Industry analysis. Financials.

Really it is hard to imagine any banks are in trouble with everything the US taxpayer has given up for them....
It is widely agreed that the banks are undercapitalized.
Further confirmation that the various central bank liquidity facilities and capital injections are having the desired effect of unclogging credit markets comes from Goldman Sachs’ Financial Stress Index (FSI). This index includes four factors related to the degree of impairment of financial markets: counterparty risk (US dollar 3-month LIBOR-OIS), liquidity risk (MBS to treasury repo differentials), refunding risk (commercial paper outstanding) and broader risk aversion (percentage of monies held in money-market mutual funds in relation to equity market capitalization).

FDIC's Fund Reserve Ration Plunges to 0.27% of Deposits. Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, released the latest information on “problem” banks on Wednesday. The list now includes 305 institutions, up from 252 at the end of 2008. We have had 36 bank failures this year and if no more than a quarter of the “problem” institutions fail, we will be over 110 bank failures for the year. But i think thats a delay indicator. Bank closures are not a leading indicator of economic health and can continue for some time even after the economy begins to recover. A lot from deposits will be invested. We havent much risk on it now. President Barack Obama on Wednesday afternoon signed into law two major housing bills, one of which would allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department to protect the deposits of bank customers.
On the financials - we can use GS as an indicator of health. Goldman Sachs (GS) is one of the few companies with increased profit estimates in the marketplace today. Over the past 90 days their current quarter profit estimates have increased from $1.92 a share to $2.44 a share, a 27% increase. Likewise the next quarter estimates and the year profit estimates have also moved higher with the analysts that cover the stock.
Some banks announced that they will be able to begin to repay the government.
We see that bank's CDS become to cost less.
Goverment are all in financials, they will not give one more time possibility to drop.
The Fed, in a report issued Thursday, said commercial banks averaged $38.153 billion in daily borrowing over the week that ended Wednesday. That was down slightly from $38.155 billion in the week ending May 20. Investment firms didn't draw any loans over the past week from the Fed program. In the prior week the firms also took a pass on the emergency loans, something that hadn't happened since early September. Firms drew just $482 million in the week that ended May 13. Good trend.
Conclusion If nothing will be changed - we will see big growth in financials. It will not be exponential, just strong selfpowered trend. We have risks, but more we growing in financials - less risks we have. More financials shares getting up - more confidence crodw will have on it. More confidence crowd will have - less wholes in balance sheets we will see. Governments main target - to keep crowd confidence about finacials growing. So we will see a proccess which very nice described by Soros theory of reflexivity. Banks are good look by classic fundamentals, exept wholes in their balance sheets. But i write above how rather quick this wholes can disappear. The contrarian opinion analyses saying that financials are interesting for long. The most people just saying about stability growth in financials but still dont make big bets on it. So, nice potentional for growth, maybe only speculative now, but speculative growth can be a reason for a next fundamental growth.

Portfolio strategy

Our target is to build portfolio which will give good returns independent from market conditions. In portfolio we have strenght stocks in long and weak stocks in short side that are balanced (equal). Our ideal target to get this situation. Let’s suppose that we have ideal balance in long and short side of portfolio and market is in zero point. If market changing up on 1 basis point, long side ads 2 basis point and short side ads 1 basis point. So on market move on 1 basis point our overall result is 2-1=1. Next market making move down on 1basis poing. Long side minus 1, short side minus 2. So overall 1-1+2=2. Now we are in profit of 2 basis points. So in every next market’s step in 1 basis point our portfolio growing on 1 basis point.
For balancing long and short side of portfolio we are using Beta coefficient. If we have different Beta we entering a position with more or less quantity for making position equal.
At first we are looking which sectors are the most interesting for long/short. This analyses we do with calculating next data Market cap, P/E, ROE%, DIV Yield%, Price to book value, Net profit margin%, price to free cash flow. We pick most interesting on this and then doing discretionary analyses. We researching expections on this sector, catalysts, risks, events, etc. Then we took stocks from the interesting sectors and doing the same analyses on companies. So we have to be sure that we are picked the strength stocks from strenght sectors and the weakest stocks from the weakest sector. Also we are using technical analyses for sectors charts and stocks to identify important levels. We dont entering in market on all portfolio in one time. We trieng to enter in right time on every stock. So we have some risks, because we have a time when our portfolio is not hedged in all.
Also for picks we are using two ratings.
1st – Stocks Chekup on www.investors.com . Its site of CAN SLIM system developer – Williahm O’Neil. He developed this system many years agos, its very popular, but this system representing not changing financial principles and CAN SLIM will work for many many years more. CAN SLIM system developed for picking stocks with amasing potentional of growth. So we use it for an evaluation of growth potentional. Below we can see basic principles of CAN SLIM:
C & A
Sizing up a stocks earnings growth.
N
The biggest stock winners had new products, new management or new conditions.
New price highs offer new opportunities.
S
One of the most basic economic principles is the law of supply and demand.
L
Steer clear of stocks that are laggards.
I
When it comes to investing, it pays to watch the pros.
M
This section will help you learn to size up the health and direction of the stock market.

2nd – MSN Rank.
It includes fundamental, ownership, valuation, technical analyses. We use it to see strenght or weak stock are. For buy the best picks are with rank between 6 and 9. Its show that company have potentional for improve. Very good if it is confirmed with our rating of potentional growth – CAN SLIM. The same, only reversal, for our short positions.

Thursday's preparation

As i am some busy with construction more long term portfolio, for today i brought next article from this blog . I cheked it . This guy prepared nicely. Today I will use his picks.

Tuesday's review

Looking for the gainers of premarket, i found an idea - to make basket from the top 5-10 gainers and short it due trading hours. :-) . Ofcoz , to do it , market have to weak or at least neutral. Maybe someone wanna to do statistical calculations to know is it work or no? Today again, stocks, which had positive background, gained on premarket, was trading in minus zone all day on mixed market. One of the exception - MS, which announced about money back to TARP. I traded nice on it. Here is screenshot.

And at once daily chart

I longed MS @29.04 when S&P was on way to the high board of the range. But we still had lunch time at US so havent enaough powerfull to brekout higher. Before the entering a position i saw that MS making my favorite pattern for daytrade - an ascending triangle. When lunch time ended, S&P was on the bottom of a range and began to growth. Then as we expected we saw a breakout on MS on large volume. S&P began to trade on high board of a range and MS grew higher and higher. I was not very happy to see this. Then S&P breakout key resistance, which pushed MS to 29.86 high. Next i saw this things. We made on MS small red candle with a big volume. This was good signal for potentional reverse. And as on every breakout i refreshed Dr. Bret tweeter and saw this "steenbab1:58 PM CT - Highs in ES not confirmed so far by IWM, XLF, XLV. We continue to see absence of signif selling in TICK.". So we could expect that this breakout was false. And really we saw this on market and traderfeed's twitter - "steenbab2:40 PM CT - Once again we see how the non-confirmed moves tend to reverse, continuing the range trade. Back l8r today.". I saw that MS made support @29.5 lvl, so changed stop loss order to 29.45. In really, when i expect false breakout i should close MS with a big profit. But i hoped, just hoped, that this non-confirmed breakout will push market higher. I put stop loss on MS in the way - if S&P will break support, only on this situation my stop loss will execute. Maybe this was not ideal from me, but even on this i am satisfied with this trade. I made another 41 pips of profit.
I had another small trade during a day, but it was not intersting. Just came a victim of false breakout @USB.
Also had new ideas on pennystocks. Wait for tommrrow udpates.
Also we made began to make speculative portfolio with active managment. I will also write some info on it.
Good night!

Before the market open

My holding BAC overnight giving me today 2000$ after analyst upgrades and positive words of Tim Geitner about stress test results. Today will be realesed stress results, market are filling positive about it and financial sector growing a lot. Will see.. Will resulsts will be worse or the same as market thinking can be nice shorts oportunities on financial sector. So, today looking atentive to the crowd mood about XLF. Play against crowd and make money :-)

EURO

Trading Idea with AXP

American Express (NYSE: AXP - option chain) shares are soaring higher today after the company reported a first-quarter profit of $361 million or 31 cents per share. AXP's adjusted profit came in at 32 cents per share, beating analysts' forecasts of 12 cents per share. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AXP.

AXP opened this morning at $22.69. So far today the stock has hit a low of $22.05 and a high of $24.10. As of 11:25, AXP is trading at $23.74, up $2.77 (13.2%). The chart for AXP looks bearish and S&P gives AXP a negative 2 STARS (out of 5) sell ranking.

For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $17 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just two months as long as AXP is above $14 at June expiration. American Express would have to fall by more than 28% before we would start to lose money.

AXP has shown support around $18 recently.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AXP.

All in one. 19.04.2009

Financial
If banks are up, why assets prices down?
Inner Workings
After reading the financial statements for many banks I can tell you that the only thing keeping them afloat is all these bailouts, legalizing of lying about asset values (aka mark to model), and non stop televised propaganda, none of which changes the fundamentals. This bear market rally isn’t going to shake most shorts because they are positioned to be solvent longer then the market can afford to be irrational, myself included.
Biggest Florida Bank - 20 days to find buyer - 14 billion BankUnited of Coral Gables
Technical picture for
JPM
GS
C
BAC
Overbought of financial sector (using MA50)
50MA and financial sector

Potentional arbitrage with OIL
picture for research
So sell OIL, buy stocks of OIL companies.
Cooper and other metals, oil
China buying activly cooper and all other industrial metals, oil - diminishing the dependence on the American bonds and dollar. But how much China can do supplies for production needs?
Also have potentional H&S for tasty short on cooper
chart of cooper

FEED
The main idea from Tim Sykes is shorting FEED
See the interview Tim Sykes on FEED

Number of US stocks above 50MA signals about overbought in short term period
bespoke

We can check this guy, whos main instrument is VIX VIX guy and see that it is also signals to short a market

RSX
We can comapre emergeny markets with US markets. We saw a powerfull down move on friday's close in US. Brasilian stock index Bovespa closed in -0,5% . LKOH, GAZP - russian blue chips closed the week in minus zone.



Real Estate
RealtyTrac agency declared the amounts of the withdrawn habitation about growth. In the first quarter a number was a record. The new coil of price-cutting can follow on the real estate.

We have a record unpleymonet numbers on California, Oregon, Carolina, Nevada, Indiana. So it can be a good idea to bet versus real estate in this states.