Over the weekend, we had the news that the government may convert the TARP money into common equity shares in the banks.
Bank stocks are not going to like this. To give an example, even after the recent rally, Bank of America has a 65 billion market cap, which means the value of all common shares added together is 65 billion. If BAC borrowed 20 billion (conservative estimate), considering it is one of the nations largest banks, that is a dilution of almost 30%. The dilution in Citi will be worse. And that is after this run up, which isn't surprising that the government would convert our tax dollars to common equity shares at over 10$ in BAC, when they could have bought it for 3$. Don't want to own bank stocks you say?? too bad, as a taxpayer, you are going to anyway, and on top of that, you'll own the largest stakes in the ones with the most problems at most likely far too high a price. Awesome!
On to the market;
hmmmmmmmm..... I want to say we have topped a couple days after the turn date mentioned in the last post. I want to say that we are about to have a decent pullback in the range of a 38.2%-61.8% retrace of the 665-872 move.
Those spots btw would be;
792ish 38.2% retrace
769ish 50%
744ish 61.8%
I want to say that's all about to happen and faster than the run up took. But... i'm still hesistant. The action in the market is still looking constructive, still brushing off bad news, still avoiding a big down day. We could get that on Monday and that would signal the turn is here. But we could also get one more push up to about 915 before pulling back. Why 915? well.. i'm not going to post that chart yet and jinx what i hope is going to be a pretty big down week coming at us. But if Monday looks constructive again and/or BAC posts good numbers and ignites the market, I will throw it out there.
BAC earnings on tap... bulls better hope they're good. They'll need something good to offset the mega dilution news.
Oh.. btw.. just a note, but Wells Fargo is back up to levels it was at in June of 08 before the mega selloff started in October. Things are definitely working their way quickly into "Way ahead of itself" zone.
GL trading
CJ
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