In the midst of another downdraft for the markets, the worst performing sector in this young year has been the financials- specifically the banking stocks. So, what exactly is going on? Four little letters: TARP. Lawrence Summers, arguably Pres.-Elect Obama’s top economic adviser penned a note on Monday to Congressional leaders. In the letter, he intimated that any participant using TARP monies would not be allowed to acquire other entities, outlaw precious funds for dividends, severely corporate stock buybacks, and face limits on executive pay. Thus, it is difficult to hire top brains when there is no distinct pay incentive to delve out. Furthermore, it is much more difficult to invest in a bank stock when it is paring back or quitting its dividend. In the new administration, it’d appears that homeowners seem to be the priority over the shareholders in that the government is trying to stem foreclosures. It is not for me to discuss whether this is just; rather, it is important to note that ideas such as Summers’s line of thinking is what has helped to the widespread decline in the price of bank stocks. The two things to take from this are as follows: first, the government is participating as never before in the daily machinations of American corporations. Day-to-day policies can and will change in this very fluid environment. Second, don’t become incredulous at the performance of some of these stocks. When one day trades, it does not matter if a stock is at 4 or 40; what matters is whether one can make money in the next few minutes. So, just because C traded at 4 yesterday, it did not stop a short seller from making money below 4. Thus, please- keep up with the headlines as the news today was seemingly OK for example, but use the headlines to your advantage rather than staring at your screen muttering “I cannot believe this is happening.”
Markets in Asia were generally higher overnight with Tokyo up 3%. European bourses are up 2% or so across the board, but off their highs. State-side, futures are up on the Intel news and a sense –maybe ephemeral and misguided?- that the worst is over for now in the banking sector. Look for a stronger open and some selling into it, but likely a bounce from there on what should be a relatively quiet options expiration session. Use BAC, C, and INTC as benchmarks.
Watch list:
1162009Eriklist.zip
Reiterating-
Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
INTC- good earnings
RMBS- closed near a high; looking at A-B-A2 thru Thurs 9.10 high
PALM- continues its breathtaking rise; looking for A-B-A2 to upside and/or a short thru unch if it opens higher and weakens to below Thurs close of 7.14
COCO, ESI- up sharply amidst reports that funding for education would increase in this new batch of the stimulus plan approved by the Senate late yesterday afternoon. If it opens higher and fails to hold unch, short thru Thurs 17.12 close; ESI if it opens higher, it’d be nice to short thru unch
OZRK- pre-announced decent earnings
CYMI- preannounced decent earnings
DLM, CELG- on “Mad Money” last night
CVTX- closed near a high; looking for A-B-A2 thru 11.16 Thurs high
CMI- solid reversal yesterday; looking for momentum thru Thurs 26.19 high
HRS- broke out yesterday; looking for buy thru Thurs. 41.25 high
TRA- being acquired by TRA for .4235 shares CF stock
BAC/C- both missed earnings; C restructuring…BAC getting TARP money…but stocks up in pre-open so news may be factored in on a day trading basis anyway. A short of BAC in particular thru unch, particularly pre-open with stagnation, may well be day trade of day
Bad-The following stocks have bad news and/or a weak technical pattern
DNA- poor outlook and no comment on takeover which would indicate a higher bid may be forthcoming
ZZ- missed earnings
MA, V- MA traded down almost 4 after-hours last night, but no major news on the wires
MFB- warned on earnings
MI- closed near low; looking to short thru Thurs 7.74 low if it gets there
AGU- announced a series of charges
ZION, USB- among smaller banks closing near their lows
BDC- warned on earnings outlook
JCI- missed earnings and warned
Earnings:
FRI JAN 16 BEFORE
C FHN JCI
PPG
Good luck today.
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist of Epiphany Trading, LLC
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