IRIS Wealth Creation & Management

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U.S banks continued to tank, Google and Apple shine, OCT 15, 2010 Report

The U.S. equities market was shaken today with banks continuing to go nowhere but down. Bank of America has the worst one-week decline. Today alone it was down -4.92% to $11.98; its fresh 15 month low at $11.74 was printed just before 12PM EST. Erik Oja, a banking analyst at S&P Equity Research downgraded BAC shares from strong buy to hold, with a price target cut from $17 to $14. The firm stated on Friday that it no longer had confidence that Bank of America would have adequate reserve nor well-prepared for the next foreclosure crisis. 

Prominent banking analyst, Dick Bove estimated  a $80 billion-price-tag for the next foreclosure mess as lawsuits from investors and homeowners will fly. Institutional investors, not surprisingly, were dumping financial stocks left-and-right for the second straigth day. The Financial Select Sector SPDR Fund (XLF) tanked -1.71% to $14.34; Wells Fargo & Co. (WFC) down -4.61% to $23.58; JP Morgan Chase & Co (JPM) dropped -4.05% to $37.15, Citigroup Inc. (C) fell -2.71% to $3.95. The financial was the worst performer in today trading session. On that note we are glad that we have recommended readers to stay away from the financial sector in yesterday report.

Separately, technology leaders continue to shine. The brightest spot of today trading session came from Google Inc as the company unexpectedly beat-earning-estimates, GOOG shares up +11.19% to $601.45. Several Wall Street analysts were highly impressed with Google earning report and upgraded the stock to “buy ” or “outperform”. Oppenheimer analyst gives GOOG shares a-$640 target; RBC Capital markets has $690-target for the stock; and Caris & company’s target is $700. Another tech-leader, Apple Inc. shares (AAPL) also shined, up +4.11% to $314.74. Analyst from Hudson Square Research Inc. raised target from $300 to $500 for the stock.

The Dow Jones Industrial Average closed down -0.29% to 11,062.78. Strength from technology stocks sent the Nasdaq Composite up +1.37% to 2,468.77 by the closing bell; and the S&P 500 Index also up +0.20% to 1,176.19.

Technically, as one can see clearly from the chart, the S&P 500 has support levels at 1150, 1130, and its 200d-MA at 1120.42. The next resistance are 1180 and 1200. Since today is the third day with  active trading volumes, we believe the institutions have been taking profit as the S&P 500 was up more than 11.9% since September 1st, 2010. The strength in Google Inc. (GOOG) and Apple Inc shares once again proved that our thesis was right. Technology therefore should be the place to selectively trade long. And we continue to stay away from the financial sector, due to high uncertainty. Let’s be patient and let this market consolidate before making a move.

Best regards to all, and good luck in your trading.  
Disclosure: No positions at the time of writing

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