Allied Waste - A Market Making Lesson

There is not much to talk about in terms of fundamentals. The company is heavily indebted and their accounting is basically smoke and mirrors. I became attracted to the company because of the industry (gotta have trash collectors) and that they were our local operator.

Technically the story and logic was extremely simple. After following the stock for several months I thought that expectations had reached a relative low point. A new CEO had been found two months before earnings and I expected that he would try to put the best face on things for a good start. He managed to pull off some pretty crafty accounting changes that really did not change the prospects of the company but made the earnings report look a lot better.

I was pleased in afterhours after reading the earnings report and listening to the conference call and I was eagerly anticipating an open up 10 percent the next morning (earnings came out afterhours on 7/26/2005.)

The next morning on 7/27/2005 I was up with the market open around 6:40 AM and watching the stock. The market looked weak as did the stock. My gut told me that before the end of the day this thing would close down for the day. MY GUT WAS WRONG.....LOL. See charts below:


Anyways - the only reasonable lesson I can think from this - is don't trade during the first two hours of market open where possible, or maybe better phrased - do not rely on those first two hours as reliable prices in more illiquid issues as this one is - with often less than 1 million shares traded per day.

In the charts above you can see in excruciating detail that I sold the stock at 6:52 AM, took my shower and literally at 7:30 AM (PST) after I got out of the shower and was leaving for work the stock was up 5% from where I had sold it and the options that I had owned minutes before were now up more than 70% from where I sold mine!!! In 30 minutes!!!

All of my previous experience had told me that the expectations regarding the stock should have been priced in already and if the stock was to open up - it would gap up with the open as most stocks do after a good earnings result.

Bottom line - before this turns into an unbelievable rant (sorry I think it already is) - is that you you cannot read the mind of the market. You have to make the best decision possible under the information available to you at the time and maybe the dice roll your way and maybe they don't. If anyone else thinks that I am missing something here, or wants to talk about some conspiracy theory (damn market makers) discussion - that is fine with me - also criticism is welcome. :)