So what was the main culprit behind yesterday’s major declines for Wall Street? Something that was discussed in this space late last week- stress test worries/rumors. For those who did not read the piece, the Treasury is supposed to announce the results of the stress tests for the country’s largest 19 banks on May 4. The date was originally supposed to be earlier, but government officials decided to wait until after earnings season. Thus there is a lot of posturing at this point. The latest rumor yesterday along with BAC warning of deteriorating credit quality much less a “Wall Street Journal” article pointing to the same credit extension fears was that the Obama administration may convert some of the preferred shares it obtained via bank bailouts into common stock once the stress tests are finished. Such a strategy would give the government the flexibility to have greater control over the banks without necessarily pumping in additional monies yet would dilute existing common stocks of the banks. Basically, if all of the banks pass the stress tests, the credibility of the tests will be questioned yet if some banks fail, they will need additional capital and the entire sector would likely be ravaged by investors much less bank clientele. Thus, the mere whiff of the aforementioned thought of conversion of stock is kind of a ‘backdoor/lukewarm’ de facto nationalization which would be horrible for the bank stocks as socialist tendencies creep in and the current shareholders see the values of their shares get diluted. This plausible and possible thought process was floated to the public by reports by various news services over the weekend (particularly the “Financial Times”) which set the stage for the negative reaction yesterday. Thus, again as noted last week, you’ve got to keep your eyes to stories/rumors about these stress tests because markets will move on any given day by any given rumor right about now.
Overnight, markets in Asia fell about 2.5% on average following up on Wall Street’s poor performance. In Europe, prices are hovering just south of the unchanged line with the German DAX down ¼% as of this writing as an example. Oil is bouncing back a little after its mammoth fall yesterday with bonds up slightly as well. As for today, look for a very choppy session with trading on both sides of unchanged albeit more to the downside overall with the poor banking news out there. The two forces at stake here are the fact that the markets did not break on IBM’s earnings last night showed strength yet the newsflow is not good and there will likely be follow-up to yesterday. Thus, look for an all out battle today; more than most days, pick selected spots and do not overtrade.
Watch list:
04212009Eriklist.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
WAC- closed near a high on first day of trading
TXN- beat earnings estimates
BSX- solid earnings
HWAY- good earnings
PKG- great earnings
SCON- amazing run continued yesterday; closed just off of a high
NTG- recommended on “Fast Money” last night
MICC- good earnings
JEF- beat earnings estimates
COH- good earnings
LMT- good earnings
SCL- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
BXP, VNO, AVB, SPG, CBL- among the REIT’s which closed near their lows of the day
COF- one of biggest percentage NYSE lowers amid scrutiny over its credit portfolio
LEN- smashed yesterday in closing near a low after they indicated they needed to raise capital to pay off debt
IBM- beat earnings and raised guidance, but revenues were weak…some analysts worry about quality of earnings; indeed stock traded down most of after-hours yesterday
ZION- atrocious earnings
SYK- poor guidance on earnings
REG- cut guidance slightly and announced a share offering will take place between 32-33 per share
JDAS- warned on earnings guidance
KRG- closed near its low of day
MAC- closed near low of day
FIC- closed on the low of day
SLG- massive reversal; closed near a low
BAC, JPM, WFC, USB, STT, PNC, C, MS, GS- among the banks/financials which closed at or near their lows after the stress test worries discussed in yesterday’s blog
HIG, PRU, MET- among major insurers closing at or near lows of day
BK- poor earnings and cut dividend
DD- bad earnings outlook
JCI- poor earnings
MRK- missed quarterly estimates
CAT- smashed earnings, but warned on outlook
KO- met earnings, but missed on whisper number
NTRS- atrocious earnings
HBAN- wretched earnings
EAT- poor earnings
BRCM- decent earnings, but acquiring ELX
RF- poor earnings
BJS- poor earnings
Earnings:
TUES APR 21 BEFORE
AKS ALGT ALV
AME AMTD BJS
BK BLK BPOP
CAT CMA COH
CSL DAL DD
DGX EAT EDU
ELS FRX HBAN
JCI JEF KCI
KEY KO LMT
LXK MAN MICC
MRK MTB NTRS
NYT PNR RF
SGP STT TRA
UAUA UNH USB
USG UTX WBS
WU
TUES APR 21 AFTER
ALTR AMD AMP
BRCM CBST CENX
CHRW COF CREE
CYMI FULT GILD
HCBK ILMN INFN
MOLX NBR NSC
PPDI SFG SNDK
STX TEX TUP
WCN WMS YHOO
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
No comments:
Post a Comment