Today is a big up day especially for the financial sector. Meredith Whitney upgraded Goldman Sachs dragging up the whole financial sector. All the big banks were up 6% to 9%. That was a lot in a single day for one analyst call. Of course it was not all attributed to Meredith Whitney. But she did choose the right time to show off her power. I on the other hand traded in and out of Bank of America and lost almost $250. At the end of the day I hold 2000 shares of short position on Bank of America. I feel uneasy at the moment because that is a lot of shares and I will lose $200 dollars for every 10 cents if BAC is going up. I take the short side most of the time today because I bet the big bank’s earning is not going to be as good as the market expected especially for Bank of America. Meredith Whitney didn’t upgrade any other big banks except for Goldman Sachs. She said big banks in general were in better shape. That is something we have already known however.
I made a lot of trades on Bank of America. I don’t usually make so many trades in large amount in a single day. I did that today because I found a technical indicator in my trading tool seemed to be pretty effective for the past couple of days and I wanted to see if it really worked again. The technical indicator I was talking about is RSI (Relative Strength Index). See the bottom part of the following graph. If it is over 70 then it means the stock is over bought and if it is under 30 the stock is over sold. I short sold 2000 shares at $12.80 when RSI was above 70 but it kept going up and it was above 75 at the end. Today’s trading pattern looks familiar to me. Short covering pushed up stock price at the end of an up day. I lost on the same pattern more than a couple of times by taking the short side too early. Looks like I am going to make the same mistake again.
The following are the transactions I made today.
 Tansaction 2009/07/13 |
At closing price I lost $242.29. BAC actually went up to $13.07 in after hour so I lost $160 more already.
 Account Balance 2009/07/13 |
Account Balance Changes: -$242.79
I came across some of the old articles that talked about Meredith Whitney, Goldman Sachs analyst Richard Ramsden and Second Curve Capitals Analyst 
Tom Brown’s opinion on Bank of America last August. After reading them I find Meredith Whitney is admirable but Richard Ramsden and Tom Brown are laughable.
Bank Of America (BAC) A-OK, Says Goldman: No Capital Needed
Wachovia (WB) and BOFA (BAC) Have Bottomed; Meredith Whitney Missed Boat
Maybe you will feel the same after reading them. Whoever was able to predict this financial meltdown was basically seen as hero in the financial community. Meredith Whitney was right last year and I tends to believe she is going to be right again because she has more power now and her call will effect the sentiment of the market. She just updated her view on financial sector. I quote some her lines here to remind myself of her opionion.
We believe we are on the onset of changes impacting the mortgage market that could meaningfully influence earnings of the banks over the near to medium term. Accelerations in loan modifications will materially change how loss reserves are measured, which will result in lower loss provisioning and higher earnings over the near term
the U.S. government increased allocated incentives to mortgage companies by a fifth to modify home mortgages, while total incentives to servicers now stand at $18 billion and could climb higher. This is not the only incentive to banks. Modifications “cure” past dues and shift delinquent loans to current loans. As banks’ loss provisions are based upon past due or delinquent loans loss provisions will decline as modifications rise.
The clear risk here is timing as current recidivism rates range 22-46% on modified loans. Banks may take advantage of a timing arbitrage, which could benefit near-term earnings
“As we continue to believe the bank sector faces numerous challenges, we are most comfortable with stock valuations close to tangible book per share levels,” Whitney said. Pointing to Bank of America, JPMorgan Chase, Wells Fargo and Citigroup, she expects future increases in tangible book value, except for Citigroup.
Last night when future was down more then 80 points I was expecting the stock market to drop at least 100 points at close today. So I took profit when I saw opportunity. I sold BEAT and USB at a profit. I traded on FAS but lost a little bit. At market close when I saw the DOW was up 40 some points and some of the hard hit stocks didn’t bounce back I couldn’t withstand the temptation and bought a couple of them. I bought PCX (Patriot Coal) and DRYS (Dry Ship). I think if the DOW tomorrow can remain unchanged or up a little then PCX and DRYS may rebound nicely. I didn’t buy a lot though. I am still bearish on the market with the earning season coming. The following are the transactions today.
 Transactions 20090706 |
My account was up about $100 at closing price. I believe at some point tomorrow I will have the opportunity to sell all my position to make a profit and my account can be up above $30,000 which was my initial capital.
 Account Balance 20090706 |
Today I focus on a couple news related to Bank of America. First is “BofA’s bad loans up 10% in 2Q”. I think this is the news that caused BAC tanked today. Second is “Whitney’s New Take On Modified Loans”. Meredith Whitney thinks that with the held of regulation and government incentive loan modification will soar and that will lower loan loss reserve which will benefit banks in near term. I don’t know how this two factors will play out in Bank of America’s second quarter income. I remain cautionary on Bank stocks. Bank of America ever dropped below $12 this morning and quickly bounce back. I was busy on something else and didn’t get this opportunity.
Account Balance Changes: +$118.29
