Sucker Punched

________

In addition to the after hours news of $HPQ CEO Mark Hurd resigning, I am also seeing that one of my holdings is getting hit because of similar news. My 1/2 long position in $LSCC is down around 6% after the bell, on news that its CEO and President will resign in early September to “pursue other opportunities.”

I wanted to write a quick post for those of you that may have followed me in to this trade. When you are blindsided with news like this, there is simply nothing that you could have done about it beforehand. If anything, it is good to see the news announced on a Friday after the closing bell, so as to mitigate the possibility of acting on emotion during the trading session. I have no way of knowing whether the stock will digest this news well come Monday morning. After all, there is nothing that has changed about the firm’s business model and products. However, the human element of changing CEO’s after the former one has had a nice run is certainly something that could weigh the stock down.

With the 50 day moving average slowly rising at $5.01, the stock has some room to drop before any major technical damage is done. If you have a big position in this name and you are having trouble sleeping over the weekend because of this development, my best idea would be to decide how you view your position. In other words, are you in this name for a quick trade? If so, there would be nothing wrong with setting a stop loss below the 50 day moving average. If you are a long term holder with conviction in this firm, you may need to research the interim CEO and possible replacements and how the change in management will affect the business operations (if any).

Personally, I will take a wait and see approach next week. If there is heavy selling volume taking us below $5, then I will obey my stop loss and move on to the next trade. If the selling reaction is relatively tame, and met with eager buyers, I could easily raise this to a full position.

As you know, if I do not accomplish anything else, I would at the very least like to distinguish myself from writers on other financial sites by not leaving my readers hanging out to dry. Therefore, if you have any fears/concerns/questions/venting to do about $LSCC, I encourage you to leave them in the comments section.

_______

I bought 3/4 positions long in both $OVTI and $ISLN. If you are following my trades, I have included the two charts and reasoning below.

All trades are timestamped inside The PPT.

________

_______

________

TOTAL PORTFOLIO:

EQUITIES: 44%

• LONG: 44% ($OVTI $ISLN $GNK $LSCC $RDWR $BX $CMI)

CASH: 56%

______

Given its weakness, combined with the fact that it is reporting earnings on Monday, I sold out of my $SWSI position, in full, and took a loss.

All trades are timestamped inside The PPT.

______

TOTAL PORTFOLIO:

EQUITIES: 32%

• LONG: 32% ($GNK $LSCC $RDWR $BX $CMI)

CASH: 68%

One cannot help but try to draw parallels between today’s action and the nasty reversal that we saw back on June 21st of this year. As you may recall, back in late June we touched 1131, only to immediately tank for the next two weeks to 1010 on the S&P 500. The temptation is to extrapolate that today is yet another reversal, seeing as we are at the top end of our multi-month trading range.

Rather than choosing to become bearish based on emotion, or on a whim,  or because of lagging/flawed economic data, I believe the better approach is to have a sound game plan. Looking at a slightly zoomed out intraday 15 minute chart of the $SPY ETF, all we have seen thus far today is a gap fill from Monday’s 2.20% rally. So long as we stay above that gap fill level, which I have illustrated, the trend of higher highs and higher lows since early July remains in tact. Should we break and stay below that level, the trend becomes in grave danger of being broken, and I will make the necessary adjustments in my portfolio.

NOTE: On the S&P 500 index, this level is right around 1107, which happens to be the low of today. On the $SPY, it is around 110.86.

________

_______

MARKET WRAP UP 08/05/10

Today was probably the closest thing that you will see to an “intentional walk” in the stock market. In baseball, an intentional walk–or base on balls–is a tactic used by managers to avoid pitching strikes to a good hitter, or to gain some other advantage from having another man on base (ironically). In the stock market, as we saw today with the S&P 500 closing down 0.13% to 1125, the price action was more or less in a holding pattern in front of tomorrow morning’s employment report. As you know, I am not an advocate of trading based on news. In fact, I often seek to avoid doing so. Instead, I prefer to look for advantageous situations where price and volume indicate that I have an edge. However, I believe it is crucial to note the reaction to the news. We could just as easily selloff tomorrow from a supposedly good jobs report, as we could rally after a “bad number.”

Beyond the employment report, the price action has also been indicating that traders have essentially hit the pause button until they decide which way they want to lean. While it is true that we have maintained a steady uptrend since early July, it is also worth noting that the overhead resistance from late June has caused considerable choppiness over the past few days. As the updated and annotated daily chart of the S&P 500 illustrates below, we have essentially flatlined ever since the big gap up we saw on Monday.

_______

_______

The good news from the past few days of consolidation is that it has given some of my top holdings a chance to rest and build sound bases. Two of my favorite plays right now, $BX and $GNK, are pretty good examples of this, as their updated daily charts illustrate below.

_______

______

_______

In conclusion, the past few days of quiet consolidation do not guarantee that this has marked a bull flag after Monday’s rally. However, the bears have been unable to hold any gap down this week, and each pullback has actually been a healthy sign of a lack of complacency amongst the bulls. Anecdotally, I am seeing an awful lot of cautious bulls, rather than raging ones. After the vicious trap in late June, the caution is completely understandable. However, the lack of complacency might very well be the lighter fluid that propels us higher out of this broad, multi-month trading range for good.

_______

TOTAL PORTFOLIO:

EQUITIES: 40%

• LONG: 40% ($GNK $LSCC $RDWR $BX $CMI $SWSI)

CASH: 60%

_________

I made two trades.

• I added 1/2 more long to $RDWR. I now have a full position.
• I added 1/4 more to $BX. I also have a full position in that name.

All trades are timestamped inside The PPT.

_________

TOTAL PORTFOLIO:

EQUITIES: 40%

• LONG: 40% ($GNK $LSCC $RDWR $BX $CMI $SWSI)

CASH: 60%