If You’re Playing News-Driven Stocks, Consider This
Fundamental
News = Use Caution
When I wrote my
book over a year and a half ago I made a point to let readers know that
if they focus on the same one or two stocks each day (as I highly advise) that
on days when there is either:
– An analyst upgrade/downgrade
– Major news, positive or negative
– Earnings
to stay well away from that stock. The news is a double edged
sword, it can provide some fantastic follow through on your trades, or leave
you scratching your head. Since the outcome is at best 50/50, it is best to
let the others play in your backyard for the day. Remember, HVT is first and
foremost a technical approach to trading with a healthy dose of tape reading
thrown in. Like any task in life or in trading, the conditions need to be proper
in order for your plan of attack to be carried out effectively. So, when a company
announces earnings the night before, you can be sure that the playing field
will be very different the next day.
My experience has been that the playing field will not be particularly
hospitable. Why is that? Simple, when a stock encounters any of the above events,
it invites in a whole host of new players to your home turf. And guess what?
They typically do not give a damn about your moving average or stochastic. Secondly,
the specialist is usually a bit more busy than normal and will likely keep his
markets erratic in an effort to keep up with the increased order flow.
^next^
Think of it this way. Company XYZ announces earnings, let’s
for the sake of argument say they are are solid and above the expectations.
This will likely have two effects:
– Portfolio managers will rush to buy the stock
– Portfolio managers who are already long, may decide to scale
out.
Either way, big money is going to make some decisions. This
will have an impact that day. If Fidelity needs to unload 3 million shares of
XYZ, yes, the floor broker will work that order, but it will be in a manner
that completely blows up your normal approach. S&P’s rallying? The floor
broker is likely selling. Losing trade. S&P’s selling off, floor broker
might be buying for another client. This is not a hard fast rule, it is simply
an illustrative way to show you that today may be the day to look at another
stock. I can tell you that with more than 10 years under my belt, it pays to
stay away on those days.
FX
I have come to the conclusion that I will remain on the sidelines
until after the G7 meeting this weekend. While I am presently short EUR/JPY
and EUR/AUD because I sense there may be some comments from the G7 that will
benefit these positions, the charts at present are not indicating any solid
Swing Trade set-ups.
Short EUR/AUD 1.6298 from Jan 23rd
Short EUR/JPY 133.97 from Jan 23rd
My hunch is that there may be some rhetoric from G7 that allows
for the Asian currencies to appreciate, and as a result, take some pressure
off the EUR rise which is raising eyebrows among ECB officials and exporters.
As always, I welcome your comments and questions. If you would
like to have your email address added to my FX Mailing List for actual trade
recommendations ahead of my FX Service through TM in mid-February; simply send
me your name and email address to: aspendave@yahoo.com.
Dave