So let’s discuss what happened Friday at 2PM. According to the Federal Reserve, the recession and market turmoil have “substantially reduced” capital reserves at several of the 19 largest U.S. banks although most of these same entities possess capital “well in excess” of current regulatory standards. According to the Fed statement: “losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks. Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized.” The Fed did not indicate which banks need capital or specify the total shortfall (at least not yet). In calculating the buffers, regulators studied off-balance sheet issues that banks will be utilizing in 2010 due to proposed accounting rules changes and asked the banks to make sure to include the level of reserves required at the end of December 2010 to attempt to cover expected losses in 2011. However, the Fed also noted that the stress test is not intended to be the ‘worst-case’ scenario, the focus on common equity does not imply a new capital standard, and banks required to raise capital should not be viewed as insolvent. Everything in the previous sentence is what the market chose to focus upon on Friday. Namely, the implication, despite the lack of specifics is that the banking system needs some more money, but is otherwise OK. In other words, the Fed danced a fine-line between indicating that the system is capital-deficient and telling us it’s not such a bad thing helping out a bank because it’ll eventually come out positively on the other side. Thus, the daily epiphany: the Fed is trying to soothe us into letting us realize that this whole process is going to take awhile to fix, but it is fixable. And amid the rally and stabilization the system has seen in these last few weeks, the market on Friday chose to focus on hope and the joy that the government seems to think the biggest banks in the country are going to survive.
Markets in Asia were generally weaker overnight with the Hang Seng down over 2%. Prices in Europe are down around 1% across the board. Oil is down amid the OPEC machinations over the weekend with bonds higher. State-side, futures are weaker amid comments made by Lawrence Summers this weekend when he indicated on the Sunday talkies that the economy was going to get worse before it gets better. Plus, we are in the midst of one of these flu panics as well so that has provided another wrinkle in a somewhat troubling morning. Look for the downside to stick today in choppy illiquid trading as the weather outside could not be nicer pending nay stress test or swing flu rumors.
Watch list:
04272009Eriklist.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 (preferably to the downside in a downside market and the upside in an upside market) 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
NVAX, BCRX, CRXL, GNBT, GILD, PURE- up as possible companies that can help with the Mexican swine flu; for quality spectrum, NVAX is potentially more able to help while BCRX indicates its drugs are in the clinical stages only
OFG- closed near a high after posting great earnings
DFG- closed near a high
MA- closed on a high
FNFG- mentioned on “Mad Money”
HUM- beta on its earnings estimates
QCOM- good earnings and officially announced BRCM settlement
OMC- good earnings
PVTB- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
KRO- extremely lightly traded, but closed on a low due to a sell imbalance; should bounce back all else equal today as it closed completely out of range on the daily chart
SVR- closed near a low
BEAV- bad earnings
LO- poor earnings
XNPT- disappointing Solzira drug diabetes study
LVS- rumored to be divesting its Macau project
SII- bad earnings
TKR- bad earnings
Earnings:
MON APR 27 BEFORE
ACV BEAV CHKP
ENR GLW HUM
IMA LO OMC
ONB PVTB RCII
SII SLG SOHU
TKR VLO VZ
WBC WHR
MON APR 27 AFTER
AAN ALB AXS
BIDU CMP ELX
EW FNF HBI
HMA HXL KRC
LRY MAS MRH
MTH OLN PCL
PRE PRXL RGA
RKT SWN TMX
UHS WMGI WRE
WRB WRI XL
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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