Day Trading Thoughts For Wed. Jan. 21

Discussion in 'Trading' started by erikrkolodny, Jan 21, 2009.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    The worst news of the day yesterday on a very bleak day for the financial markets was something stunningly barely mentioned amidst all the inauguration coverage. Let’s reiterate this: it was the worst possible news that was out there the entire day much less the scariest and worst piece of news this year. This is not opinion. This is fact. I wrote this piece on September 24:

    In this piece, I noted that the concept of ‘breaking the buck’ was something that just cannot happen. Imagine if you had money in a brokerage or bank or IRA account, did no trading for the year, and found out that you lost money! In other words, you’d have negative interest meaning it’d be safer and less expensive for you to keep it out of a bank or brokerage house and under your mattress. If this tenet came to pass, the banking system as we know it would end and an economic depression dwarfing what occurred in the 1930’s would take place. In the Sep. 24 piece, I discussed this in a little more detail and in fact, I highlighted State Street (STT) on that day. Well, yesterday, the company missed its earnings. But they also noted that they may have to bring hampered investments from their off-balance sheet deals onto their balance sheet; this in turn would force the company to raise money. This would likely be done via share offerings which would dilute existing shareholders, i.e. cause a decline in the price of the stock. What sparked this was the rise in unrealized losses in STT’s investment portfolio and off-balance-sheet conduits. The conduits are used for issuing short-term debt and are now ostensibly frozen. But it gets worse: STT said it may be exposed to customer claims (i.e. redemptions) relating to unregistered cash collateral pools of liquidity underlying its securities lending program. The company noted it may well recognize a material change to its earnings flow and see its capital ratios hurt if its unrealized losses in its investment securities portfolio were determined to be permanently impaired. Thus, besides ‘impairing’ the company, what is going on is that anybody who redeems from money market funds could be hurt in time. The company noted that it had $113 billion at the end of 2008 in these unregistered cash collateral pools with a weighted average net asset value of 95.5 cents per unit. Yet, the company warned that if these pools are insufficient to support redemptions at $1/ unit, investors “may seek to hold us responsible” for any redemptions above market value. I know this is a long and rather dense piece, but I want everyone to understand: one of the basic ideas of our financial system is the thought that if we place money in a bank or a brokerage house, we expect to get it back. Furthermore, if we are just getting dumb interest because we have no investments in our IRA’s or stock accounts, we expect to not lose money. If people think their money is not safe (which it
    may or may not be…that question is not the point of this piece) the entire system is in major major trouble as the withdrawals increase.

    Overnight, markets slumped in Asia around 2%. Weakness is prevalent in Europe as well with bourses down about 1% on average with financials leading the way. State-side, futures are higher after a strong earnings report from IBM. The markets seem poised for a bit of a bounce after one of the worst one-day performances for the financial sector ever yesterday. The guide today will, again, be the banks. There should be some selling right into the initial pop this morning…the guide to whether the markets hold will be those aforementioned banks. If things like STT, BK, NTRS, C, and BAC give way, the market is going to have a horrible day today; if the initial strength holds, look for a weak A-B-A2 off of the morning higher in a technical rebound. I am not bright enough to know which of these will happen, but will trade accordingly within the dynamic of one of those two scenearios.

    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 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

    IBM- great earnings

    CREE- good earnings

    WGOV- good earnings

    RVBD- raised guidance

    ELY –maintained guidance

    MRO- mentioned on “Mad Money” last night

    ADTN- beat earnings slightly

    UTX- beat earnings slightly

    Bad-The following stocks have bad news and/or a weak technical pattern

    BK- missed on earnings slightly

    AD- warned on earnings

    STT- bludgeoned yesterday; detail described in today’s blog post

    GS/MS- among other brokers, finished near lows

    BABY- closed on low after warnings on earnings on Tuesday morning

    HIG- closed on low

    STI, BAC, PNC, C, WFC, JPM, USB, NTRS- among huge banks which got crushed yesterday with all closing near lows

    MFC, KIM- among smaller financial entities closing near low of day

    AFL, MET, PRU- insurers demolished as well in breaking to multi-week lows

    SNV, ZION, LNC, CTBK, HCBK, GBCI, HBAN, RF, CINF, PBKS, ASBC- among the smaller banks closing at or near their lows yesterday

    OMCL- warned on earnings

    AGO – closed on low

    AMSC- warned on earnings

    WY- closed near low

    CP- among railroads closing near lows

    JBHT- on verge of breaking trend low through 20

    BCS, AIB, RBS, LYG- among foreign banks decimated more than 50% each yesterday

    APD- lowered guidance

    BLK- missed earnings estimates badly

    COH- in-line earnings, but not providing guidance















    Good luck today.

    Erik R. Kolodny
  2. IBM delivered A STELLAR REPORT IN THIS ENVIRONMEMT; IMPRESSIVE. IBM is know to deliver blowout numbers only to have a gap up faded. today could be different. why? perhaps every money manager on the street is looking to park money into a company with growing earning. will i play IBM? if it bases i may put in a stop under the basing area and ride it up with limited downside due to a stop.
    i am looking at CRM today with a stop just under 25.85 area. looking for CRM to posible hit 27.45 today. helped by IBM of course.
  3. Thanks, Erik. I find your daily commentary quite useful.
  4. ERIK,
    just sold crm at 26.94. i mentioned a stop "just under 25.85. i put one in at 25.79 and the low was 25.83. hows that for chart reading lol...seriously,as i said i was in a 26.36. it was'nt acting so strong so i sold. it still may hit my original target of 27.45 but this was tough money. gonna walk away.HAD 1200 SHARES. 1000 at 26.36 and 200 at 25.99.
  5. J J aapl

    J J aapl

    Awesome post! this is super informative!!!
  6. Well Erik you committed one of the great Elite Trader sins you linked to your own instant set up blog. usually all 90,000 plus watchers would avoid you now like the plague. In all my many, many recommendations and free winners given out the skeptics have always waited for me to the same and I have not. Furthermore the link just shows the same darn news driven stocks. I hate to say it a five minute perusal of Briefing can tell you who missed and who made their number who had good news who had bad news that does not in itself set up a good trade- nor does it show absolute bad charts or good charts-- nor does it mean the stocks will go in the assumed direction of the news...

    Anyway on to the thought of the day on State Street. i have a LONG history with the bank in fact one of my ancestors is hanging in the basement of the main Boston branch. Not hanging dead, his portrait is hanging for he was one of their first bank presidents. My third or fourth cousin also worked at the bank for a while before killing himself (really) and my mother took the 40% dive in the stock! From my point of view everything you have said about State Street you can say about the whole banking system. Banking is like insurance. Everything is fine until too many people ask for their money at once- then you realize there is not enough capital to pay everyone... this has always been the case and with FDIC Insurance too same scheme... pretend to be solvent and go about your everyday activities just don't pay out all at once. With activist lawsuits and upset shareholders being diluted these truths of the closet come to light but it's hardly the sky is falling scenario that you paint- it's the everyday activities of our financial system and it has always been that way. The days of all banks being local of them holding your money and your loans and dealing with everything on a small scale are long gone. Now with the Great Reveal of the problem, banks will have to use stopgaps and the Gov will have to partially take them over as well. This is a balancing act that has always been there (hello S&L crisis) nothing new.~ stoney