Schaeffer's Trading Floor Blog

Final Figures

by 4/19/2005 5:08 PM
Stocks quoted in this article:

While I said it was an anti-climatic close, the indices did show moderate gains...

Index Index Value Point Change Percent Change
S&P 500 (SPX) 1152.8 6.8 points 0.59 percent
Dow Jones Industrial Average (DJIA) 10127.4 56 points 0.6 percent
Nasdaq Composite (COMP) 1932.4 19.5 points 1.02 percent
Russell 2000 (RUT) 594.9 9.6 points 1.64 percent
CBOE Market Volatility Index (VXO) 14.43 -1.69 points -10.5 percent

While the SPX and DJIA showed decent gains, the strength was focused in the COMP and RUT.

Overall, we see that every symbol on my list was up on the day, with very strong gains in networking, gold and oil...internet stocks were lackluster in midday action but rallied into the close...semis held their gains as they attempt to bounce off their January lows.

Earlier today I updated the chart of the XOI and noted it was trading near obvious support. Today's rally has the XOI bouncing off that support. There are some interesting names in that group so it might be worth keeping an eye on...especially Amerada Hess (AHC)...

As I alluded to earlier, earnings will be the focus over the near-term. After the close there were a number of earnings reports...the big reports, of course, are Yahoo and Intel - both beat estimates and appear to be showing positive reactions so it will be interesting to watch how this carries through to the morning.

While they won't get the headlines, there are some small stocks, such CheckFree (CKFR), which may be more interesting. And that is where I will pick up tomorrow...


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At the Close

by 4/19/2005 4:07 PM
Stocks quoted in this article:

It felt like a somewhat anti-climatic close...


Chart Courtesy of Thomson/ILX

...as the SPX just drifted sideways into the closing bell. You can also notice that the bulk of the gains for the day were hit in the first five minutes of the session...

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Stocks quoted in this article:

Mike says - "Earnings season is often a great time for playing heavily-skewed sentiment on contrarian stocks. I always check the SOIR, SIR and Equity scorecard number (if available). Most of the time, though, these numbers show mixed ratings like high short interest with moderate SOIR or vice-versa (such as with: ASD, EMC and GM). Do you place a greater importance on any of these indicators? I don't have any data to show one having more influence than the other, but thought maybe you might. Thanks for your time!"

My response - I have sat on this question for two day's trying to figure out how to approach it. My first thought was to simply say to wait for "all the stars to align" in terms of indicators. Unfortunately, trading is not that easy...especially when front-running an event.

Making a play ahead of an event such as earnings is always tricky because not only are you trying to gauge the sentiment but you have the wildcard of what the company actually says. In other words, you are trying to predict what the company will (or won't) say and how the crowd will react to that. And on top of that, option traders have the added problem of rising implied volatilities into events which can bump up premiums - which means you must pay more for options.

Now before you get the impression that this can't be done, we have Alert Services that focus on events - such as Schaeffer's Event Series and Schaeffer's Brand New Volatility Speculator - so obviously I think it can be done successfully. I just wanted to make sure that everyone understands it isn't the easiest game to play. Of course, nothing worth doing ever is...

In my experience that best success is had by those who follow the stock closely and have a "feel" for the sentiment. It is useful to follow the option activity very closely and to pay special attention to the media sentiment - similar to what can be found in Schaeffer's Daily Contrarian.

And while I don't think that every indicator needs line up perfectly, I think you need to have a strong sentiment read. In other words, I think you need to be able to point out exactly why you are willing to risk capital on the trade. Either because you see a large number of small hints that point in the same direction or because you see one or two points that are screaming at you.

Personally, I think the best way to play this is to approach it from the contrarian standpoint where you are looking for the move that has the potential to catch the "crowd" off-guard. Said another way, you are not necessarily looking for the most likely reaction but the one that has the potential to offer sizable gains. However, this is an aggressive strategy and not for everyone as you are looking for a few big winners to compensate for a larger number of losses.


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Stocks quoted in this article:

Here are today's top and bottom performing Exchange Traded Funds (ETFs)...

Top Performing Sector Exchange Traded Funds:

  • iShares GS Networking (IGN) = +2.94 percent
  • Oil Service HOLDRS (OIH) = +2.85 percent
  • iShares GS Semiconductor (IGW) = +2.63 percent
  • iShares GS Natural Resource (IGE) = +2.62 percent
  • Energy Select Sector SPDR (XLE) = +2.60 percent
  • Semiconductor HOLDRS (SMH) = +2.44 percent
  • iShares DJ US Energy (IYE) = +2.43 percent
  • iShares DJ US Basic Materials (IYM) = +2.08 percent

Bottom Performing Sector Exchange Traded Funds:

  • iShares DJ US Telecom (IYZ) = +0.18 percent
  • Regional Bank HOLDRS (RKH) = +0.11 percent
  • iShares DJ US Consumer Services (IYC) = +0.02 percent
  • Internet HOLDRS (HHH) = +0.00 percent
  • iShares DJ US Healthcare (IYH) = -0.15 percent
  • Retail HOLDRS (RTH) = -0.20 percent
  • Health Care Select Sect SPDR (XLV) = -0.36 percent
  • Pharmaceutical HOLDRS (PPH) = -0.59 percent

As you can see, there is a strong upward bias as only four names from list are trading below breakeven. On the top performing list we see that all those groups are gaining two percent or more and consists of a mix of tech and oil/energy related concerns...

Note: If you are not familiar with ETFs, make sure you read the Education and FAQ sections in our ETF center.

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New Highs

by 4/19/2005 2:33 PM
Stocks quoted in this article:

My alert for NYSE net ticks has been registering sporadic spikes as the SPX flirts with its session highs...


Chart Courtesy of Thomson/ILX

As I said earlier, I think the zone near 1160 is "the" area to watch...

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