Great Trades

Great stock trades based on fundamentals and technical analysis.

Thursday, January 15, 2009


Adding Financials Long (for speculative traders only)

Just as our trading model was a little early getting short for the beginning of the year, it was a little early reversing to long before yesterday's selloff. We'll continue to fine tune our model to try to get better timing. However, we believe the market is set up very well for a nice rally now.

With the market averages selling off and bouncing off important support levels, and then rallying to form a hammer candlestick pattern for the day, a good bottom indicator, today was a key reversal day which should reverse the trend of the market and start the next rally. There's a huge amount of pessimism about the market now and lots of new shorts, particularly in the financials sector, where there have been lots of negative headlines.

Rumors about Citibank and Bank of America getting nationalized and wiping out shareholders sent both stocks down over 15% today, despite the market reversal. Both companies have their quarterly earnings reports before the market open tomorrow, and as long as they're not horrible surprises, the squelching of the rumors should spur a huge short squeeze in the sector.

Many novice shorts have shorted financial stocks, either directly or through inverse ETF's, in a bet that the major banks' shares will get wiped out. We don't think they will be, at least not in the very near future. The government bailouts nationalize their losses, but they don't wipe out the shareholders as many expect.

With Financials extremely oversold, our trading model added a 100% long position in Financials today, giving it 200% long exposure. Only the most speculative traders should use leverage to get to an over 100% allocation. Others would do well just holding on to 100% long.

For those looking for an individual stock to trade in this rally, Bank of America (BAC) is likely to move up strongly from its severely oversold (and overshorted) condition as long as their report in the premarket isn't a disaster.

Open Positions: 50% long S&P 500, 50% long Dow Jones Industrial Average
Also, for speculative traders, an additional 100% long Financials (XLF is the Financials ETF)

Comments: Post a Comment

<< Home


December 2005   January 2006   February 2006   March 2006   April 2006   May 2006   July 2006   August 2006   October 2006   November 2006   December 2006   January 2007   February 2007   March 2007   April 2007   May 2007   June 2007   August 2007   October 2007   November 2007   May 2008   September 2008   October 2008   January 2009   February 2009   March 2009   April 2009   May 2009   June 2009   July 2009   August 2009   September 2009   October 2009   November 2009   December 2009   March 2010   May 2010   June 2010  

Great Trades Home    Email GreatTrades

Great Investments Blog     Great Investment Articles Blog

Disclaimer: Great Trades may have a position in all or some of the stocks discussed in this blog, but is not paid by any company to promote their stock. Great Trades contains opinions, none of which constitute a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. Great Trades does not provide personalized investment advice.

Seeking Alpha Certified

Enter your email address to subscribe:

Delivered by FeedBurner

This page is powered by Blogger. Isn't yours?