Epiphany Trading Daily Blog

THURS. AUG. 5- What's Up With Volume?

In July, the volume on the SPY was about 40% lower than it was in May. When I’ve told people this statistic, I’ve been given responses such as “Well, it’s summertime,” the market’s not moving “ (which is not true considering it was the best July in many years for many market averages) to “No way. Most people have been working every day.” I did a little digging to check all of this out. In 2009, the volume on the SPY was 17% lower than it was in May following the huge volumes in 2008 leading to the market bottom in 2009. In 2008, the average SPY volume was up 88.5% over the average SPY volume in May. Want more? In 2007, the July SPY volume was 71.9% heavier in July than May. In 2006, July SPY volume was 4.1% higher than that of May 2006. In 2005, July SPY volume was 5.9% higher than that of May 2005. I can bore all of you with stats as I went back all the way back to 2000 when the SPY truly became an integral instrument to trading; nothing begins to compare to the drop-off from May to July of this year. So, what happened? The flash crash played a role for sure as some people lost confidence. It has indeed been a very hot summer in many parts of the country. It’s also true that in recent months, volume tended to move inversely to the direction of stock prices. And certainly in my office and at Epiphany, the number of overall traders is going up- not down. But 40%? A 40% drop-off in volume has to be caused by something else. And while it’s an opinion- it is an opinion with some facts to back it up that the overall decline in volume is due largely to the increased pace of high frequently trading as well as the switchover from EDGX to a stock exchange. According to studies such as one done by researchers at the prestigious Bouchet Franklin Institute, traded values as well as trading volumes are starting to show more and more correlation at increasingly shorter timescales. As noted Tuesday for instance, moves in markets such as the currency markets now take place in compressed time horizons. Thus, the “self-similar” fractal patterns tend to result in volatility surges, and feedback loops (i.e. something can be ahead 4 ½ points, but move such as that it is up 1, up 1.02, up 97 cents, up 1, up 1.04, up 1.02, up 1.05, up 1.01, up 1.03, up 1.00, up 1.13, up 1.09, up 1.07, up 1.14, up 1.12, and so forth all the way up to the 4 ½ point gain). Basically, such esoteric concepts as the Hurst Exponent (which is a measure of ‘noise’ in stocks) and the Markov Process (which measures randomness of things) put the whole premise of an efficient market in the immediate-term into question which simply makes one conclude that high frequency trading has had a major impact on trading. Again, I keep taking the amoral ground here- it’s not for me to say what it is right or fair or anything of the sort because, frankly, that’s over my head. But where all of this leads is that it makes traders that much more unsure of moves which were once present in different times, the algorithms tend to automatically do the trades, and there is less human participation in total trading volumes overall as humanoids cut down on their trade size. This is not a wah-wah “cry me a river” piece. Markets change. They will always change. Circumstances and dynamics change. It's up to traders to adapt. But to those who say that execution quality, trade volatility, and ephemeral market impact are improved by high frequency trading and the changing of EDGX to a stock exchange, I simply note that as trading volumes continue to plunge, it is very difficult to claim that anything is more efficient. Sure, one can get price improvement at times, but particularly in the immediate-term, many times one does not know if one wants the improvement nor can he/she get the size of desired purchase as was available six months much less six weeks ago. For day traders, obviously all of this directly impacts us as has been showing by gradual declines in volumes by most traders in the last few weeks. I will continue this series for awhile in showing the impact of what happened two weeks ago with the switchover as well as some things I am beginning to actively do in adapting shortly, but I am trying to educate myself (and hopefully a few others) first about what has happened and its effects else how can I or anyone who is a non-high frequency day trader come up with alternative solutions to the new challenge at hand?

Markets in Asia were generally quiet overnight with Hong Kong ostensibly flat although Tokyo had a nice bounce in closing up 1.7%. In Europe, Paris and Frankfurt are up 0.5% with London up 0.2%. Oil is down slightly, gold up slightly, and bonds and currencies are quiet. Futures are slightly weaker after poor jobless claims data. For today, look for a relatively quiet day with a slight downside bias as stocks go into a holding pattern particularly as the day progresses ahead of the unemployment report. Focus on the relative strength plays, the earnings plays, and the drillers on RIG’s numbers and positive BP news.

Reiterating-

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 specified.

If 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

RIG- decent earnings

SINA- decent earnings

PRU- decent earnings

NWS- decent earnings

SOLR- great earnings

MIPS- decent earnings

ATML- decent earnings

ALL- decent earnings

RGS- seeking strategic alternatives

AGN- featured on ‘Mad Money” last night

INT- closed near a high after announcing earnings

AGU- closed near a high after announcing earnings

AREX- closed near a high after announcing earnings

OEH- closed near a high after announcing earnings

OPEN- closed near a high after announcing earnings

DNDN- closed near a high after announcing earnings

WWWW- closed near a high after announcing earnings

PWRD- closed near a high after announcing earnings

POT- closed near a high

FSLR- closed near a high on takeover rumors

CLF- closed near a high

THRX- closed near a high

DO, APC, ATPG- closed near a high

CI- decent earnings

MED- decent earnings

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


HIG- poor earnings

IPI- poor earnings

MELI- poor earnings

CNW- poor earnings

SNIC- poor earnings

GCA- poor earnings

MOH- decent earnings, but announced share offering

UVV- closed near a low after announcing earnings Tuesday…oddly, it broke yesterday

WFMI- closed near a low after announcing earnings

PBI- closed near a low after announcing earnings

STEC- closed near a low after announcing earnings

LOCM- closed near a low after announcing earnings

LEAP- closed near a low after announcing earnings

FWLT- poor earnings

ARO- poor earnings guidance

Earnings:

THURS AUG 5 BEFORE

BVF BZH CAH

CBOE CI CTB

CVC DSX DTV

FIG FWLT H

HOC JOE LAMR

MED OCR OMG

PCS TDW THS

WPI


THURS AUG 5 AFTER

ATVI CF CROX

ELX EOG HANS

KFT MCHP MHK

MRX PSA SGMS

VCLK

Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
 
FRI. AUG. 6- The Fakeout Leading To Two Trades

I’m going to jump ahead slightly due to some demand/questions I’ve gotten in giving a specific example of a trade set-up which has been changed dramatically. Many years ago, when there was a major buyer or seller in a stock, the entity would acquire/rid themselves of the balance of a position in the form of a block of stock. Much more often than not, the stock would promptly move in the opposite direction of the prevailing trend violently as the overhang of stock evaporated. For instance, pretend XYZ had fallen from 50 to 40 over the course of two weeks on no news with volume averaging 1,000,000 shares a day when the market was neutral. Let’s also say that Big Name Institution was exiting a position of 6,000,000 shares gradually and had gotten rid of 4,500,000 over the course of two weeks. Many times what used to happen is that the stock would rapidly fall to say 37 on any given day and then one would see a block of 1,500,000 shares cross the tape. Well, if there is no news and Big Name Institution has sold all of its stock, there is nothing shoving the stock down artificially anymore and there’d be a rapid ascent in XYZ shares due to a lack of selling pressure. That process sped up in the Technology Age. One of my favorite types of plays occurred when a stock was in a strong trend yet there was a counter trend player in size with a bid or offer. Usually, once the big block of stock left, the stock would immediately move sharply due to the principle just described. For instance, BIDU was trading sharply higher last week and up on Friday(July 30) as well. There was a block of stock of about 400,000 shares being offered around 3PM that day at 81.30 (20 cents off of the then-high of day). What used to happen is that one would wait for the last piece of that block, buy it, and then shorts and momentum players would scramble with the stock typically rising back to its old high of 81.50 and oftentimes significantly higher. With the vacuum of selling pressure and the seller overhang out of the way, it’d set the stage for a nice advice; it is a pattern I’ve employed for over 10 years. However, with the shift over by Direct Edge to a stock exchange along with the increasing percentage of algorithmic trading, things have changed. What occurred in this stock is fairly typical. Once the overhang went away, the stock rose to 81.35, but got thrashed to 81.17 seconds later. Seven minutes later, sure enough, the stock went to 81.50. So what happened? Day traders like myself have made a living off of action such as the 81.30 to 81.50 (and north) move for a long time now. Algorithms know this as they have been programmed. So, what happens is that intelligent programs sell stock to unsuspecting immediate-term targeted day traders, we think we have something, and then get slammed and create a mini-panic when the stock goes below 81.30 (where the original seller was) because there was no reason for the stock to go below there as it never “used to do so.” Then, the trend ‘properly’ reasserts itself. So, in this and a myriad of other cases over the last 2 ½ weeks, the ‘new’ trade a solid majority of the time is to fade the initial move after a block of stock lifts with longer-term players buying the dip for a better entry. In this example, a short at 81.33-81.34 with a cover of 81.20 in seconds would work while the trend itself was intact thus an entry down there rather than at 81.30 as the block of stock disappeared for the move to 81.50 over a longer period of time also was the thing to do.

Markets overnight were mixed in Asia with Tokyo down 0.1% and Hong Kong ahead 0.6%. At this point, it’s meaningless as the jobs report has come out very badly. The dollar is a bit weaker against the yen and euro, oil is down 1% plus, and gold up slightly. Bond 10-year yields are at a new move low. There is now true legitimate fear that the domestic economy is faltering. Overall job numbers were down, private sector growth slowed (and miss estimates), and there was a revision down for last month’s numbers- a subtle 100,000 jobs to the bad. Oops. Futures are well lower. For today, look for a sharply lower open and then a choppy day. Private sector growth- while slowing- is there. Add to the mix a beautiful summer Friday and illiquidity will be rampant in a very choppy setting. Focus on the earnings (particularly things like AIG), the drillers (affected by ATPG’s numbers and a RIG downgrade), and relative strength plays with most of the volume occurring by lunchtime with the best/smoothest action over very early.

Reiterating-

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 specified.

If 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

CROX- great earnings

HANS- good earnings

KFT- good earnings

BID- decent earnings

MCHP- decent earnings

NANO- great earnings

MHK- good earnings

MRX- good earnings

AGO- good earnings

AFFY- closed near a high after posting good earnings

SINA- closed near a high after posting good earnings

RIG- closed near a high after posting good earnings

APC- closed near a high

FSYS- closed near a high after posting good earnings

POT, MON, DE, WIN, ONNN, CREE- featured positively on “Mad Money” last night

AIG- great earnings

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

APEI-terrible earnings

RST- bad earnings

CEC- terrible earnings

NILE- terrible earnings

ATVI- bad earnings

CF- poor earnings

ELX- poor earnings

HAR- bad earnings

SGMS- poor earnings

EOG- poor earnings

PSA- poor earnings

LINC- closed near a low after posting bad earnings

MDAS- closed near a low after posting bad earnings

MNTA- closed near a low after Sanford Bernstein indicated a generic version of MNTA’s lead drug will likely hit the U.S. market this year

PACR- closed near a low after posting bad earnings

UVV- closed near a low

VECO- closed near a low on a report of fewer orders from Taiwanese rivals

ONXX- closed near a low in a island reversal

CECO- closed near a low after posting bad earnings

RBCAA- closed near a low after the IRS said it will no longer electronically underwrite tax refund anticipation loans

ATPG- poor earnings


Earnings:


FRI AUG 6 BEFORE

AIG AWI CEDC

DRQ DYN JRCC

MIR

Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
 
You're very welcome. I hope i can help. The only time i actually used today's blog post in practice was AIG. It got above 42 at around 10AM when a huge offer existed thru the high of the day. hen it got back below 42, I shorted it for the immediate-term play as I have more confidence in quick moves than longer-run plays for my own trading. Thus, i missed out on a much bigger move, but again, I tend to go for quick jagged moves.

Here is my trade:

Seq # Cxl Time Status Sym Side Qty Exe Qty Lvs Qty Dest Price Avg Exe Prc
52 10:01:16 Filled AIG BUY 400 400 0 NSDQSTGY 41.75 41.7500
51 10:01:13 Filled AIG BUY 400 400 0 NSDQSTGY 41.78 41.7500
50 10:00:51 Filled AIG BUY 800 800 0 NSDQSTGY 41.9 41.9000
49 10:00:38 Filled AIG SSHRT 1600 1600 0 PDQARCA 41.97 41.9700
41.9700
Quote from jones247:

thanks for the posts, Erik...

your insightful contributions are appreciated.


Walter
More...
 
MON. AUG. 9- Friday's Jobs Report

On Friday morning, the monthly jobs report came out. I wrote a bit about the build-up to last month’s report in this piece:

http://www.capitalmarketforum.org/entry.php?95-FRI.-JUL.-2-Jobs-Jobs-Jobs-Jobs-Jobs

Well, the unemployment data remains one of if not the most important pieces of data and this one was no exception. According to the Labor Department, private payrolls rose by 71,000 jobs in July, but that was less than the average economist’s prediction of about 90,000. Overall employment fell by 131,000 jobs (also worse than expected) as temporary census workers lost their jobs. Even more notable, the drop in June jobs was revised to a loss of 221,000, down from 125,000 lost…96,000 more jobs lost than originally reported! What is more worrisome is that the recent factory orders report indicated that manufacturing rose in July, but at the slowest pace of 2010. As orders slowed and production drifted down, it signals employment gains may cool. Basically, think of this as the opposite as to what happened last year when there was talk of ‘green chutes’ and things that could be ‘less bad,’ aka regression at a slower pace. Well, now we’re on the other side of that, but growth is gradually slowing. Since job growth is one of the two foundations of economic recovery (along with real estate stabilization), any sign of weakness in the labor market will not be taken lightly by the equity markets thus the decline in stock prices- albeit muted by the end of the day due to rumors of a mortgage forgiveness program at the FHA.

Markets in Asia were generally higher overnight; Tokyo was down 0.7% but Hong Kong ahead 0.6% with Shanghai up 0.5% and Sydney 0.6%. Markets in Europe rebounded strongly from Friday’s weakness on the U.S. jobs report with Paris up 1.6%, London 1.5%, and Frankfurt 1.4%. The dollar is quiet, bonds and gold up slightly, and oil up 1%. Futures are up nicely despite the HPQ bombshell. Look for a quiet summer Monday with a modest upside bias as the markets show resilience ahead of the FOMC meeting tomorrow. The focus will be in technology with stories out of HPQ, AAPL, and RIMM dominating the landscape and a secondary focus on the agriculture stocks as the Russian drought continues.

Reiterating-

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 specified.

If 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

IBM, DELL- will likely benefit from any damage to HPQ

HANS- closed near a high on good earnings

CEC- near island reversal after posting earnings in closing near a high

RIMM- closed near a high

IOC- closed near a high

BID- closed near a high on good earnings

AGO- closed near a high on good earnings

BIDU- closed near a high

SWSI- received a tender offer from NBR for $22.12/share

CHBT- decent earnings

DGI- entered into a $3.55 billion agreement with NGA

SOL- decent earnings





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

HPQ- CEO Mark Hurd resigned suddenly on Friday afternoon; there are worries here about a vacuum of leadership and what else may be hidden

LSCC- CEO Christopher Fanning resigned Friday afternoon after two years on the job

APEI- closed near a low on terrible earnings

DEXO- closed near a low

PACR- closed near a low on continued negative follow-through after posting poor earnings last week

ATPG- closed near a low on poor earnings

DV, ESI, LOPE- among the for-profit educational institutions under scrutiny by the U.S. Department of Education which closes on their low on Friday

PCC- closed near a low after posting bad earnings

MGA- near island reversal in closing near a low despite great earnings

DISH- poor earnings

AMED- poor earnings



Earnings:

MON AUG 9 BEFORE

AMED DISH KG

MAC SOL TSN

WCG

MON AUG 9 AFTER

CLNE CTRP GNK

IT MBI MDR

MDVN MR NUAN

PRXL QGEN SLXP

THQI


Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
 
TUES. AUG. 10- The Quiet Money Chase

If I were to drive to the place I grew up (Savannah, GA), I'd ostensibly take I-95 all the way down because it is quickest and it's straight shot. If I felt l had some extra time and wanted the kids to explore a little, we could stop in a place like Washington, DC along the way. If time and distance weren't issues, I could go to places that were out of the way such as Philadelphia or Hershey, PA, or Atlanta. But I would want to wind up in Savannah so as to see the place I grew up (and my Mommy at that). No matter how I did it, I'd get there. Well, this market is in the midst of a somewhat unconventional up move with three unique factors. First, after an awful 2008 and a good 2009, the market is somewhat flat in 2010. Yet, money managers who underperformed the last two years cannot afford for their own job safety to do so again in 2010. Thus, in a vacuum of news on days like yesterday, Money Chase 2010 is on as select money managers can push stocks up when not a lot of people are around to try to capture those extra fractions of a point of gains. Second, with bond yields paltry, the incentive to take on a little risk is there. Despite this enormous month-long rally, bond yields have continued to decline as well as money floods the American markets. As for "how we get there," the 3rd thing is this continuation of a 'light volume levitation.' Volume on the QQQQ yesterday was just over 1/3 of what it was the day after Thanksgiving in 2009. Think about that. Volume was almost three times heavier on a day after a holiday in which almost nobody goes to work and one in which the market is only open for a half-day of action. But the direction was ultimately north and if you were short all day, it hurt just as much as if volume was heavy. I am no soothsayer and have no real clue with any confidence which way the market will go the rest of the year. But I do know this- on a day like yesterday when news flow is light and as we approach the final 1/3 of the year, quiet days like yesterday- with the key corollary again that there is no major news out there on any given day- have a good shot of having a bullish bias intra-day for the balance of 2010 because of the three factors described herein in this piece.

Markets in Asia were down overnight with Tokyo down 0.2%, but Hong Kong fell 1.5% and China declined almost 3%. The news out of China last night was not great as a report showed slowing of imports as well as rumors that China will require banks to provide for losses on loans held in trusts. In Europe, markets are also down from London’s 0.5% to Frankfurt’s 1%. Furthermore, commodity shares are falling across the board with oil down over 1% and gold down almost 1%. The dollar is slightly stronger against the yen but much stronger against the euro. Futures are sharply lower on all of the China news. Furthermore, as referenced yesterday, a chunk of the Friday afternoon rally was attributed to rumors of quantitative easing by the Fed, but it does not look likely to happen. Look for a sharply lower open, a very choppy first hour of trading on little liquidity and then a calmness to prevail leading up to 2:15PM ET. At that point, the results of the Fed meeting will be released and we’ll know if rumor becomes fact. If no program is announced, don’t look for much of a reaction. If the Fed downgrades its outlook for the economy somewhat sharply and announced a plan, look for a sharp reaction to the upside likely followed by a sharp reaction to the downside as the reality of the situation is assessed.

Reiterating-

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 specified.

If 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

MBI- good earnings

IT- decent earnings

PRXL- decent earnings

GNK- decent earnings

MDR- decent earnings

CLNE - decent earnings

CTRP- decent earnings

CMFO- decent earnings

V, MA- closed near their highs

WYNN- closed near a high

BTN- closed near a high after posting earnings

GEOY- closed near a high after getting a huge contract from the National Geospatial Agency

VLTR- going into the S&P 600 on 8/16

ESRX, APKT- featured on “Mad Money” last night

FOSL- great earnings

VRTX- reported good viral cure rates in phase III Hepatitis C trial


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

NUAN- poor earnings

QGEN- poor earnings

SLXP- poor earnings

THQI- poor earnings

VSAT- terrible earnings

ASEI- terrible earnings

MR- poor earnings

AMED- island reversal in closing near a low after posting earnings

DISH- closed near a low after posting earnings

MDCI- closed near a low after posting earnings

ADY- closed near a low after posting earnings

OCR- closed near a low after Moody’s downgraded its rating outlook

APEI- closed near a low

PMC- closed near a low

DGIT- closed near a low after ASCMA outlined a new electronic advertising distribution venture which would be in direct competition to DGIT’s business

SKX- closed near a low amid advertising lawsuits filed against the company

NGLS- units and notes offering

RAX- poor earnings

BBB- poor earnings

FEED- poor earnings


Earnings:

TUES AUG 10 BEFORE

AIT CVG JASO

TUES AUG 10 AFTER

AONE CREE DIS

JAZZ LDK MYGN



Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
 
WED. AUG. 11- Notable Fed Move

Yesterday afternoon, the Federal Reserve did its best to walk a fine line between appearing overconfident about the economy, unconfident about the company, realistic, and unanimous. It was a near impossible task but they pulled it off fairly well judging by the market’s reaction. Basically, they took a baby step upon expressing some worry about the sputtering recovery. After issuing a near identical statement to the last one, two notable differences occurred at the end of said statement. First, the Fed noted that economic growth will likely be “more modest” than it thought even two months ago. Even more notably, the Fed indicated that it could use money from its investments in mortgage securities to buy government debt to a small degree. Ostensibly, this could force down rates on mortgages and corporate debt even lower as yet more money would be poured into bonds. But the gesture is basically a symbolic one if not an important one as the amounts in question are seemingly too small to truly impact credit conditions particularly when bond yields hover at historically low levels. However, it is still of note for one positive and one negative reason. The positive is that the impact of any relative immediate-term Fed move will be known because all one has to do is glance at its balance sheet to see if it is in an easing or tightening mode. The negative though is a dangerous one. Not only is the Fed playing out the same theme of maintaining its strategy of keeping rates low in the hopes of spurring growth it runs the risk of appearing dinosaurish should the economy not pick up. Also, the reality is that new growth is not being spurred; rather people like myself are taking advantage of the low rates to refinance their mortgages rather than buying new houses. Finally, it is debt upon debt in that the monetization of the continuing hefty deficits create an image of a willingness to take on even more debt. The markets have been factoring in some sort of Fed move for a few weeks now which has played a role in the recent rally. The fact that the markets traded lower yesterday but bounced on this announcement actually is immediate-term bullish as this was an indication of the Fed showing a willingness to react if necessary- but not doing so now. Perhaps all of this is a long-term negative, but was an immediate-term positive as confidence is the backbone of any market is the Fed which is certainly trying to keep things stable while not throwing a scare into the mix. Thus, the Dow wiped out a loss of 150 points before settling back a bit as the afternoon progressed. The truest indications of the Fed’s actions over the coming days and weeks will be the performance of the bonds, gold, and dollar…all of these indicators will likely play a very significant role on a macro much less intra-day scale for quite some time particularly if the moves in any or all of those markets becomes exaggerated- as has occurred already this morning.

Markets overnight were hit very hard with Hong Kong down 0.8%, but Tokyo fell 2.7%. In Europe, the story was no different as the bourses are all down 1.5% to 2% as of this writing. The yen continued to strengthen with the dollar falling below 85 yen but rising sharply against the euro. Gold is up slightly but oil is down well over 1%. 10-year yields continue to plunge. Futures are down sharply as the reality of what occurred yesterday is beginning to sink in. Trading today will be volatile and illiquid- and likely remain to the down-side. Use the dollar as a decent indicator for what will happen today. Focus on big caps, the limited earnings flow, and the solars.

Reiterating-

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 specified.

If 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

DIS- decent earnings

LDK- good earnings

JAZZ- good earnings

SPWRA- decent earnings

HMIN- good earnings

AMZN- closed on a high

NFLX- closed near a high after a positive mention on “Mad Money” and upon signing a deal

ZSTN- closed near a high after posting earnings

AEM, CHK, AKAM- featured on “Mad Money” last night

AVT- decent earnings

M- decent earnings




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

CREE- terrible earnings

AONE- poor earnings

MYGN- poor earnings

MR- closed near a low after posting earnings

AMED- closed near a low

MDCI- closed near a low

PMC- closed near a low

ADY- closed near a low

PEGA- closed near a low after posting earnings

JAG- closed near a low after posting earnings

APC- closed near a low

MITL- closed near a low after posting earnings

HQS- closed near a low after pricing a share offering


Earnings:

WED AUG 11 BEFORE

AVT CSC EJ

M

WED AUG 11 AFTER

AAP ANW CSCO




Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
 
THURS. AUG. 12- Here We Go Again

The last sentence of yesterday’s piece was this:”The truest indications of the Fed’s actions over the coming days and weeks will be the performance of the bonds, gold, and dollar…all of these indicators will likely play a very significant role on a macro much less intra-day scale for quite some time particularly if the moves in any or all of those markets becomes exaggerated- as has occurred already this morning.” Let me elaborate. There arguably has never been a time in the history of markets in which varying tradable entities have been more interconnected. If X then Y. If C then D. Furthermore, a bevy of hedge funds trade similarly so the herd mentality exists like never before. Well, yesterday, foreign equities were hit, oil suffered a 3% slashing, the dollar had its biggest one-day gain against the euro in months, and bond moves got exaggerated domestically as 10-year yields went below 2.70% while the German bund yield plunged all the while bond yields in hot spots climbed. It gets even more esoteric than this, but the point is that a wild move in any particular non-equities market can have a dramatic impact on stock prices. So, as volatility clearly has returned even on low volume, traders have just got to keep an eye on everything rather than merely the direction of the S&P 500. The correlation yesterday between oil, euro, and the S&P futures was incredibly direct thus the importance of every major indicator and what will be in play must be known early in the morning- and monitored throughout the trading session.

Markets in Asia were weaker overnight with declines of about 1% across the board. In Europe, stocks are down across the board but much more modestly with losses of around 0.2% in Frankfurt as an example. Gold is up ½%, but oil is down almost 2%. Bonds are slightly weaker. The dollar is slightly stronger against the yen but notably stronger against the euro which has helped to extend stock futures losses state-side. Futures are weak off of the CSCO earnings report but off of their overnight lows. Look for a test of those lows this morning (10254 Dow 1073.40 S&P on the futures with cash about 25 Dow points and 2.5 S&P points higher). If those lows hold and volume remains somewhat light, certainly begin to play some relative strength plays in a market bounce with a focus on big cap tech, casinos, and the retailers which reported today.

Reiterating-

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 specified.

If 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

AAP- decent earnings

JAZZ- closed near a high after posting good earnings

CALL- closed near a high

PRGO- decent earnings

VHC- good earnings


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

CSCO- awful earnings

ICOP- poor earnings

GS- closed near a low

AAPL- closed near a low

AIG- closed near a low

CREE- closed near a low after posting terrible earnings

AONE- closed near a low after posting terrible earnings

CYD- closed near a low after posting terrible earnings

WYNN- closed near a low

VECO- closed near a low

SPWRA- closed near a low after posting earnings

CSC- closed near a low after posting terrible earnings

CLF- closed near a low

MDCI- closed near a low after posting terrible earnings

ANW- poor earnings

MON- closed near a low

BCSI- closed near a low

CNW- closed near a low

WLP- closed near a low

ATI- closed near a low

URS- closed near a low after posting terrible earnings

EL- poor earnings

KSS- poor earnings

EAT- poor earnings

Earnings:


THURS AUG 12 BEFORE

BGG BR EAT

EL HEAT KSS

PRGO SLE WEN

THURS AUG 12 AFTER

ADSK BYI DV

JWN NVDA RRGB



Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
 
FRI. AUG. 13- The Liquidity Rush

This post is going to be one of the ones that fall under the “this is so obvious that you shouldn’t write about this, Erik,” but sometimes what seems obvious on the surface is not so obvious. Let’s say you were in the market for a new car- let’s say a Toyota Corolla for simplicity. Furthermore, let’s pretend that there are three Toyota dealers within a mile of each other and you went to each one. If the prices at each dealer ranged from $55,000 at Dealer 1 to $57,500 at Dealer 2 to $60,000 at Dealer 3, I’d have to guess you’d start looking for another car. If the prices were $17,000 at Dealer 1, $18,000 at Dealer 2, and $19,000 at Dealer 3, you’d take some time to do some homework and figure out exactly what type of car you wanted and where you want to buy it. Now pretend that Dealer 1 offered you a price of $100, Dealer 2 was $200, and Dealer 3 was $250. Also pretend you’d done your homework and you knew all of the dealers and cars to be legitimate. Well, speaking for me, I’d buy all three cars on the spot out of fear that they’d be gone at that price imminently in worrying about asking questions later. I’d do so amid the hopes I could keep one of the cars for myself and then sell off the other two for a nice profit due to what appeared to be an artificially low price based on what I knew after the extensive homework I’d done. In the day trading world, if AAPL is trading at 250, nobody is going to buy shares for 275 on a given ECN. Someone may buy it for 250. But if the stock could be bought at 249.95 with the knowledge that it’d quickly go through 250, who wouldn’t buy as much as they could? Going back to the high frequency theme, by being able to beat the average trader to the punch and ostensibly knowing what’s on the book, stocks can and indeed do act like this. This is the reason that many times recently, a stock at a rigger spots will blow right through it. If it’s good, who wouldn’t want to be in it thus a computerized algorithm swipes the shares as rapidly as possible. As a for instance, I was showing AAPL at 249.87 to 249.90 just after 10AM yesterday. I saw the stock tick 249.90 bid and placed my order to buy a couple thousand shares at 250. In the fraction of a second it took me to hit the buy button (with the stock at 249.92 offer), the stock was already 250.10 on its way to 241.86 six minutes later. Now, I am the absolute first to admit when I miss a stock because I am too slow. It happened about once or twice a day on average last year. Yesterday, it happened on 11 separate occasions. All 11 were winning trades. Lookit, I am not complaining…this is the game now. But be aware that if you’re waiting for a precise entry spot, one of the major adaptations to what has happened in the last couple of weeks is that you have to be faster than ever before in your order placement.

Markets in Asia were mixed overnight with Tokyo gaining 0.4% and Hong Kong down 0.2%. Markets were lower in Europe overall with London off 0.4% and Frankfurt down 0.6%. Gold and currencies are flat with bonds up a tinge. CPI data came in as expected with retail sales missing estimates slightly. There are a number of small takeovers today as well which is quite bullish for M&A, but the interesting feature of the day is that Dow futures were up 87 overnight; they are now down 20. I’ve written about this phenomenon in this space before; it’s certainly something to be aware of today. If markets don’t sell off initially, look for a very nice bounce today on low volume. Focus on the deal stocks in case the prices get out of whacked with the announced takeover strikes the earnings plays, and particularly any relative strength play early on if the markets gap a bit lower.

Reiterating-

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 specified.

If 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

ADSK- good earnings

NVDA- good earnings

TRBN- being acquired by EBS for $1.365 cash plus .1641 shares of EBS or approximately a net value of 4.55 per share

NFLX- closed near a high

MMYT- closed near a high; was best performing IPO in three years

POT- closed near a high

LVS- closed near a high

CAGC- closed near a high after reporting good earnings

ALY- being bought out for 4.25/share in cash or 1.15 shares of England’s Seawell

UNCA- being bought out by 21/share in cash by IBM

SUP- decent earnings


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

JWN- poor earnings

BYI- poor earnings

DV- poor earnings

TSTC- terrible earnings

CAVM- closed near a low after CSCO’s poor earnings

JCP- poor earnings

Earnings:


FRI AUG 13 BEFORE

CTFO JCP



Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
 
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