Thursday, January 7, 2010

The Daily Note - Trading on Adrenalin

We are embarking on the earnings season again and coupled with opex next Friday, I am reminded that going forward into next week will bring fresh traders into the market. Traders that live only for trading into earnings and opex. What does that mean to us "regulars"? It means that being more cautious on taking positions because they like to drive prices toward the anticipated announcement after which they will drop the holding faster thank you can blink.

It means that it's important to become familiar with the earnings list, and know when your favorites are announcing. Become familiar with their historical prices and expected earnings for the quarter. Then monitor any unusual activity. It means becoming alert to any strongly driven price change especially if coupled with a quick reversal. Also start monitoring the news more closely something that you should do anyway because news still drives prices.

Earnings trading is like living on adrenalin; it starts slow but builds in volume towards announcement day. Clues become more apparent when sudden spikes or drops occur as those in the trade could be testing the waters. Activity builds to a crescendo and with the most popular stocks, like GOOG or AAPL, RIMM, etc. the wait becomes hushed, nervous or frantic. You can see the ticker twitch as the adrenalin takes over so when the announcement finally comes the result is a uncalculated reaction. Amateurs trade and react on adrenalin, professionals will have calculated the trade and will either ride it out or are long gone before the figures are announced; their adrenalin is present but their reaction is controlled.

Not many things are worse than being caught on the wrong side of a surprise earnings announcement; equally there's not much better than being on the right side. But, unless you're an adrenaline junkie with money to burn, I suggest staying away from such adventures and opt for bungee jumping.

Happy Trading Living and Trippin'


The Play List:

$AAPL continue watching for short targets as previously listed: entry short below $210
$POT retest of $124 is possible but watch the downside mood
$FWLT still moving higher, touching $33 yesterday, time for near $33.50 then near $34, but depending on mood of market, protect the gains.