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Daily Blog -01/20/09- 2:47 P.M.


No Obama Bounce, Bank Stocks Sink

Tuesday marked Obama's inauguration as the nation's 44th President. His speech and the media's suggestion that America is feeling a new wave of optimism did little to lift shares on Wall Street. At 2:00 p.m. stocks were at their worst levels of the day. The DJIA is off more than 200 points and quickly approaching the 8000 level again. The S&P 500 is down 3.7% and around 818. The NASDAQ Composite is really getting hammered with a 4.3% drop and a move under 1500.

Once again it was the banks that are dragging the market lower. This time the banking woes started in Europe. Investors are growing more and more worried that the Britain is getting closer to nationalizing the banks. Many believe the Royal Bank of Scotland (RBS) is the next bank on the verge of nationalization. At the moment RBS isn't that far away from being a wholly owned state-run business already. RBS reported earnings today and the company lost $42 billion. RBS also announced that the U.K. government had upped its stake in the company from 58% to 70%. Shares of RBS crashed and are trading down 69% at $3.36.

Major British and European banks also fell sharply lower and fears for the financials are having a big impact here in the States.


English and European banks: 
RBS ... -69%
AIB ... -57%
LYG ... -55%
BCS ... -42%
ING ... -26%
HBC ... -15%

U.S. Banks:
SST ... -50%
PNC ... -34%
BK .... -24%
WFC ... -20%
BAC ... -19%
C ..... -14%
JPM ... -14%

State Street Bank (STT) is the biggest loser for U.S. banks. The stock has been cut in half as investors react to earnings. The earnings news itself wasn't that bad even though profits fell 71% for the quarter. What spooked investors was the company's recent SEC 8-K filing. STT disclosed they could be facing liquidity issues and might also be facing billions in losses from its long-term securities portfolio. Investors are worried that SST will have to raise more capital by selling stock and further devalue current shareholders.

Analyst firm Friedman, Billings and Ramsey came out with some bearish opinions on the banking sector today. They said that Bank of America (BAC) might have to raise an additional $80 billion in capital by selling more stock. FBR was also concerned that Wells Fargo (WFC) will have to drastically reduce its dividend and that WFC may also need to raise capital by selling more stock. All of this negative news is taking its toll on the banking sector. The BIX banking index is down 16% and the BKX banking index is off 14.7% as investors flee from financial stocks. The only winner here appears to be the ultra-short financial ETFs like the SKF, which is up 21.5% at $188.

The only sector index that I see in positive territory today is gold. The XAU gold and silver index is up 2.2%. The GLD gold ETF is up 1.5%, which is impressive given the 2.7% jump in the U.S. dollar ETF (UUP). Normally gold and the dollar move in opposite directions. The GLD is flirting with overhead resistance at its 200-dma again while the UUP has broken out above resistance at the 50-dma and the $26.00 mark.

Additional sectors being hit very hard today are casinos and gambling (-8.3%), healthcare (-5.2%), homebuilders (-7.6%), cyclicals (-5.9%), and oil services (-5.7%).

Trading note - HBC, an OptionInvestor.com put play, has exceeded our secondary target. The stock id down 15%. The play is closed and traders should be taking profits here.



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