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Gumfactor (86.48)

And the inevitable post-stress slide begins...

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6

May 11, 2009 – Comments (5) | RELATED TICKERS: BAC , JPM , BMO

Was there really any doubt that the financial sector would go up! up! up! during the lead-up towards the miraculously fake stress tests, only to show a subsequent down! down! down! as soon as the report came out? By the rumor, sell the news, right?

Of course, I could be wrong - it could be that the commercial real estate market won't start defaulting; it could be that the residential market will suddenly shore itself up completely; it could be credit card issues won't prove to be an issue for the banks; it could be that raising capital by selling stock won't dilute the market.

And pigs may fly.

I wasn't smart enough to get in right at the bottom, but I managed a nice 200-300 CAPS points by sitting in financials for the last month leading up the stress tests. However, as of today, I've cleared out the whole financial closet.

BAC - sold!

WFC - sold!

JPM - sold!

And the Canadian banks - ahhh, the glorious Canadian banks:

CM - sold!

TD - sold!

BMO - sold!

RY - sold!

BNS - sold!

How long will they stay down for? In the case of the Canadian banks, probably not long at all. There's nothing wrong with them whatsoever, and they're going to keep busting through earnings estimates for quarters to come. The US banks are a bit more a crapshoot. I'm probably going to lay low for a couple months though. Once we see FAS get back into the $8.00 range I might start getting interested again...

 

Anyone have alternate thoughts?

5 Comments – Post Your Own

#1) On May 11, 2009 at 7:14 PM, soycapital (89.51) wrote:

I lost a little $$ on US banks, a little more on a Euro bank (60%), so bought some Canadian banks RY and BNS about 10 days ago, hope they hang in there! I won't touch US banks for some time, I'm not a "trader" and I can read the writing on the wall. Hope whoever wanted out got out because I don't think it's gonna be pretty for them for awhile. I'll give RY and BNS some room but if they get down near my cost I'm going to dump them also.

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#2) On May 11, 2009 at 7:26 PM, Gumfactor (86.48) wrote:

Hey Soy,

I'm actually Canadian, and so know a fair amount about the financial landscape there. 

Long-term you're in great shape. All the Canadian banks are solid companies, with no immediate concerns of liquidity, etc., and RY and BNS are two of the more touted ones at the moment (although traditionally BNS lags the other 4 a bit). They're all paying great dividends and will continue to do so - I think as a long-term investment decision, you can't go wrong.

On the other hand, whether fairly or not, the Canadian market seems to be very tied to the US market. And so if the S&P is going to fall - and certainly CAPS, at least, thinks it will - then it's going to be hard for the Canadian banks to hold on to their recent gains. They've had a nice run: BMO was up over 40% in the past month or so, and the other 4 weren't all that far behind. It seems likely (to me) that they're due for a bit of a (short-term) correction.

It's hard to know, but if I had to go out on a limb, I'd predict that BNS and RY could give back 10-20% in the short-term, before starting their inevitable rise back to full levels. As an investor with trading tendencies, I'm waiting for that dip, and then planning on buying in.

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#3) On May 11, 2009 at 8:08 PM, bridgeboy0 (99.96) wrote:

Actually, you haven't yet closed your positions in BAC, WFC and JPM. 

Also, if a stock has gone up significantly since you green-thumbed it in CAPS, there is reason for you to ride it out (in the case of how you feel about the Canadian banks not the US banks).  If you close your pick and re-open it, it will be at a significantly higher cost basis so any future gains will be lessened. 

Granted if the stock is going to go down a lot before it turns around and if you are able to time it right, you will see a very nice gain by closing out the pick and re-opening it.  But, I just wanted to point out just because a stock is going to go down in the near-term is not the only consideration to closing out the pick in CAPS.

Good luck with your picks.

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#4) On May 11, 2009 at 8:17 PM, Gumfactor (86.48) wrote:

Hehe - it's true BridgeBoy, I didn't have access to a computer today and wasn't able to close out my financial positions until market close - so I'll cross my fingers and hit whatever the open is tomorrow.

Regarding the strategy of holding on to the picks - you're also absolutely right. In CAPS, it definitely makes sense to hold on to picks like the Canadian banks, because I'll compound any future gains that way. But I'm trying to run my CAPS account as a testing ground for my real-world strategies, and in that regard, it'll be more useful for me to see if I can predict/time the market, and green-thumb the Canadian banks when the time again comes for said green-thumb. It's true, I may lose a couple of points that way, because I'll have to start "from scratch" if I enter the position again. But I think that's the better, and more kosher, way of handling the positions anyway.

Matt

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#5) On May 12, 2009 at 1:29 PM, Gumfactor (86.48) wrote:

Looks like I was right: here comes the fall!

Then again...how much credit can I really take? The writing has been on the wall for a long time, and the stress tests gave a timeline, with almost pinpoint accuracy, that indicated when the fall would begin.

What do people think? When will the next big rise in financials be? A month? 6 months? A year? (and to specify, I don't mean when will financials recover - I mean when will we see the next 20% increase in their stock price?).

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