wildly intra-day. Namely, just because GS is rallying does not mean MS will and vice versa; indeed, MS posted poor earnings on Wednesday and traded down much of the day while GS actually rallied. Daily epiphany: do not overthink things. Keep up with the macro of course, but know that buying a competitor blindly when day trading does not always fellow common sense logic.
Markets in Asia were lightly mixed overnight with Tokyo down 1% and Hong Kong up fractionally. Markets were stronger in Europe with prices up 1% to 2% across the board. State-side, MSFT and AMZN are helping to lead a charge in techs while other sectors are following in lockstop albeit less so in relative terms. With it 70 degrees and sunny in New York tonight, look for a much slower day as traders file out early. But, we should have a marginally higher open. From there, there seems to be a ceiling in the short-term amid worries about the stress test results yet nobody wants to sell anything either in case the results are good. Ergo, we get stuck and that is probably what happens todayâ¦a tight range-bound trading market with individual stocks totally utterly the way to go. The bias is to the upside unless shown otherwise, but watch for the 2PM announcement about how the test was conducted as well as any leaks about stress test news.
Reiterating-
Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
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 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
AMZN- good earnings
MSFT- in-line earnings, revenue miss, but stock rallied after-hours
MHK- positive earnings guidance
AXP- good earnings
BNI- good earnings
JNPR- good earnings
CAKE- great earnings
WDC- good earnings
ALGN- good earnings
STAR- good earnings
RVBD- good earnings
PMCS- great earnings
DV- good earnings
NTY- good earnings
CF- good earnings
SYNA- good earnings
FIG- closed on high of day
COF- closed near high of day
CPHD- good earnings
BUCY- good earnings
SKT- good earnings
LVS- mentioned on âFast Moneyâ last night
PH- mentioned positively on âMad Moneyâ last night
OFG- good earnings
F- good earnings
HON- good earnings
SLB- good earnings
WL- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
NFLX- bad earnings guidance
SPWRA- weak earnings guidance
AMGN- poor earnings
WFR- weak earnings
IBKR- terrible earnings
CNW- bad earnings
DECK- warned on its outlook
EZPW- poor earnings
SWKS- bad earnings
ORI- closed near low of day
SD- doing a share offering at 7.60
MMM- bad earnings
ACI- bad earnings
Earnings:
FRI APR 24 BEFORE
ACI CYH F
HON IDXX IPCR
ITT KMT KTC
MMM PNK SLB
SWK WL XRX
Good luck today.
Erik R. Kolodny
Markets in Asia were lightly mixed overnight with Tokyo down 1% and Hong Kong up fractionally. Markets were stronger in Europe with prices up 1% to 2% across the board. State-side, MSFT and AMZN are helping to lead a charge in techs while other sectors are following in lockstop albeit less so in relative terms. With it 70 degrees and sunny in New York tonight, look for a much slower day as traders file out early. But, we should have a marginally higher open. From there, there seems to be a ceiling in the short-term amid worries about the stress test results yet nobody wants to sell anything either in case the results are good. Ergo, we get stuck and that is probably what happens todayâ¦a tight range-bound trading market with individual stocks totally utterly the way to go. The bias is to the upside unless shown otherwise, but watch for the 2PM announcement about how the test was conducted as well as any leaks about stress test news.
Reiterating-
Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
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 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
AMZN- good earnings
MSFT- in-line earnings, revenue miss, but stock rallied after-hours
MHK- positive earnings guidance
AXP- good earnings
BNI- good earnings
JNPR- good earnings
CAKE- great earnings
WDC- good earnings
ALGN- good earnings
STAR- good earnings
RVBD- good earnings
PMCS- great earnings
DV- good earnings
NTY- good earnings
CF- good earnings
SYNA- good earnings
FIG- closed on high of day
COF- closed near high of day
CPHD- good earnings
BUCY- good earnings
SKT- good earnings
LVS- mentioned on âFast Moneyâ last night
PH- mentioned positively on âMad Moneyâ last night
OFG- good earnings
F- good earnings
HON- good earnings
SLB- good earnings
WL- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
NFLX- bad earnings guidance
SPWRA- weak earnings guidance
AMGN- poor earnings
WFR- weak earnings
IBKR- terrible earnings
CNW- bad earnings
DECK- warned on its outlook
EZPW- poor earnings
SWKS- bad earnings
ORI- closed near low of day
SD- doing a share offering at 7.60
MMM- bad earnings
ACI- bad earnings
Earnings:
FRI APR 24 BEFORE
ACI CYH F
HON IDXX IPCR
ITT KMT KTC
MMM PNK SLB
SWK WL XRX
Good luck today.
Erik R. Kolodny