Yesterday, stocks took a big dip followed by a sharp upturn following the news of regulators setting a six-month deadline for the largest 19 banks to raise any new capital that they deem necessary following a review of the balance sheets of each of these banks. According to the U.S. Treasury, regulators will complete their ‘stress tests’ by the end of the 1st quarter. These tests will help determine if the banks need more capital yet the government as has so often been the case did not release specific details as to how these stress tests will work. Should it be needed, banks would have a choice of raising private funds or accepting monies from taxpayers via the U.S. Treasury. Any new monies procured from the government would come via convertible preferred securities which would acquire voting rights should the shares be converted into common stock. These shares would convert at the requests of the individual banks or at the end of a seven-year period of time. Now, at first blush, this all looks negative, i.e. the prospect of nationalizing banks would seem to be a real possibility based on this plan. But the reason that the equities of banks rallied yesterday afternoon was that there is hope- perhaps to be unrealized- but hope that this idea could stabilize the system. Basically, the banks would be ordered to attain new capital if they fail these stress tests; they’d either be forced to raise it themselves or go to the Uncle Sam well. And even if the banks went to the wallets of the taxpayers, they’d be giving us the right for new shares rather than converting the shares into common equity as they’d have seven years to do that. Thus, this whole idea buys time. And time is what we need. For day traders, it is but another example whereby one cannot merely look at headlines and assume the best (or worst); sometimes, a little more analysis/thinking is needed to truly understand the headlines.
Markets in Asia were lightly mixed overnight while European bourses are up 1% or so. Banks are very strong in the early going, leading the futures nicely higher. Look ofr that strength to maintain itself most of the day today as a contra reaction to yesterday afternoon’s late sell-off- of course, this is all dependant on those banks but it looks like a relatively quiet day to the upside
Watch list:
2262009Eriklist.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
CRM- terrific earnings
FLR- beat on quarter and raised guidance
CLF- good earnings
FLS- terrific earnings
TYL- good earnings
OCR- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
KBR- closed near a low
AGU- closed near a low amidst rumors it will be buying CF
ESRX- poor earnings
PSYS- abominable earnings; missed estimates and warned on outlook
NUVA- beat earnings, but warned a little on revenue guidance
DCI- terrible earnings
NTES- missed earnings and COO resigned
QCOR- closed near a low after bad earnings
HUM- closed near a low in a weak healthcare sector
CEDC- closed near a low
PACR- closed near a low
FCSX- closed near a low
ANSS- terrible earnings
NIHD- bad earnings
Earnings:
THURS FEB 26 BEFORE
AMT ANSS BVF
BYD CLR CM
CTB CVC DLR
EME EP ERF
ESV EXH FAF
FMX FTO GLBL
GM GNK HRP
HUN IRM KEG
KG LAMR LINE
LKQX MIC NDAQ
NIHD OCR OEH
OMG PCS RDC
SUG SWY TEF
WRC WTI
THURS FEB 26 AFTER
ADSK ATHN BID
CTV CVA DECK
DELL DPL GPS
HANS HGSI INSU
INT ITMN KSS
LEAP ME PSA
SBAC SD SGMS
SNH SWN UHS
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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