Upon mulling the matter and doing some research yesterday, itâd appear that U.S. banks that received the results of their federal stress tests last Friday have three options if they indeed need to tack on capital in order to survive the financial storm that has enveloped the world. The first option is to accept direct federal aid; however, this is not practical because it could cause a mini-panic of sorts at the banks that seek financial help. The second option is to directly sell shares of stock to the public, but of course this is not particularly viable either as itâd make current shareholders (much less the overall stock market) very unhappy. Furthermore, it is highly unlikely in these politically charged times that more monies will be added to the original $700 million TARP program. It is (almost) as unlikely that large institutional investors will feel particularly comfortable buying share offerings of distressed banks. Thus, there is one option left over (and it is still not necessarily a good one): changing over the preferred stock held by the TARP program into common stock. This would shore up capital ratios under current accounting rules (especially under GAAP) although itâd dilute stock as well (albeit not quite as badly as out and out issuing new shares of common stock). With this essay painting negative scenarios for all the banks, two questions come to my mind. First, what will happen in the future? I mean, it is so obvious, isnât it? Either dilution or seeking additional funding would cause these bad banks to see their stock prices further erode. But the second question- so why have we rallied so much so fast? Not only does the perception potentially become the reality but there are a couple of very positive signs. Investors are not quite as scared as they once were amidst the overall picture and things like housing inventories have generally dwindled which portends at least a leveling off of the housing price decline the world has undergone these last few months. Daily epiphany: as rumors of the results leak out (much less when they actually do come out), go with what is happening. Do not necessarily go with the obvious. It seems âobviousâ that shares of banks that fail the test will have declines and it seems that shares of companies that pass will have a rise. But things sometimes are not obvious nor what they seem as Mr. Market has a way of doing whatever it wants to do. Thus, the best advice is to be prepared in knowing the situation at each of the 19 largest banks as the week goes on and particularly post- results release next week; a rudimentary observation of the situation much less self-admonition of oneâs bias can result in some pretty good day trading not only in this situation, but in all situations. Overnight, almost all overseas markets were closed for May Day. Tokyo was up about 1% and the FTSE in London is unchanged, but that is about it. With the stress test results delayed and one of the most exhausting earnings weeks behind us, today looks to be as quiet as it has been in awhile. On the heels of one of the best months in stock market history and indecisiveness over the aforementioned stress test results, look for choppy muted trade with trading on both sides of unchanged. Stick to trading the earnings (and the banks if they get going) with financials as is seemingly often the case leading the way directionally today market-wise. 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 AMAG- passed an inspection by the FDA of its manufacturing facilities to produce a drugâ¦could allow company to earn profits sooner MFE- good earnings ACS- decent earnings BGC- great earnings MTD- great earnings PKI- good earnings SWIR- good earnings CQB- good earnings DLB- good earnings DDRX, JVA, GMCR- coffee roasters in the midst (arguably) of short covering spikes VCI- closed near a high MXIM- decent earnings TSRA- decent earnings NETL- decent earnings NTCT- good earnings VPRT- good earnings ARBA- good earnings IM- decent earnings WSO, SWKS- on âMad Moneyâ last night LPNT- good earnings UTHR- good earnings AGP- decent earnings FLIR- decent earnings HMSY- decent earnings DRYS- good earnings CLX- good earnings CVX- decent earnings Bad-The following stocks have bad news and/or a weak technical pattern HIG- bad earnings ESLR- atrocious earnings MET- missed earnings and warned; PRU and AFL may move with MET ATHN- poor earnings NPO- closed near a low after posting bad earnings SLGN- closed near a low ISYS- closed near a low LOJN- closed near a low EROC- closed near a low after slashing dividend and posting bad earnings BAC- sued by MBI after-hours for almost $6 billion over its CDO obligations; may drag other banks a little lower plus stress test results to be announced Monday OSK- closed near low of day MWW- bad earnings QLGC- bad earnings CHH- bad earnings AOC- bad earnings DF- bad earnings MA- beat earnings, but selling off pre-open after its huge run up SPG- lukewarm earnings Earnings: FRI MAY 1 BEFORE AEE AGN AGP AIV AOC AXL BPO CCJ CLX CVX DF ED FLIR FO GAS HMSY LPNT MA MDU NI PHH PPL RSG SPG TE UTHR Good luck today. Erik R. Kolodny