Epiphany Trading Daily Blog

WED. OCT. 20- The China Syndrome

A very major political event happened with an alarmingly paucity of fanfare a couple of weeks ago.. That afternoon, the House of Representatives- by an overwhelming majority of 348 to 79- passed a bill which authorized the Department of Commerce to impose ‘duties’ on imported products from nations it deems as having “undervalued currencies.” The bill was broadly supported by both major political parties with Democrats portraying the matter as a jobs issue while Republicans framed the issue as one of fairness. Earlier this year, China indicated it’d allow its currency (yuan) to trade in a wider band against the dollar, but the yuan has barely appreciated since that time. Most experts widely acknowledge that the yuan is about 15%-25% undervalued against the dollar which makes Chinese goods cheaper in the U.S. and U.S. goods sold in China more expensive. Basically, I view it as a situation whereby because two wrongs don't make a right. China is seemingly wrong based on the yuan’s performance, but the U.S. retaliating so overtly with such political overtones will not go over well there. I am not saying we should lie back and take it, but making such a public stink about it could cause the Chinese to do things like raise tariffs on steel imports. Which would cause the U.S. to retaliate. And so forth. Indeed, in the last 24-36 hours, the Chinese raised their benchmark interest rate and very quietly began an embargo on rare earth metals to the United States. That doesn’t sound major until one considers many of these same metals are used in the manufacturing of products such as semiconductors. I have absolutely no idea how this situation will break, but with the Senate voting on the House bill later this year, Sino-U.S. relations could once again become a forefront issue for day traders as many rumor (or actual event as has occurred in the last day affecting U.S. trade can dramatically impact stock prices.

Markets were hit in Asia overnight with Tokyo down 1.6% and Hong Kong down 0.9%. Things actually perked up in Europe slightly with a lot of the damage having been done yesterday as the bourses are up either side of ¼%. Oil and gold are rebounding a bit- oil about 1% and gold about ½%. The dollar has renewed its decline with it approaching the 81 yen level and down almost a full euro. Futures are higher. Today will likely be very choppy with trading on both sides of unchanged. There has been a rebound in sectors like commodities but financials are almost universally lower. Oil inventories are out at 10:30AM with the Beige Book out at 2PM. Keep an eye on those commodity and financial stocks, the rare earth mineral plays, AMLN and the fallout from its drama, and the myriad of companies that have reported earnings.

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

SHZ, REE, MCP- all rare metals stocks; all closed near their highs on the China embargo news

NVO- main beneficiary of the Byetta denial by the FDA

TWER- closed near a high

DEAR- good earnings

ALTR- decent earnings

SYK- decent earnings

SHAW, CTL- featured on last night’s “Mad Money”

ECA- decent earnings

ETN- decent earnings

BA- decent earnings

DAL- decent earnings

WFC- decent earnings

STJ- decent earnings


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

AMLN, ALKS, LLY- FDA again denied approval for Byetta

CREE- terrible earnings; VECO may move with it

JNPR- bad earnings

POT- Saskatchewan will announced decision to approve or deny BHP’s takeover bid on Thursday; the premier will do so and has been against the bid

FSII- earnings warning

ISRG- missed revenue estimates

RIG- closed near a low

CASH- closed near a low

WLP- closed near a low

FNSR- closed near a low after reporting terrible earnings

SVU- closed near a low after reporting terrible earnings





Earnings:

WED OCT 20 BEFORE

ABT AMB APH

BA BLK CHKP

CMA DAL DGX

ECA ETN GAP

GENZ KCG LCC

LNN MAN MI

MO MS MTB

STJ SWK TIN

TXT USB USG

UTX WFC

WED OCT 20 AFTER

ACF ACL ADS

EBAY ESV FNF

ISIL LRCX NE

NFX NFLX RHI

RJF STX TSCO

TSS XLNX


Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
THURS. OCT. 21- What's The Market Thinking About?

Don’t worry. I won’t be graphic. I just have to describe something to make a point. It is all about childbirth. I’ve been lucky enough to witness much less play a part in the delivery of both of my beautiful little girls (Rayna and Samara). During the process, a zillion thoughts passed through my mind. But the pervading thought that I was left with was how everything was a blur leading up to their births. I remembered in a mental cacophony in my mind the discussions, the ‘could we handle it,’ the moments of pregnancy from when my wife and I told the world we were going to be parents to the moments when she had intense morning sickness. But all of that mental noise was eviscerated on the mornings of the angels’ births. All that mattered was that the kids and my wife were happy and, thank G-d, healthy. After sitting at my desk for a few minutes, could not think of a more applicable analogy for this stock market. On Tuesday, we heard headlines about China (some of us wrote a blog post yesterday about it), the pending foreclosure mess at the likes of Bank of America, and relatively poor earnings flow. But when I awoke yesterday morning, I noted that the dollar had fallen a full euro. By the end of the day, the loss was almost 2 ½ euros and the market had recouped for the most part Tuesday’s losses. Despite all of those Tuesday worries, the losses were wiped out yesterday because the dollar took a dive. ss has been noted in this space, when the dollar declines in recent months, it has been good for equities and vice versa. So, it is important as always to keep track of as much data as possible, but just as nothing mattered when my kids were born, nothing mattered to the markets net-net these last two days except for the performance of the greenback. Thus, that was the singular most important sign to show you where the market’s focus is right now and will likely be for some time to come.

Markets in Asia were lightly mixed overnight with Tokyo closing ostensibly flat but Hong Kong was up 0.4%. Markets in Europe have traded higher all morning to the tune of about ¾% on average as of this writing. The dollar leads the way again with it above 1.40 to the euro and below 81 to the yen. Gold and oil are slightly lower. Futures are higher on all of this but a bit off of their heights of the morning. LEI 0.3%) and Phily Fed (1.4) are both due out at 10AM. As has been so often the case recently, track the dollar to track the equities intra-day. Action will likely be choppy but maintain an upside bias. The focus is on the triple digit amount of companies that reported earnings this morning, the rare earth plays, and the big cap techs.

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

NFLX- great earnings

EBAY- great earnings

TSCO- good earnings

TSS- decent earnings

RHI- decent earnings

RJF- decent earnings

LNN- closed near a high after posting earnings

BA- closed near a high after posting earnings

WSCI- closed near a high after posting earnings

HUBG- closed near a high after posting earnings

URZ- closed near a high

GS- closed near a high

RIMM- closed near a high

UAL- closed near a high and had decent earnings

IL- featured on “Mad Money” last night

WSTL- decent earnings

NLST- demonstrated 100 virtual machines on a single standard server using Hypercloud Memory at Interop

ALXN- decent earnings

BAX- decent earnings

DO- decent earnings

STI- decent earnings

TRV- decent earnings

CAT- good earnings

FCX- great earnings

LUV- good earnings

MCD- good earnings

ISLN- good earnings

PNC- decent earnings

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

ADS- terrible earnings

STX- poor earnings

XLNX- poor earnings

TEX- poor earnings

MCP- closed near a low

FMBI- closed near a low after posting earnings

MLNX- poor earnings

HSY- bad earnings

PM- poor earnings

CYS- poor earnings

PM- poor earnings

PLCE- terrible earnings outlook

K- bad earnings

CRUS- terrible earnings

NTRS- poor earnings

FLIR- poor earnings

UNP- poor earnings

CY- poor earnings

ESI- poor earnings




Earnings:

THURS OCT 21 BEFORE

ALK ALXN APD

BAX BBT CAT

CRUS CY DHR

DO ESI ETR

FCX FLIR GR

HBAN HSY ISLN

JNS LH LLY

LUV MCD NTRS

NUE PCP PCX

PM PNC PPG

R RAI RS

STI T TRV

UAL UNP UPS

VFC XRX

THURS OCT 21 AFTER

ALB AMZN AXP

BCR BIDU

BUCY CA CB

CMG CPWR CTXS

CYMI CYT ELX

INFA MCRL NCR

PLCM PMCS QLGC

RMBS RVBD SNDK

SYNA WOOF



Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
FRI. OCT. 22- Learning From History

A few weeks ago, I noted that I had analyzed many trades in order to truly gather data for attempting to aid my own trading performance particularly in light of the switchover of EDGX to the Direct Edge Stock Exchange. A few people asked me about it so I want to go into one of my (many) weird quirks so I can explain myself better. I had a phenomenal trading year in 2001. The volatility of that time served me quite well thankfully. In 2002, as the markets settled in, my year trended lower as compared to 2001…I was profitable every single month of the year but to say that my January/February was better than my November/December is an understatement. As 2003 started, I got off to a decent if unspectacular start. Around the 3rd weekend in January, I decided to go back and analyze the first two weeks of my trades in 2003 to see if I could find something to improve myself. I figured some things out…but the best thing that came out of that experience is that each and every trading day, I keep track of the stocks I trade, the amount of shares I trade in each, the total revenues, the total costs, and the net profit of each symbol. Every week, I go over the previous week’s trades. Once a month, I analyze the previous month’s trades. Once a year, I analyze the previous year’s trades. Furthermore, when there is a time that I don’t trade as well as I feel I could, I go back to this gigantic spreadsheet of my trading career. Not only is it from this spreadsheet that I have been able to find the tenets for what generally works and what doesn’t (for me), it keeps me from losing vast amounts of money because I am forced everyday if nothing else to re-live the previous day or two and subconsciously much less consciously study my trading as I enter my data. It is this spreadsheet more than any one factor (and accompanying notes when I am going really well or really poorly when I denote my best and worst trades- some of which have formed the basis of blog entries in this space) which provide a harvest of information for me to better myself as a trader.

Markets throughout the world were mixed overnight. In Asia, Tokyo was up 0.5% with Hong Kong down 0.6%. In Europe, Frankfurt is up 0.1% while London is down 0.4%. Gold is down slightly with oil up ½%. Bonds are a tinge higher with the dollar a tinge lower. Futures are slightly ahead. There’s no economic data out. All of this is Erik code for “it’s relatively quiet right now.” For the day, the story remains the dollar but with movement muted ahead of this weekend’s G-20, equity movement will likely be choppy but in a less volatile range than yesterday. Focus on the earnings, the techs, the rare earth plays once again, and random microcaps that have random moves (such as LIVE and CDTID yesterday).

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

BIDU- decent earnings

SNDK- great earnings

RVBD- great earnings

NCR- decent earnings

CMG- great earnings

FTNT- decent earnings

NFLX- closed near a high after posting great earnings

GRA- closed near a high after posting decent earnings

CYD- closed near a high

SURG- closed near a high

TZOO- closed near a high after posting decent earnings

LYTS- closed near a high after posting decent earnings

VRA- closed near a high

CODE- closed near a high

CY- mentioned on “Mad Money” last night

KEY- decent earnings

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

AMZN- poor earnings

CTXS- poor earnings

BUCY- terrible earnings

QLGC- poor earnings

CYT- terrible earnings

INFA- poor earnings

ALGN- poor earnings

CRUS- closed near a low after reporting awful earnings and mentioned negatively on “Mad Money” last night

JCG- closed near a low

BORN- closed near a low

REE- closed near a low

ARO- closed near a low

HOC- closed near a low

LHO- closed near a low after posting earnings

LTM- closed near a low after posting earnings

FNF- closed near a low after posting earnings

GRNB- closed near a low after posting earnings



Earnings:

FRI OCT 22 BEFORE

BPOP DOV EXC

HON IR KEY

PAG SLB TROW

VZ


Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
MON. OCT. 25- Speculating on Speculation

On a day like Friday when trading becomes quite slow, oftentimes one can create something out of seemingly nothing amid the environment we are in. By that, I mean that there is a degree of forth underneath the surface as some investors/funds have sought to bolster their performance particularly ahead of the October 31 fiscal year end for most mutual funds. Thus moves that seem innocuous can be padded in relative illiquid conditions. For instance, IPO Vera Bradley (VRA) closed just off of its high on Thursday but traded in a narrow band on Friday morning in failing to yield any ground. Upon breaching 25, the shares stretched to 26.75 within 20 minutes. A stock such as that of Acacia Research (ACTG) posted great earnings on Thursday night. The stock traded up about 3 ½ for the bulk of the day hanging out between 24.75 and 25.15 for quite some time. When the stock took out the high, it rallied 75 cents in about 10 minutes. Stocks such as BKD, RITT, SFUN, CMG, RVBD, CYT, and BUCY all had dramatic moves on Friday. The feature to look for when trading these things is consolidation near a high or a low particularly when news is featured. The way to trade them is to seek out said consolidation in the direction of the trend and look for a refreshing bid on the level II screen if looking to go long (and vice versa). Furthermore, make sure the consolidation is indeed quite narrow to protect yourself. But what sparks these things is the exaggeration of fear and greed. In a stock like ACTG which has a decent short interest, a few ticks to a near high on a relatively lazy Friday afternoon is enough to cause some day traders to scramble and the momentum feeds upon itself. The same is true for a VRA play in the morning as traders seek to get out to a good start. So, particularly in this week before mutual fund year-end with the market having risen a lot recently, be particularly ready for these specialized situations in which liquidity is not as present in making the relative illiquidity work for you- again with the stipulations described above.

Markets overnight were mixed in Asia with Tokyo down 0.3% but Hong Kong ahead 0.5%. In Europe, prices are definitively higher about ½% to ¾% across the board. The theme of the talk out of the G-20 over the weekend was ostensibly “there will be no currency war” which has shoved the dollar lower (below 81 yen now and solidly above 1.40 euros) with gold up over 20 dollars the ounce and bonds a bit higher as well. All of this has sparked a nice early rally in the futures. Existing Home Sales (4.25 million units) will be out at 10AM. There are a bevy of Fed speakers with Bernanke at 8:30, Dallas Fed at 10:30, Bullard at 1:30, Dudley at 4:30, and Hoenig at 10:00. For the day, with a number of notable upgrades and dollar weakness at the market’s back, it’d seem that the gains should hope if not build on themselves a little bit. Volume will likely be a little lighter than normal with an unexpected beautiful weather day set-up in the New York area. Focus on the myriad of stocks (particularly recent IPO’s) which closed at or near their highs on Friday, the casinos on the varied news within that sector, the ‘media’ stocks pumped up by newsletters and TV shows since Friday, and anything with relative weakness in the first hour or so after the opening bell.

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

ACTG- closed near a high after posting good earnings

BKD- closed near a high after competitor Atria received a bid for its real estate assets

HMG- closed near a high

SFUN- closed near a high

NOG- closed near a high

TZOO- closed near a high

BORN- closed near a high

AUMN- closed near a high

CPHD- closed near a high after posting good earnings

AFOP- closed near a high after posting good earnings

FTNT- closed near a high after posting good earnings

INFA- closed near a high after posting good earnings

BIDU- closed near a high after posting good earnings

AMZN- closed near a high after posting good earnings

CMG- closed near a high after posting good earnings

RVBD- closed near a high after posting good earnings

BJRI- closed near a high after posting good earnings

FFIV- closed near a high amid positive buzz about the CTXS earnings

MOTR, MNRO- featured on “Mad Money” on Friday night

APSG- seeking strategic alternatives

APC- closed near a high amid rumors that Kosmos Energy may sell its stake in Ghana oil
Assets which would a price on what APC owns in the same venture

DRI- closed near a high on takeover rumors

EONC- closed near a high

XRS- closed near a high

MDF- recommended in Louis Navalier’s newsletter

CTV- confirmed it’s in discussions with CSL to be acquired for $31.50/share in cash

LDK- signed polysilicon agreement with BYD (a China-based company 10% owned by Berkshire Hathaway)

ROP- decent earnings

SOHU- good earnings

LMT- announced new $3 billion stock buyback plan

CYOU- decent earnings

PPD- exploring strategic options with private equity firms having offered $60/share as of this writing



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

CONN- closed near a low after it warned on earnings and announced rights offering

CYT- closed near a low after posting bad earnings

BUCY- closed near a low after posting bad earnings

GS- closed near a low

WYNN- filed common stock shelf registration

TDW- earnings warning

Earnings:

MON OCT 25 BEFORE

BYD CRNT LO

ROP RSH SOHU



MON OCT 25 AFTER

AMGN ATHR BEAV

COG DDR DRIV

EW IDTI MAS

MIPS PCL RGA

SLG SNV TXN

VECO VLTR VRTX


Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
TUES. OCT. 26- Answering A Question

Yesterday, I made reference to the fact that almost all mutual funds end their fiscal year on October 31. But almost nobody knows why. In fact, I was very embarrassed by my ignorance when I had several people ask me yesterday why it was indeed the case that the October 31 date is as such with me not able to provide a coherent answer. The answer is actually not that simple. Basically, until the mid-1980's, most mutual funds were plain vanilla in nature in that they tended to be invested in stocks, bonds, and various money market conduits with few if any esoteric financial instruments implemented. Countless new financial vehicles were developed in the time preceding the Crash of '87 and with it, tax accounting became much more involved. And naturally, changes in the tax law magnified the difficulty a great deal. There was a major piece of legislation in 1986 entitled The Tax Reform Act of 1986 which of course was suppose to, um, reform taxes but in fact made things that much harder. Until this time, funds could and usually did wait until the calendar year following the end of their fiscal year to pay capital gains much less dividends from net investment income. By that, I mean distributions could be made in January even if the fiscal year ended in December. However, under the TRA, mutual funds must by December 31 each year distribute at least 98% of any capital gains (post-taxes) earned through October 31 as well as ordinary income earned through December 31 else they'd pay an additional 4% excise tax. Since most income earned by mutual funds is of course capital gains, the tax-planning schematic for most mutual funds has had to be placed on a calendar year basis and shrunk to two months so as to know how to pay out by December 31 else the 4% excise tax would have to be paid. So, as with a lot of things in professional life, the mystery of the Halloween fiscal year end for mutual funds down to money...and funky legislation.

Markets were lower throughout the world overnight. In Asia, Hong Kong was down 0.1% with Tokyo off 0.7%. The losses are a bit steeper in Europe with London down almost 1%. Not coincidentally, the dollar is a bit higher against both the yen and euro. Oil is slightly lower with gold down ½%. Futures are somewhat lower as well. Look for another very choppy session today with the dollar playing a dominant role in trading; if it catches a bid, the move in the stock market could get exacerbated. Case Shiller is out at 9AM (2% expected), with Consumer Confidence (49.0) and FHFA Home Price Index (no estimate) out at 10AM. The focus will be on the earnings plays with the fall-out from those playing a major part in today’s trading with sectors such as steels, techs, rare earths, and retailers the sectors to trade.

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

BIDU- closed near a high on follow through from Friday’s rally on good earnings

APSG- closed near a high after announcing a decision to explore strategic alternatives

ACTG- closed near a high on follow through from Friday’s rally on good earnings

RVBD- closed near a high on follow through from Friday’s rally on good earnings

CDTID- closed near a high after being awarded a contract for funding for a ferry emission reduction program

PEGA- closed near a high after launching a new CRM solution which will theoretically allow lenders to automatically eliminate errors in mortgage originations

BID- closed near a high

SOHU- closed near a high after posting good earnings

RIMM- closed near a high

DRIV- decent earnings, but doing convertible notes offering

MIPS- good earnings

SUPG- good earnings

NFLX- featured on “Mad Money” last night

CIT- decent earnings

COH- decent earnings

JAKK- decent earnings


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

HRBN- closed near a low

CGA- closed near a low

TXN- lukewarm earnings guidance

ATHR- poor earnings

PLD- share offering

VECO- terrible earnings

PCL- poor earnings

VLTR- poor earnings

ZRAN- terrible earnings

ARIA- share offering

MAS- poor earnings

AIG- CEO diagnosed with aggressive cancer; says he will maintain normal schedule at this time

UCTT- closed near a low after posting poor earnings

WL- closed near a low amid speculation of a take-under

CMI- poor earnings

KMB- poor earnings

LXK- poor earnings

RF- poor earnings

X- poor earnings

F- poor earnings

CSR- poor earnings outlook

AMTD- poor earnings

TLAB- poor earnings

PCAR- poor earnings

Earnings:

TUES OCT 26 BEFORE

AGCO AKS AMED

AMTD ARG ASH

ATI BIIB BMY

CIT CMI COH

CSL DD ECL

EPD FE FIS

HL HSP JCI

KMB LXK MHP

MYL NOV ODP

PCAR PCR RF

SHW TLAB UA

VLO WAT X

TUES OCT 26 AFTER

AFL BRCM BXP

CENX CHRW CML

CNI DV DWA

EQIX FFIV FORM

ILMN JLL LIFE

MCK MEE NAL

NBR NTGR NVLS

OII PNRA PPDI

PXD SPF WBSN

WLT WU


Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
WED. OCT. 27- One More on Mutual Funds

I wasn’t planning on turning this into ‘Halloween Mutual Fund’ week, but I’ve gotten more questions since Monday about this than anything. So, let me go back to basics. In yesterday’s piece, I discussed the “why” behind the mutual fund year end occurring on October 31. In Monday’s piece, I made reference to it. Now, what I need to do is discuss why this can potentially be important. Window dressing is a practice put on at the end of the year by many entities but many mutual funds to this day quietly implement it at the end of October. For those that don’t know, many mutual funds have historically tried to improve the overall look of a year’s performance by selling stocks with large losses and buying stocks with good performance. The performance numbers aren’t sent out for awhile as these funds “account for their performance,” but investors sure do see which stocks are in the funds. Thus, a holder of Mutual Fund A may not know that his fund underperformed in a given year, but sure will see on November 1 that his fund owns shares of things like AAPL. This effect has the potential for even more exaggeration this year with many funds underperforming the benchmark indexes as they are forced to play catch-up what with several stocks accounting for much of the gains in an index such as the S&P 500. Along with the weak dollar, this is a primary factor in the exacerbation of stock moves in things such as the top performers of the year much less in select random microcaps that can artificially inflate performance on a mark-to-market basis such as CDTID. So, expect volatility to pick up on a case-by-case basis as we wind up the next three days…with the next fun game to occur next week- gaming the election cycle!

Markets were mixed throughout the world with Tokyo flat but Hong Kong down sharply 1.9%. In Europe, Frankfurt was up 0.2% with London down 0.4%. Commodities are lower with gold down ½% and oil down 1%. The dollar is marginally stronger against the euro and yen. Bonds are a little higher. New Home Sales (295,000) are out at 10AM with Crude Inventories out at 10:30AM. Durable Goods came in mixed with the overall number better than expected, but weaker than expected when excluding Transports. Futures are down slightly on the dollar strength. It’s the same thing once again- the dollar will be the key factor today along with the reactions of individual stocks to earnings. Focus on the many earnings plays out, the cloud computing sector, the rumored takeover stocks, and the big cap techs.

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

CML- decent earnings

BRCM- good earnings

FFIV- good earnings; CRM, CTXS, VMW may move with it

ILMN- decent earnings

MCK- great earnings

AFL- decent earnings

NTGR- decent earnings

OII- great earnings

NVLS- decent earnings

WU- decent earnings

DWA- decent earnings

DV- decent earnings

EQIX- good earnings outlook

FORM- decent earnings

LIFE- decent earnings

SIMG- good earnings

JDAS- decent earnings

MIPS- closed near a high after posting great earnings

RCII- closed near a high after posting great earnings

COH- closed near a high after posting great earnings

BIDU- closed near a high

MCP- closed near a high

LVS- closed near a high

FCX- closed near a high

MOS- closed near a high

LNG- closed near a high

OVTI- closed near a high

NFLX- closed near a high amid vague takeover rumors

USB- featured on “Mad Money” last night

WHR- decent earnings

ADP- decent earnings

IP- decent earnings

PG- decent earnings

RDWR- decent earnings


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

JKS- share offering

MEE- poor earnings

CENX- terrible earnings

CHRW- poor earnings

BWLD- terrible earnings

PNRA- bad earnings

PPDI- poor earnings

MYL- poor earnings

KMB- closed near a low after posting bad earnings

LXK- closed near a low after posting bad earnings

UIS- closed near a low after posting bad earnings

BXS- closed near a low after posting bad earnings

RCI- closed near a low after posting bad earnings

COG- closed near a low after posting bad earnings

TNP- share offering

PFCB- poor earnings

JNY- poor earnings

S- poor earnings

Earnings:

WED OCT 27 BEFORE

ADP AVY AYE

BWA CMCSA COP

CP DPS EAT

ELN FBC GD

HES IACI IP

JNY LM MWV

NOC OC ODFL

PFCB PG PX

RDWR S SEE

SLAB SVVS TMO

WHR


WED OCT 27 AFTER

AEM AFFX ALL

AMP AVB BEC

BYI CAVM CCI

CYH EFX EQR

ESRX FLEX FLS

FMC FTI HLX

IDCC NSC OI

ORLY OTEX PLXS

RRC RYL SKX

SPN SYMC TER

TMK TRN UHS

V WLL

Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
THURS. OCT. 28- Talkin' Japanese

Several days ago, the Japanese government stepped in and promulgated a major intervention to attempt to prop up the sagging yen. For a brief time, the yen vaulted higher. But it didn’t take long for the strong trend to reassert itself. First, one has to understand- artificial means can be used to prop up a financial instrument. But the cold beauty behind any market is that prices eventually go to where they should go. For instance, just before Thornburg Mortgage went bankrupt a couple of years ago, the stock rallied from 1 to 5 in days before going to 0 almost immediately after touching 5. But the bottom line is to understand what is going on. There are a few reasons. Japan did not get hit as badly as the rest of the world from the subprime mess. So although their banking system isn’t the greatest on the planet, it has become stronger relative to that of many other nations. Next, the yen is now seen as a “safe haven” type of currency –right or wrong- due to ears of economic and debt weakness in Europe and the United States. An even more important reason is the idea of the carry trade. As recently as five years ago, institutions borrowed yen at very low rates of interest and used the yen to invest in other nations where the rate of return was higher. However, with the stock market not having done as well with risk-averseness a major tenet of the thinking of many investors, the cash need is high. Thus a lot of the borrowed money is being paid back- with yen borrowed which has created high demand for the yen. And the number one factor has been a stream of repatriated cash in addition to the yen borrowed from the carry trade. Japanese investors and citizens have been bringing their money back home. In a country notorious for its high savings rate, this is a time where the savings rate hurts. By not spending, the economy cannot get cranking. So a flood of yen by the government combined with the aging of the population has not helped as Japanese debt has skyrocketed. The banks hoard the money, they sell it back to the government, and the banks strengthen a bit (those that are still solvent from the 1990’s mess) while the government’s finances weaken. It’s a vicious cycle. The stronger the yen, the worse the profit margins for Japanese companies that sell their products overseas. Should this yen strength continue, it may well continue to be the number one factor to watch on a daily basis as the move reverberates throughout the currency markets as well as affects the commodity movements. In turn, this could eventually have quite an impact on the stock market over the long-run much less immediate-term.

Markets in Asia were mixed overnight with Hong Kong up 0.2% with Tokyo down 0.2%. Markets are nicely in Europe however with London and Frankfurt both up 0.7%. The dollar is sharply lower with gold and oil sharply higher. Futures have been rallying all morning with the levels at the high of the day as of this writing. The gains should hold if not build as the day progresses as long as the dollar stays weak. Focus on the pool of earnings plays, casinos, financials, techs, and relative weakness plays.

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

MCP, REE- closed near their highs

FFIV- closed near a high after posting good earnings

BRCM- closed near a high after posting good earnings

CML- closed near a high after posting good earnings

NTGR- closed near a high after posting good earnings

OII- closed near a high after posting good earnings

LIFE- closed near a high after posting good earnings

DV- closed near a high after posting good earnings

VOCS- closed near a high after posting good earnings

JKS- closed near a high despite announcing an offering

LVS- good earnings; WYNN and MGM may move with it

AKAM- decent earnings

BEC- decent earnings

SYMC- decent earnings

IRBT- decent earnings

FLEX- good earnings

IDCC- decent earnings

AEM- decent earnings and featured on “Mad Money” last night

RITT- closed near a high

RDWR- closed near a high after posting good earnings

NETL- closed near a high

ARUN- closed near a high

SMCI- closed near a high after posting good earnings

GSIC- good earnings

BGS- featured on “Mad Money” last night

UTHR- good earnings

ABX- decent earnings

CELG- decent earnings

MOT- decent earnings

NBL- decent earnings

NIHD- decent earnings

XOM- decent earnings

TKR- decent earnings

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

PNRA- closed near a low after posting bad earnings

JNY- closed near a low after posting bad earnings

AMZN- closed near a low

AAPL- disclose lower-than-expected gross margins in a government filing…but the disclosure was actually made in last week’s conference call

V- poor earnings

SKX- terrible earnings

ESRX- poor earnings

FLS- poor earnings

NSC- poor earnings

ALL- poor earnings

RYL- poor earnings

FTI- poor earnings

FIRE- terrible earnings

NLY- poor earnings

UHS- poor earnings

OTEX- poor earnings

ISSI- poor earnings

PLXS- poor earnings

BYI- poor earnings

CAVM- poor earnings

EXXI- share offering

TER- poor earnings

STV- copyright investigation into an online video company in which STV holds a minority stake

AVP- poor earnings

OCLR- poor earnings

AN- poor earnings

CL- poor earnings

PMI- poor earnings

Earnings:


THURS OCT 28 BEFORE

ABX AN AVP

AVT BEN BX

CAH CELG CL

CME DOW EK

EQT FO GT

HOT HRS ITW

LEA LINE LLL

MCO MMM MOT

NBL NIHD NXY

OCLR OMX OSK

PLD PMI PNW

POT PTEN RTN

SII TEL TEN

TKR UTHR WMB

XEL XOM ZMH

THURS OCT 28 AFTER

APKT ARBA BG

BMC BMRN CEPH

CERN CLF CSTR

DECK DRC EGO

EMN EXPE FSLR

GNW HGSI HLS

JAH KLAC LPS

MET MFE MSFT

MTW MWW MXIM

NETL NLY NUVA

NVTL PWER RMD

RNOW ROVI SBAC

SGMS SUN SWI

SWN VAR VPRT

VRSN VSEA


Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
FRI. OCT. 29- Staring Into the Abyss

“Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss.”

Many of you likely recognize that quote. If not, it is attributed to the character of Lou Mannheim in the movie “Wall Street.” There is a wide array of applicability for this quotation. (Spoiler alert)- In the movie, Mannheim says those words to the protagonist, Budd Foxx, just as he is about to be arrested for insider trading. But I must admit I’ve thought of these words often over the years particularly when I am alone and have some to think when I am in a delicate situation such as the day my father passed away. On a bit more mundane tone, I also think of these words every time I hit a ‘rough patch’ while trading. Heck, it doesn’t even have to be a lot of money. Well, yesterday was one of those times for me. At one point yesterday morning, I’d lost money on 12 of 13 trades (although only one of those losses was significant and I actually finished marginally ahead for the day when all was said and done by a few hundred dollars by doing a lot of very high-speed trades). Trading is an odds game and even if one tries to stack odds in one’s favor by being selective and doing homework, one can still be wrong a lot consecutively. So I went to take a quick walk as I tend to do but instead, I found myself drawn to walking toward the end of the hall and I just stared into outer space in remembering those words uttered by the classic actor Hal Holbrook in his fantastic supporting role in “Wall Street.” This leads to my first point- I immediately regained searing focus amid an intense calm. They say that part of the success of a successful athlete is his/her ability to hit a 97 mph fastball with a stadium full of people screaming or a free throat with 20,000 hissing- they simply blot out the noise. It’s part of reaching way down and finding yourself so to speak in forgetting what has happened and focusing on the immediate future. It is what one has to do to avoid falling even more into the abyss. The second point is that we as traders all have been “there.” “There” is not a fun place. “There” is the precipice of the abyss when nothing is going right trading-wise and the potential for doing things like letting emotion get in the way and not paying attention to logic can wreak havoc with one’s trading patterns. I know traders who have as recently as yesterday lost almost five points in such stocks like MCP simply because they refused to give up and take a loss. I know traders who have recently as yesterday gone short stocks that had earnings out and had positions go against them. I know traders who as recently as yesterday did not do basic homework on stocks they were trading to actually see that the stocks they were trading had earnings out yesterday. However, they defy common sense and preparation to make their own situations worse. Don’t be one of “them” else the abyss will swallow you up. I know. It has happened to me many times in the past. But it hasn’t completely swallowed me up else I wouldn’t be here pontificating after almost 15 years.

Markets in Asia were down overnight with Tokyo off a sharp 1.7% and Hong Kong down just over 0.5%. The trend remained negative in Europe with the bourses down anywhere from 0.3% to 0.6% across the exchanges. The dollar is mixed with it down against the yen but up almost a full euro. Bonds are flat. Gold is down very slightly with oil down ½%. GDP is due out at 8:30AM (2.0%), Employment Cost Index is due out at 8:30AM (0.5%, Chicago PMI is out at 9:45AM (57.5), and final Michigan Sentiment is due out at 9:55AM (68.0). Futures are lower on the falling euro. For the day, the dollar should continue to rule the roost with a lot of movement in individualized stocks due to the end of the fiscal year for mutual funds. Look for a very choppy session with exaggerated movements particularly in the morning and late afternoon in the top (and bottom) momentum stocks of 2010 with an additional focus on earnings plays, coals, plays related to the BP fiasco such as HAL, and takeover rumor stocks.

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

GRRF- closed near a high after winning a Chin Broadcasting Corp. bid for China Mobile multimedia broadcasting network

CSTR- great earnings

MSFT- decent earnings

DECK- good earnings

EXPE- decent earnings

BMC- good earnings

MXIM- decent earnings

MWW- good earnings

PWER- great earnings

SWI- decent earnings

MIPS- featured on “Mad Money” last night

GS- closed near a high

ST- closed near a high after announcing a deal to acquire HON’s sensor business

CACI- closed near a high after posting good earnings

FMC- closed near a high after posting good earnings

IMAX- closed near a high after posting good earnings

TNAV- good earnings

FMR- received $16.50/share cash buyout bid from FFH

EL- good earnings

VVUS- Qnexa drug remained rejected but FDA still reviewing thus hope remains it will eventually be approved


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

FSLR- poor earnings

CLF- poor earnings

NUVA- terrible guidance

VRSN- poor earnings

GNW- poor earnings

AMAG- poor earnings, cutting workforce, and there’s a safety issue regarding one of its drugs

PIP- share offering

MET- poor earnings

SUN- poor earnings

SBAC- poor earnings

MTW- poor earnings

APKT- poor earnings

CERN- poor earnings

FLS- closed near a low after posting awful earnings

CRAY- closed near a low after posting awful earnings

OCLR- closed near a low after posting awful earnings

CDTID- plunged in closing near a low

MDAS- closed near a low after posting awful earnings

OPLK- closed near a low after posting awful earnings

GPRE- closed near a low after announcing a share offering

VCI- closed near a low after posting awful earnings

FN- closed near a low

REV- closed near a low after posting awful earnings

NCI- closed near a low after posting awful earnings

AON- poor earnings

EXAS- relatively poor results for its colon cancer drug

CVX- poor earnings


Earnings:

FRI OCT 29 BEFORE

ACI AON AXL

CEG CI CMC

CNX COL CVX

D EL HSIC

IPG ITT MRK

NDAQ NWL UFS

WY





Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
MON. NOV. 1- What A Week Ahead

This is one of those weeks that has the set-up to be dynamic…although it is every bit as likely that movements will not be exaggerated. But the signs are there. Today is likely to be a low volume day ahead of a bevy of news due out later this week. With that in mind, movement can rapidly become exacerbated based on dollar movement on the rumor du jour. Tomorrow will be Election Central. Usually when one of the legislative bodies change party control, both change. But this is likely to be one of those very rare years in which we could well have a Democratic-ruled executive branch and Senate with the Republicans controlling the House. This would result in the gridlock that markets so love however would not give the result that markets seem to be shooting for (i.e. a true split). On Wednesday, the FOMC is going to conclude a two-day meeting in which it’s widely expected to discuss quantitative easing guidelines. Thursday is the highest quantity day for earnings reports this quarter. On Friday, the latest jobs report will be issued which will only serve to serve as a backstop for the QE discussion. This is certainly a week to do tremendous research to be prepared by studying all news services and scouring entities like Intrade for odds of certain events happening all the while trading particularly selectively.

Tokyo was quiet overnight in falling 0.5% on the continued strong yen but Hong Kong rose sharply to the tune of 2.2% after a positive manufacturing report out of China. In Europe, prices are mixed with Frankfurt up 0.2% but London down 0.1%. The dollar is slightly stronger across the board with gold up almost 1% and oil up ½%. Personal Income and Personal Spending were both slightly weaker. ISM Index (54.0) and Construction Spending (-0.7%) are due out at 10AM. Futures are a bit higher. Off-hand, with it the start of the month and nobody sure what to do, look for a choppy relatively quiet/pensive session ahead of a potentially momentous week. Focus on small biotechs in the news such as AVNR, the mixed bag of big cap tech, fertilizers, earnings plays, M&A plays, and the small cap momentum plays from Friday.



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

CLF- closed near a high after posting earnings

GMO- closed near a high after posting earnings

CSTR- closed near a high after posting earnings

DECK- closed near a high after posting earnings

X- closed near a high

FRZ- closed near a high after the Department of Justice announced it won’t take action against the company

RITT- closed near a high

IBM- closed near a high

AGU, MOS- closed near their highs

STRA- closed near a high

GAGA- closed near its high upon debuting as an IPO

AVNR- received approval for Nuedexta

YRCW- Teamster freight members approved the restructuring plan for YRCW

SUR- received $22/share takeover bid from CAN

GILD- positive phase III clinical data re Viread as well as good results from Phase IIa studies of GS 9190 and GS9256

XCO- received $20.50/share buyout bid from its CEO

ACOR- good earnings

CTSH- decent earnings

JKS- great earnings

AAWW- good earnings

HUM- decent earnings

FTNT- rumored to have been approached by IBM about a possible takeover

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

AAPL- closed near a low

AMZN- closed near a low

GS- closed near a low

OSTK- closed near a low after posting poor earnings

SNBC- closed near a low after posting poor earnings

NUVA- closed near a low after posting poor earnings

FSLR- closed near a low after posting poor earnings

HSIC- closed near a low after posting poor earnings

EXAS- closed near a low after one of the comppany’s drug’s results did not come out as well as expected

NR- closed near a low after posting poor earnings

IPXL- closed on a low

BIOD- poor complete response letter from the FDA regarding the company’s application for Linjeta

WL- to be bought out by MTB for .051372 shares of MTB

GLW- poor earnings

Earnings:

MON NOV 1 BEFORE

ACOR AGN BHI

CTSH ENDP GLW

HUM ICE JKS

L RE SPG

WL

MON NOV 1 AFTER

APC BKD FST

HK NTRI PFG

SANM VMC VVUS

WFR WMS






Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
TUES. NOV. 2- Election Day 2010

(the table below is not coming out as it should...my apologies).

Today is Election Day throughout the United States. The process- while a long, drawn-out and also nasty one at times also is incredible to me. The U.S. is quite unique in that it has had very little internal strife for the last 150 years so the fragile concept of casting a vote is actually a very powerful reminder of how lucky Americans are to have the rights we have. But it also raises a lot of stock market questions. The expectation is that by the end of the day today, the House will be under Republican rule, the Senate under Democratic rule (but very fractured), and the president of course a Democrat still. This raises a series of questions. First, do markets do better in midterm election years than in non-election years? According to a study by Brian Gendreau, a market strategist for Financial Network, the average gain of the Dow Jones Industrial Average over the 90 trading days following midterm elections was about 8.5% which is almost 5% higher than the Dow’s gains in non-election years. During that stretch, the only time that the party in power gained seats in both legislative bodies was in 2002- this was the only time since 1942 that the Dow fell after a mid-term election. Second, 90 days is good…but about longer? Well, the S&P 500 index has posted gains for every 200-day trading time stretch following mid-term Congressional elections since 1942 by an average of 18.3% according to the Leuthold Group. Third, how does the market typically do in the third year of a presidential cycle? According to the Stock Trader’s Almanac, records going back to 1833 indicate that the S&P 500 averages a 10.5% rally with the markets having risen in 33 of those years and declined in 11. Finally, how has the market performed under a Democratic President but a split Congress? Well, it’s only happened twice since 1900 (both times before World War II)and the market went down an average of 3.7%. Here’s a full table with kudos to Standard & Poor’s for compiling the data:



So, what is the takeaway for day traders? The key thing is to monitor if anything unexpected happens tonight, i.e. Democrats or Republicans control both legislative bodies by the end of the evening. If the expected happens, the attention will shift immediately to QE2 thoughts from the get-go tomorrow while a Democratic hold on both houses will likely be taken quite negative and a total Republican control taken in ostensibly a neutral manner as the markets are set up for gridlock with QE2 chatter dominating matters by the late afternoon anyway.

Markets were little changed in Asia overnight with Tokyo and Hong Kong both inching ahead 0.1%. In Europe, equities are trading ahead as well with a little more force- about 0.5% or so on average. Commodities are very strong with gold up ½% and oil ahead 1% plus. The dollar is up slightly against the yen but getting hit very hard against the euro. Bonds are ahead slightly as well. Futures are sharply ahead. There’s no economic data because it is Election Day. Look for a busier day than yesterday but still relatively calm although trading will likely be particularly rumor-driven as headlines come out on things like the elections, the QE2 set to be announced tomorrow, and random things such as the JPM news yesterday. Focus on the fertilizers, the earnings plays, the rare earths, the credit card entities on the MA earnings as well as rumors of legislation to come, and anything relatively weak (particularly in the first few minutes post-NYSE open).







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

POT- Canada’s Industry Dept. accepted BHP Potash’s bid

NTRI- good earnings

CGNX- good earnings

AUMN- closed near a high

AWI- closed on a high

VRUS- closed near a high

LF- decent earnings

IRWD- positive Linaclotide phase 3 IBS-C results

AGN, RFMD- featured on “Mad Money” last night

PLX- positive preliminary top-line positive data from taliglucerase ala switchover trial

RDN- good earnings

NEM- decent earnings

TEVA- decent earnings

BP- decent earnings

HAR- good earnings

MA- good earnings

PRGO- good earnings

VSH- good earnings



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

WFR- poor earnings

HLF- poor earnings

REE- closed near a low

ART- closed near a low

ACOR- closed near a low after posting poor earnings

AEIS- closed near a low after posting poor earnings

CCUR- poor earnings

ROG- poor earnings

BEXP- poor earnings

FLS- closed near a low

BORN- closed near a low

BIDU- closed near a low

APC- poor earnings

PRXL- poor earnings

VMC- poor earnings

ADM- bad earnings

COCO- poor earnings



Earnings:

TUES NOV 2 BEFORE

ABC ADM AMSC

BBG BP CAM

CLX COCO DIN

DTG EMR HAR

IPXL JOE K

MA MHS MRO

NEM NYX OSG

PFE PRGO RDC

RDN TEVA THC

VQ VSH



TUES NOV 2 AFTER

ASIA CBL CECO

CQB CTRP DISCA

EOG ERTS EXM

HIG HTZ INT

LEAP LNC MYGN

OKE OPEN PBI

SM SONS STEC

TIE TRMB UNM

WYNN XCO XEL



Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
 
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