This Week’s Battle Plan
In this column, I usually
try to look out over the horizon
for the next few months and then
focus on the upcoming week. This week, I’m not going to do this. This
week, my entire focus is resting on one day:
Monday.
If history repeats itself, Monday will be payday for many pros. Year
after year, specialists, market
makers and professional traders live
for tomorrow. It’s Christmas again, only three weeks later.
And why do these professionals live for this Monday (and the next few
Mondays) every year, year after year? Because of one reason…
The BARRON’S ROUNDTABLE issue
has hit the newsstand!
Each year Barron’s (you know, the guys
who called the 2000-2001 bear market in as early as 1994) invites
eleven of the best and brightest investment minds (their words, not
mine) to their office and asks them to to play Kreskin for the
upcoming year. These individuals get to show off their clairvoyance on
such simple things as to what this year’s GDP will be, how many people
will be unemployed at the end of the year, the closing price of the
Dow, etc. You know, all those easy tasks that no one in the history of
mankind has ever been able to consistently do.
Sometimes these folks really are not too bad. But the main reason
these guys go onto the Roundtable, is that they get to plug their
stocks (hell, last year Abby Joseph Cohen plugged five of them and one
even went up for the year). But that doesn’t matter to professional
traders. What matters is that many of the stocks in today’s issue will
pop Monday morning. And some will pop big. And this is where
opportunity lies.
The
Game
The game is not to follow the Roundtable’s
recommendations (history has proven otherwise). The game, as history
has proven, is to:
—Do what the specialists and market makers will do tomorrow, and
be on the other side of these trades for a few minutes to a few
days!—
If you are a specialist or market maker tomorrow, you are obligated to
be on the other side of the influx of tomorrow’s early morning buy
orders. So what are you going to do? Open the stocks flat? No! (If
they do, that stock is then sure as hell going lower.) You are going
to open the stocks as high as possible, in order not to get clocked and
to create an opportunity for yourself. And you are likely going to try
to get yourself short sometime early in the morning once you feel the
impulsive buying (not-so-smart buying?) has been absorbed.
A lot of this game will not be in the big cap stocks. The specialists
and market makers can handle the size in these stocks. The
opportunities lie in the mid-cap to small cap stocks. And the thinner
the better (just remember to borrow the stock and short them on an
uptick, otherwise the SEC will be knocking on your door someday). The
specialists typically go to town on these stocks (this is where they
make their money for the day) and open them at absurd levels. Many
times these levels are not sustained and these stocks quickly reverse.
Names
As this is being written over the weekend,
there is no way of knowing which stocks will gap, which stocks will
likely reverse, and where the best opportunities will lie. These
answers will come when the stocks open in the morning. In the
meantime, Barron’s publishes
three to four analysts‘
picks (about 20-25 names)
each week for the next few weeks. For copyright
reasons, I cannot
recopy these names. But, you can get them at your newsstand or at Barron’s
Online. And the time spent researching these names and following
them tomorrow and the next few Mondays, may pay big dividends for you.
One final note: One guy on the Roundtable to really keep an eye on is
Marc Faber. In the past, Marc has made it an occasional habit to plug
a few low-priced stocks he is long. Nothing wrong with this. But these
stocks go wild when he does. A few years back I was long one of Marc’s
low-priced picks when he plugged it. It took the specialists on the
ASE more than four hours to open the stock Monday morning. When
he did, I felt the same emotions felt by lottery winners when their
numbers come in. The only difference is that they get to keep
their money when this happens. I, on the other hand got to keep
the money for 48 hours (on paper) as the stock round-tripped in two
days. Those who were smart enough to be shorting to these Monday
morning buyers cleaned up. (Not
me —
I wasn’t even smart enough at the
time to sell it to them!) But the money was there to be made. And
each year, the money has been there to be made. And, I suspect
it will be there to be made again this year. Just remember, don’t be
cocky. These stocks will be volatile, and some will have real follow
through. Use tight protective stops on all your trades.
This Week
Earnings will drive everything. Lots of numbers coming up. Greenspan
dampened things a bit on Friday. A piece of me says he did that to
slow or stop the increase in longer bond yields. But in the meantime,
everyone is going to be focusing on earnings. The best way to trade
these earnings is to watch how they react to the earnings news.
Look for bad news being shrugged off. Those are the stocks to play on
the long side (do the opposite for the short side). As I’ve said over
and over…
If they don’t go down
on bad news, they’re likely heading higher.
There will be lots and lots of these
opportunities over the next few weeks. If you want up-to-the-minute
intraday analysis on this, use our TradersWire.
We put out this analysis throughout the trading day.
The Newest
Version of TradingMarkets
TM 3.0 is coming later this week! We’ve been working on it for two
months, and we’re just about finished. When I announced a few months
ago we were doing this, I got a very a nice e-mail from a member (I’ll
abbreviate his initials–C.D.) who wrote:
“TM is one of my favorite web sites, and one that I use
throughout the day. So, my message is intended to BEG you not to screw
things up. If it‘s not broke, don’t fix it!“
Well CD, first, thank you for taking the time to email me. And second,
even though I can screw things up with the best of them, this time I
think things will be OK. The new site first and foremost brings out
for you the many thousands of pages of information the site has. And
we’ve added a few new goodies for everyone. We’ll go live with it by
week’s end. Stay tuned for the announcement.
TraderTalk
This past week I hosted our
first TraderTalk session (held each Wednesday at 4:30 pm ET). If you
would like to read an archive of the session, which covered using the
the VIX to time the market, click
here. This Wednesday, Dave Landry will be leading the session. His
topic is “How To Get Started in Momentum Based Swing Trading.“
Dave has written the
book on swing trading, and the popularity of his
nightly trading service attests to his knowledge. Again, it’s this
Wednesday at 4:30 pm ET. You can find the link and archives on the What’s
New at TradingMarkets page.
If you have
any questions about the site or how to use it, feel free to e-mail me
at lconnors@tradingmarkets.com.
Have a Great Week Trading!
Larry Connors and
Brice Wightman
Larry Connors
is CEO and co-founder of TradingMarkets. He is also the author of four
books on trading, including Street
Smarts,
co-written with Linda Raschke, Connors
on Advanced Trading Strategies, and his latest release, Trading
Connors VIX Reversals.
Brice
Wightman is a Market Analyst at TradingMarkets.com.