WED. OCT. 8- When Numbers Don't Make Sense

Most people who day trade tend to be more fascinated with numbers than the general populace. The changing of all the numbers on a constant basis as well as the attempts to interpret the meanings behind said numbers is a challenge that appeals to most people reading this blog. The reason for this at its core is that people try to break down any piece of news into numbers so as to attempt to profit. For instance, the thought process behind the attempt to figure out the risk-reward ratio goes something like this: if stock XYZ goes through ‘30’, one can make “20” cents, but if XYZ fails to break the ‘figure,’ I’ll give it 5 cents if the 30 reloads with 100 shares showing.” A very numbercentric game. We want to know the amounts of the rescue plan. We measure the betas, deltas, gammas, volume totals, and Fibonacci points of stock prices. Getting to the point there- what happens when numbers no longer become reliable? This is now true from two vantage points. On a bit of a micro level, the earnings estimates provided on a daily basis to you have become highly unreliable. The information is the most recent available, however things seem to be deteriorating at such a rapid rate that nearly every company who reports misses estimates. Thus, depending on how this trend continues during this week, ProTrading may just provide a list of symbols next weeks for earnings season since the only thing that matters now is the margins by which the companies miss their estimates- with the corresponding stocks already beaten down in most cases. On a macro point, much of the trading done nowadays is done at hyperspeed with stock levels rendered ostensibly meaningless. Many people have stopped paying attention to numbers instead focusing upon broader momentum. For us day traders, these trends will likely only intensify throughout earnings season so you must trade even more nimbler than normal as there is little room for error.

Overnight was as stunning a night as one will ever see for the markets. The Nikkei literally crashed- its worst decline in 21 years in finishing down 10%. Indonesia and Russia are closed indefinitely. European bourses were down 5% plus…until there was an announcement of a worldwide interest rate cut. The Dow futures were down 400 at worst…and shot to up over 150. For today, the ideal scenario would be the penultimate A-B-A2. Open higher, sell off as people digest the expected interest rate cut, and then buy everything as investors clamor to find bargains. The other two scenarios are a horrible sell-off in which nothing matters or after a weak sell-off on the open, there is a massive short covering panic. No matter what, be cognizant of these three scenarios and trade accordingly.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified


Good-

YUM- actually beat earnings slightly and reiterated guidance for the next two years. It should be relatively strong today…if market opens way down and YUM is trong, it is one of the first ones to buy in a rally.

ZZ- great earnings

YRCW- very weak yesterday but issued statement after close that they are adequately capitalized. Looking for A-B-A2 to upside and/or downside depending on market direction

WMT- in-line guidance

LDK- boosted guidance

Bad-

AA – in line with this morning’s blog theme, they missed estimates by 17 cents. If it opens lower yet close to unch and goes positive, buy it because it indicates the bad news is in the stock. If this happens, look to buy stock in other metal companies as well. If not, A-B-A2 to downside

BAC- stock priced well below Monday’s close; if it is truly oversubscribed, it should rally at some point today

AAPL, AMZN, other big cap tech – closed on low

CHK, APC, SII, HES, NOV, PXP, RIG, BHI- if oil shows any strength, all of these major energies are due for a bounce

XTXI, HERO, MGG, REXX- among others, 3rd tier energies down again…will have aggressive short covering bounce at some point perhaps today

STP, SPWRA, FSLR, TSL, YGE- same story as oils; solars have been destroyed

X, AKS, NUE – steels weak and down pre-open; look to buy all of them through unchanged if market rallies otherwise A-B-A2 to downside

STT- following contract to become lead MBS manager for Feds, stock has fallen; look to buy if market is strong

DRYS, EXM, GNK- drybulk shippers ravaged. Same story; A-B-A2 to downside but looking for relative strength anywhere

CBL, HPT, FR, AIV, VNO, SPG- REIT’s have been crushed; looking for A-B-A2 to downside in weak market

C, WFC, JPM, USB- bludgeoned in last few days- looking to buy in relative strength

LVS, MGM, ASCA, PENN- casinos destroyed…LVS now down 50% plus in a week. Same story; looking for relative strength if market turns

TELOZ- its main two oil platforms were destroyed by Hurricane Ike

STEI- deal off with Service Int’l

MET- warned badly on earnings and will be issuing 75 million shares. Stock should open lower; if it does and inches toward unch, phenomenal buy thru unch

LM- debt ratings cut after-hours

COST- bad earnings

Earnings-

WED OCT 8 BEF

ACGY .42/820M .39/838M 1.32/3.04B 1.71/3.48B

COST .93/22.95B .64/17.29B 2.92/72.12B 3.27/78.77B

LNN .70/112M .53/98M 3.02/440M 3.94/536M

MON -.13/1.90B .64/2.40B 3.55/11.36B 4.60/13.29B

WED OCT 8 AFT

RT .11/330M .00/312M .54/1.31B .68/1.32B


Good luck today.

www.protradingnetwork.com
.