So what was the main culprit behind yesterdayâs 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 countryâs 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 âWall Street Journalâ 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 âbackdoor/lukewarmâ 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 âFinancial Timesâ) which set the stage for the negative reaction yesterday. Thus, again as noted last week, youâve 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 Streetâs 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 IBMâs 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. 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 âFast Moneyâ 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 REITâs 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 weakâ¦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 yesterdayâs 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. Erik R. Kolodny