IRIS Wealth Creation & Management

Always manage your wealth wisely.

Another painful day for U.S. banks and market led by Bank of America, OCT 19, 2010 Report

The strength of the U.S. dollars in today trading session caused U.S. stocks to trend….yes, DOWN. As usual, the dollar continued to be in an inverse relationship with commodities and the stock markets. U.S equities were trading in red across the board; and market breadth is negative, 3 to 4 ratio. SPDR Gold Trust shares (GLD) down -3.11% to $130.11, Market Vectors Gold Miners ETF (GDX) down -4.57% to $54.53, iShares Silver Trust (SLV) down -4.67% to $22.84, and Freeport-McMoRan Copper & Gold Inc. (FCX) down -3.72% to $92.72. 

Separately, on Tuesday the Bank of Canada surprisingly made a negative comment in regard to the country’s economic recovery, citing weak consumers’ spending. The central bank kept rate unchanged at 1% as economists have been expected. However, uninspiring comments from the Bank of Canada was a surprise factor, sending the loonies sharply lowered, down 1.8 cents to 96.81 cents US just before 12PM EST.

In the U.S front, the brightest spot of the day came from Goldman Sachs Inc. (GS) as the company surprisingly beat analysts’ estimates. GS shares traded up 1.96% to $156.72. Banking analysts have been very gloomy on U.S. banks. Some analysts were expecting earnings of only $2.32 per GS share; but GS reported earnings of $1.74 billion or $2.98 per share, well above analysts’  bearish expectation. However, it’s very true that earnings for banks are slowing down as the trading business of banks declined. Last year in the same period, Goldman Sachs reported an earning of $3.03 billion, or $5.25 per share.

Goldman Sachs however could not save the market on Tuesday. Bank of America (BAC) led the market lower right after 2PM EST. Pacific Investment Management Co. (Pimco), BlackRock (BX), and the New York FED stated that they are seeking to force BAC to repurchase bad mortgages worth $47 billions. BAC bought CountryWide in 2008 and this caused Bank of America going down with it. According to prominent banking analyst, Dick Bove, U.S. big banks are estimated to face another mortgage crisis worth around $80 billions. 

The DOW closed at 11,000, down -1.29%, Nasdaq fell -1.46% to 2,444.45, and the S&P 500 tanked -1.29% to 1,169.41. The S&P 500 has been up more than 11% in the September month. Profit taking is unavoidable and we believe the market needs to consolidate before it can move higher. In addition, we are in earning season; thus, traders must trade stocks selectively. For the long trades, it’s critical to chose only stocks with good earning stories, and stocks in a strong, bullish uptrend. Supports for the S&P 500 now are 1150 and its 200d-MA at 1120 range. Resistance are the 1175 and 1200.

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

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