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Stock Market Trends: Cockroaches abound in this Episode of Financial Fear Factor.
Started Jul 15 at 8:21 ET (By CorrectCall)
With futures pointing to another lousy session, it looks like our “rally” call yesterday was a bit early. All this fear about banks has people freaked out. The Correct Call is not a believer of the “if there is one cockroach on the floor, there are thousands behind the wall” theory.
In a sense IndyMac’s closing reminds us of Enron. We are not talking about fraud; we are talking about the chatter amongst the media following Enron’s spectacular demise. If you recall, after Enron’s collapse, the newspapers and the talking heads on guru TV believed there were 100s if not 1000s of companies that would meet the same fate. It never happened. But the one big cockroach, Enron, had everybody believing more were behind the wall yet to be exposed.
Today’s headlines are all about 100s of more possible failure and which bank is next, yours? There is no doubt the financial sector is a mess and will take years and years to recover in share price and to restore investor confidence. The good news is the market tends to act swiftly and decisively. This can linger for a while. Perhaps this episode of the financial fear factor will take the S&P to 1175, the Dow to as low as 10,250, the NYSE to as low as 7250 and the NASDAQ to 2000.
When this is all over, the financial stocks left standing will be on sale at what will probably prove to be once in a lifetime prices; be ready to act. In the meantime, expect every little motion seen by the corner of the financial eye to have the heard seeing that roach over there.
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blacktuna
Jul 15 at 10:21 ET
The question is, when is a good time and which stocks would you consider.
I am thinking about JPM - If I recall correctly, they have no sub prime assets and the bear sterns deal was a steal!
Still, they seem to be going down with the rest of them. What's your take on JPM? would love to hear your thoughts.
Cheers.
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CorrectCall
Jul 15 at 10:54 ET
We would go with Goldman Sachs, they are by far the best managed and actually shorted sub prime assets.
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guliamo
Jul 15 at 11:52 ET
I gather you are not impressed with the bear sterns acquisition. I see Tuna's logic in that if the bear sterns acquisition was a steal - why isn't it reflecting in the stock price, and if it's not reflecting in the stock price, doesn't that mean the stock is a buying opp?
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CorrectCall
Jul 15 at 12:05 ET
We are, JPM got Bear for nada. Given the choice, we would always prefer to go with the company we believe has better management.
What's happening now with all financial stocks is the "baby and the bathwater." Great companies are being tarnished through guilt by association. Cost average into the good ones and you will make huge money, but it may take a while.
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guliamo
Jul 15 at 12:26 ET
you are right. Both companies lost about 35% over the past year. A 3 way ETFC, JPM, GS combo sounds great to me. Sitting tight for a year - it's hard to believe it won't double.
Do you think that would be the correct all around move?
You are welcome to join our etrade conversation with CC, it's quite interesting.
Cheers.
http://www.marketguru.com/opinions/holding-steady-nothing/1002,957
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CorrectCall
Jul 15 at 12:46 ET
I think so, these companies are in good shape and in no danger of going under, minus fraud.
Thanks for the invite. We will take you up on the offer.
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CountdeMonet
Jul 16 at 12:37 ET
This is a bear market so I wouldn't be holding anything for a year. But GS does look like it might have a reasonable potential to exceed $200 if the rally I think we are going to get unfolds. JPM is harder to say but could hit $38 based on the charts.
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guliamo
Jul 16 at 5:31 ET
JPM is at 31 now.. I wouldn't risk it waiting for a 20% pop. ETFC is a much smaller cap - if the sector changes direction ETFC could fly!