Sell-Off

by Larry Levin

As the market was rising over the last 6-weeks, investors ignored bad economic news. As the market continued to rise last week when banks began to release 1st-Q so-called profits, investors ignored the reality of said profits. Today investors chose to take off the rose-colored glasses and read the latest news for what it was: bad. Although Bank of America used the same accounting tricks as Wells Fargo and JPM, the bank also said it needed to set aside a large amount of cash to cover future loan losses on the books that are rapidly deteriorating. With that announcement, today's sell-off began.

Apparently it also didn't help when Rham Emanuel and senior White House adviser David Axelrod said some banks "are going to have very serious problems." The Dow dropped nearly 300 points and BofA plummeted 24.3%.

The skepticism about the recent best-quarter-ever for banks bubbled over on today after Bank of America Corp. said it made more money during this 1st-Q than all of last year; however, it also set aside $13.4 billion to cover lending losses. Moreover, anxiety seems to be building about the results of the government's "stress tests" to determine if banks will need more government bailout money. Many other than me believe they will need more bailout cash, and therefore rightly disbelieve all of the hoopla surrounding last week's bank rally.

There was also a rumor on The Street that the "stress test" results had been leaked. The results are officially due on May 4th. The rumor claimed the following results:

? Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent.

? Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans.

? If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.

? Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.

Since it's only a rumor, it will take a few weeks to find out if it's true or not.

On the flip side, there was some bullish news today. We have recently seen some M&A activity and good news after today's close. Late this afternoon Texas Instruments reported lower first-quarter profit, but exceeded Wall Street projections for a loss based on a huge drop in demand. Of course, the "huge drop in demand" could lead to lower prices in the future if it persists.




Previous Day's Trading Room Results:

Trade Date: 4/20/09

E-Mini S&P Trades*
(before fees and commissions):

1) Pivot buy @ 9:10am at 843.00 = +.25 & -1.25 (2 lot)

2) FT sell @ 12:40pm at 835.00 = +1.50 (1 lot)

3) Algorithm positions (2)...combined Secret's and Algo total...+2.50


Electronic (YM) Mini-Dow:

1) None today



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