The banks hit by the note are Bank of America Corporation (NYSE: BAC), Citigroup, Inc. (NYSE: C), and Wells Fargo & Company (NYSE: WFC).  Many of the notes inside the report seem damning on the surface.  The problem we see, or don’t see, is that there is nothing new acting as the catalyst for today’s action.  The points brought up today have been brewing for months and months.

Moody’s noted, “Each of these ratings currently incorporates an unusual amount of ‘uplift’ from Moody’s systemic support assumptions that were increased during the financial crisis.”  Moody’s noted that this review focuses on whether the ratings should be adjusted as a result.

As far as Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C), Moody’s did note that it will actually assess improvements in the standalone financial strength and that those strengths “may temper the extent of any downgrades”… It sure sounds like the banks have already been cut if you read those words.

Key issues cited are the impact of the Dodd-Frank Act and that current government support exceeds pre-crisis levels.  The report also brings up the added mortgage risks in there and the risk of higher credit costs along with higher litigation costs related to foreclosure practices. Ask yourself if any of that is new.

Moody’s also threw in the report that Bank of New York Mellon Corporation (NYSE: BK) has been revised to Negative from Stable.

We have been critical of the “independent ratings agencies” since the start of the financial crisis began.  Our take is that these guys wouldn’t know what a “Triple-A” credit rating meant on a billionaire’s super-yacht.

Bank of America Corporation (NYSE: BAC) shares have gone into the red and the stock is now at $11.15 after a drop of $0.08 on the day so far.  Keep in mind that the 52-week low is now only $10.91.  Citigroup, Inc. (NYSE: C) shares are down 1.2% at $39.15 and yesterday was the first sub-$40.00 close we have seen since its reverse split.  Wells Fargo & Company (NYSE: WFC) is down the most as it was not given a special exception and shares are down 1.5% at $26.54.  Our technical analysis affiliate is Adam Hewison of INO and he noted just this morning in a quick audio-video chart how so many of the banks are seeing extreme technical weakness.  Maybe this is the fundamental catalyst behind the technical move.

Now, here is what you need to consider.  Moody’s just downgraded these banks even if it did not formally downgrade the banks.  The effective language that the “strength could temper debt downgrades” is what you need to focus on.  Avoiding is not defined as “tempering.”

Today’s news is the same as a downgrade with the formality of that downgrade.  Too bad that the research is not based upon new data.  What we find even more sad about the news is that the formal downgrades ahead will still matter to the markets.  It comes at the same time that newer broad economic data is weakening above what Moody’s is considering today.  To prove this point on weaker data, the 10-Year Treasury Note yield has just gone back under 3.00% this week for the first time since December and is currently at 2.99%.

The move is actually not being seen in the hyper-volatile triple-leverage ETFs of the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ).  The “triple-bull” is only down about 0.6% and the “triple-bear” is up only about 0.6%.  Our take is that these leveraged ETFs would be up and down by several percent if there was some real meat to this Moody’s ratings action.

Now we all have to hope that this action from Moody’s doesn’t trigger even tighter capital requirements at the banks than there already is.

JON C. OGG

If you were buying Bank of America Corporation (NYSE: BAC) ahead of the dividend announcement and even looking at this tiny ‘hardly worth noting dividend’ from Citigroup Inc. (NYSE: C), you already had to know that you were buying one or both of the less-healthy money center banks.  Wells Fargo & Co. (NYSE: WFC) and J.P. Morgan Chase & Co. (NYSE: JPM) are just far healthier. 

The broader S&P ETF via the SPDR S&P 500 (NYSE: SPY) has outperformed even the triple leverage ETFs from Direxion as you will see the chart below:

Sometimes there is news around dividends and sometimes there is just noise.  The dividend news was somewhat easy to anticipate as a disappointment for Bank of America because it was not going to as easily be able to get as high of a yield.  CEO Brian Moynihan talked up normalized earnings but really kicked the can further down the road.  There is still also an overhang due to the potential mortgage put-back fears that investors have.  Whether put-backs in securitizations come to the hundreds of millions or the billions is still unknown and that will keep the risk trade there in Bank of America.

JON C. OGG

Some of the key ETFs we see having longer-term pricing issues after QE2 are some of the main go-to ETFs for traders, but some of our ETFs are inverse and leveraged as well due to the volatility that is sought by traders.  Some of the ETF and ETN products were are tracking are Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ); SPDR Gold Trust (NYSE: GLD) and the PowerShares DB Gold Double Long ETN (NYSE: DGP); CurrencyShares Swiss Franc Trust (NYSE: FXF), WisdomTree Dreyfus Chinese Yuan (NYSE: CYB), and PowerShares DB US Dollar Index Bullish (NYSE: UUP); then there is the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) and the ProShares UltraShort 20+ Year Treasury (NYSE: TBT).

Financial Stock ETF Winners, Hopefully… and Maybe Housing

Banks and financials have been under pressure due to mortgage put-back fears on mortgage fraud and foreclosure woes.  If any sector could be helped by QE2 and lower rates, it would be banks and financial stocks.  Despite that they are earning very low interest, they also have to pay almost no interest as well.  The triple-leverage funds from Direxion are perhaps the most liquid and most volatile of all in the sector.  There is the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) that move at triple the intraday moves of the Russell 1000 Financial Services Index.  The bullish shares trade close to 35 million shares a day and the bearish shares trade close to 45 million shares a day.  There is deemed a greater risk of tracking error on these due to the volatility, futures contracts, and more, but these are very volatile and very actively traded ETF products.

SPDR S&P Homebuilders (NYSE: XHB) stands to win if housing wins from QE2.  If the foreclosures can be cleared out and if the borrowing rates will stay down at historic lows, then perhaps more consumers will be able to afford houses in 2011 and 2012.  Whether they buy used homes and foreclosed homes is one thing, but many still want that new home that is all theirs and comes with no baggage.  This ETF is full of homebuilding stocks and is meant to track the S&P Homebuilders Select Industry Index, which represents the homebuilding sector inside the larger S&P TMI.

QE2… A Bet Against Currencies or the Dollar

It seems that many developed nations are trying to devalue their currency simultaneously even if the dollar is not in favor.  The only safe bet for a country that might try to hold the line is Switzerland for their Swiss Franc, and the Swiss Franc can be traded via the CurrencyShares Swiss Franc Trust (NYSE: FXF).

Another exception is potentially the Chinese Yuan depending upon how the newly elected Congress decides what tone they will use against China.  Almost all investors agree that if China were to de-peg then the Chinese Yuan would rise appreciably against the US Dollar.  China’s reserves are higher and its economic fundamentals are among the best globally.  The two direct beneficiary ETF/ETN products here that will win if China is forced to de-peg the Yuan from the Dollar are WisdomTree Dreyfus Chinese Yuan (NYSE: CYB).

If you think that US Dollar’s decline will not go on and on endlessly, then there is the PowerShares DB US Dollar Index Bullish (NYSE: UUP).  This ETN tracks the Deutsche Bank Long US Dollar Futures index, which is comprised of long futures contracts rather than being comprised of raw currencies.  This is against a basket of currencies, and it is less volatile than many other direct single currency.

The FOMC can no longer lower rates on the short-end.  The other side of the coin is that it can promise to keep rates low indefinitely.  Quantitative easing is accomplished by Uncle Sam expanding its balance sheet by buying up debt on the long-end of the yield curve and keeping rates at near-zero on the short-end.  The new verdict seems to be a few hundred billion rather than $1 trillion that will be purchased in Treasury and other debt instruments in the coming weeks.  Some would like to see more, others would prefer no QE2.

The consensus is no longer for a double-dip recession, but growth estimates for what lies ahead remain muted or have come down of late.  It seems that the current inflation is too low for the Fed targets but the recent trends in commodities may be taking care of much of the lack of inflation.  Extremely slow growth is not enough despite a recovery, and the hope is that more jobs will ultimately be created.

The FOMC wants inflation higher, yet it wants rates to stay very low.  These notions fly directly against each other in the long-term, and Ben Bernanke did not exactly get the name Helicopter Ben out of the blue.  It seems that our government is about to turn on the printing presses so it can buy debt.  Yep, devalue your currency but artificially keep the rates lower by buying the debt up.  It almost sounds like tech companies with stock options and non-GAAP earnings.

The rule is and has always been, “Don’t Fight the Fed.”  We can complain about the reckless nature of QE2 and the shackles it may put on the next two or three generations or we can generate trading strategies.

Gold in them thar hills…

When it comes to gold, the SPDR Gold Trust (NYSE: GLD) is king with millions of shares traded each day and with assets above $50 billion.  But what about leveraged ETF or ETN products?  If inflation is going to be manufactured and if gold keeps rising as world central banks race to devalue their currencies, then the PowerShares DB Gold Double Long ETN (NYSE: DGP) is your answer.  Keep in mind that this is an exchange-traded note rather than a true asset trust with physical gold.  The “DGP” gives double the performance of gold.

What about betting for or against currencies?

If everyone is devaluing at the same time, then about the only safe bet for a country that might try to hold the line is Switzerland for their Swiss Franc.  The Swiss Franc can be bought either directly or it can be bought via the CurrencyShares Swiss Franc Trust (NYSE: FXF).

The other exception is potentially the Chinese Yuan if the U.S. Congressional move to try to wrangle China from such a tight currency peg.  If China were to de-peg, we have yet to find a real investor who says that China’s Yuan would actually fall against the US Dollar as China’s reserves and fundamentals are among the best globally.  There are two direct beneficiary ETF/ETN products here that will win if China is forced to appreciate the Yuan: WisdomTree Dreyfus Chinese Yuan (NYSE: CYB) and the Market Vectors Chinese Renminbi/USD ETN (NYSE: CNY), although the latter is far less liquid in volume.

Do you not believe that the dollar drop will continue endlessly?  As most financial events peak, markets do usually attempt to discount the news and try to at least work toward the efficient market theory where markets price in almost all available information and discount the rest of the news (so what if it doesn’t work).  If you believe that the Greenback will actually rally soon if and/or when QE2 finally launches, then there is the PowerShares DB US Dollar Index Bullish (NYSE: UUP).  In short, this is the ETN that tracks the Deutsche Bank Long US Dollar Futures index, but be advised that the index is comprised of long futures contracts  rather than of raw currency.  It is also nearly impossible to forget the one rule if you are a US investor: You are already long the US dollar.

The ETFs seek to provide 200% or -100% of the return of the KBW Regional Banking Index for a single day, before fees and expenses.  The KBW Regional Banking Index, the most widely used benchmark for U.S. regional banking stocks, was created and is managed by KBW.

Before today, those seeking leveraged exposure to inverse and leveraged ETFs have usually relied on the crazy triple-leverage ETFs from Direxion: the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) hae seen an increase in volume of late.

There is also the Ultra Financials ProShares (NYSE: UYG) is meant to track the daily move of the twice the daily performance of the Dow Jones U.S. Financials index; and the Short Financials ProShares (NYSE: SEF)  is mean to track the daily investment results of the inverse of the daily performance of the Dow Jones U.S. Financials index.  Now you have leverage, and you have it in regional banks.

There is more and more competition on the leverage and inverse ETF front.  Whether these are winners or losers compared to peers and competitors, that will be seen through time.  As with all leverage and inverse ETF or ETN products, caveat emptor!  These are all prone to index tracking errors.

JON C. OGG

Morningstar’s John Gabriel noted, “Investors plowed some $19.7 billion into ETFs in March. Those inflows helped push total net inflows for the ETF industry to $7.7 billion for the first quarter of 2010.”

Read Full Article

We have given details on each, with relevant price data, historic reference, an outlook, and in some cases an expectation and options call.

AeroVironment, Inc. (NASDAQ: AVAV) is the “Tech Trader” feature in Barron’s this weekend as a winner in war and peace.  Barron’s mentioned that while it is known for unmanned aerial surveillance systems called the Raven drones, it has something that will be huge down the road called PosiCharge… a charging system for electric cars.  Barron’s said it could rise another 20% this year from the $25.11 close Friday.  The issue is that the 52-week range is $21.64 to $35.38 and the average analyst target is $27.85 and one analyst target is $35.00.  We would expect a 2% to 3.5% move on Monday, at least on a market neutral basis.

Apple Inc. (NASDAQ: AAPL) went over $250.00 on Friday before the SEC-Goldman news killed the market.  It reports earnings on Tuesday afternoon and Thomson Reuters has estimates of $2.44 EPS and $12.06 billion in revenues, although the WhisperNumber.com figure is $2.45 EPS and we would want to see an even higher figure than that to keep the upward momentum rolling.  It is worth noting that speculators are actually going to options strike prices all the way up to $300 in Calls and as low as $220 in the Puts with the May expiration.  For whatever it is worth, writing/selling a $250 straddle would bring in over $19.00 of premium.  That may not seem much considering how much Apple’s iPad hype and iPhone hype helped this rise from $210 at the end of 2009 to $250 Friday.  Apple’s last earnings report date was January 25, and the stock moved up only $2.87 to $205.94 after its accounting standard changes; a full analyst-by-analyst breakdown was given at Fortune..

Boston Scientific Corporation (NYSE: BSX) may be back in favor, if the stock market will cooperate.  The company gained 2.8% to $7.34 on Friday after it reported that the FDA approved certain changes in the manufacturing of its Cognis defibrillators and Teligen defibrillators.  This would have traded up higher (as it went as high as $7.54) had the stock market not been so weak on Friday.  Its 52-week range is $6.31 to $11.77, so the risk-reward profile on any good news is above normal.  It traded 91 million shares, the highest volume since its product woes came out in mid-March.  Keep this on your radar as the stock fell from $7.78 to $6.80 when it had to halt shipments in March.  Maybe this perpetual turnaround stock can finally turn around.

Citigroup, Inc. (NYSE: C) is on deck with earnings Monday.  Estimates are $0.00 EPS and supposedly $20.77 billion in revenues, although frankly estimates are all over and trader gossip is even more than all over the place.  Goldman Sachs news just boinked this one Friday for a 5.2% loss, so enough said.  The earnings season bias just took a turn for the worse.

General Growth Properties Inc. (NYSE: GGP) is one to watch in M&A.  It is reportedly open to a higher bid from Brookfield, but shares were hit on Friday as the Simon Property bid includes the help of Paulson & Co.  Anything tied to Paulson took a huge hit Friday because of the Goldman-Paulson connection.  The drop was 3.9% to $15.38, but the low on Friday was listed as $14.40 but looks closer to $15.00 if you back out the plunge price mid-day.  Brookfield’s ‘sweeter bid’ may not have to be a lot sweeter now.  A May-2010 $15 straddle cost $2.35 here, too expensive to play after a run it has already seen.

Goldman Sachs Group Inc. (NYSE: GS) is almost too long to even write about.  You know the news, SEC civil fraud charges.  There are so many angles and so many takes that you can pick your poison, and this is the front story on just about every website and publication.  ProPublica wrote about many other banks doing the exact same thing, and that was back on April 9.  Earnings are due on Tuesday; Goldman issues a quick retort and then a detailed retort on Friday after the close.  At $160.70 as a close, a MAY-2010 $160 Straddle cost roughly $18.00, an indication that options spread betters feel the stock does not move up or down another 10% over the next 34 days.  Barron’s says not to write the firm off.  This violated both the 200-day ($167.41) and 50-day ($166.96) moving averages on Friday.

Hospira Inc. (NYSE: HSP) fell about 1% in the after-hours session on Friday on news that it had received a FDA warning letter after two manufacturing site inspections cited particulate in emulsion products and a failure to adequately validate manufacturing processes.  While it is not required to stop all shipments, Hospira said it was now withholding shipments of certain products.  Shares had hit a new 52-week high just on Friday and the 52-week range is $30.52 to $58.13.

Lululemon Athletica Inc. (NASDAQ: LULU) is one that appeared to be running out of gas on the chart, but that did not come to pass.  We noted earlier in the week, “If it does not go out another $1.00 or more above the $43.66 level of last Friday, IBD won’t have it as the #1 stock.”  Well, it went out at $44.62 even after a 1% drop on Friday, and IBD has this listed as being the #1 stock in the IBD 100.  It looked like it was peaking, but either way I cannot recall any recent instances where the #1 stock on the IBD 100 was the same for 4 weeks in a row.  It seems that Downward-Dog just doesn’t want to come to this stock.

Palm, Inc. (NASDAQ: PALM) may be the ugliest duckling of all the smartphone makers, but the buyout rumors not only won’t die but continue to grow.  The Friday bets for a Merger Monday had this one up 3.5% at $5.59 on a bad ticker-tape day with a daily high of $5.75.  Shares were as high as $6.29 last Friday but fully diluted market cap analysis took out some steam here.  An analyst call on Friday showed a better than 50/50 chance of a deal with an upside target of $10 to $14 as fair market value.  Oddly enough, the May and August $6.00 CALLS do not reflect an expected share price north of $7.00 (on a static snapshot basis, not considering any other factors).

SPDR Gold Shares (NYSE: GLD) has to be watched.  Our affiliate Adam Hewison of INO gave a new audio-video presentation on a solid benchmark pivot to watch as $1,150.30 on spot gold.

It did not look like gold would go under that, but then the Paulson & Co. ties to the fund and to a huge gold bet (dedicated gold fund) kicked gold right between the legs.  After a $22.00 drop to $1,136.40, Adam’s pivot may now be a near-term ceiling for all the reasons he outlined in detail.

On a side note, Direxion may be the one winner in the Goldman and bank mess.  Its triple-leverage ETFs finally saw a huge resurgence of trading on Friday, and we noted at VSInvestor.com that the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) and Direxion Daily Financial Bull 3X Shares (NYSE: FAS) had their busiest combined day of 2010 in trading volume; the FAS saw the second most active day of the year.  The triple-bull closed down 10.47% and the triple-bear closed up 10.33%.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

The 50-day moving average is within about 2% to 5% of the current prices of most of these shares.  This has been a key pivot point for some time.  The issue that makes the 50-day moving average closer to coming up is that if you go back 50 trading sessions, the stocks were all at their pinnacles in share prices.  The 50-day moving averages are descending, while the 200-day moving averages are rising.  And the prices from 45 to 50 days ago were all considerably higher than today’s prices.  We have provided links to the stockchart.com charts for these where needed.  We have also made an attempt to predict what the key moving averages will come down to in the middle of next week.

Bank of America Corporation (NYSE: BAC) is at $15.23; its 50-day moving average is $15.74 and its 200-day moving average is $13.64.  Just two days ago that 50-day moving average was $15.86 and the 200-day moving average was $13.54.  October 14, 2009 is 50 trading sessions ago, and its closing bell price was $18.58 versus $15.23 today.  October 15 was $18.09, and October 16 was $17.25.  October 19 was $17.15 and October 20 was $17.00.  That means that if prices remain stagnant here then the 50-day moving average is going to be closer to $15.65 on Wednesday and perhaps under $15.60 by the official start of the new year on January 4, 2010.  If you look at the chart on BofA, you will see how this has been a critical juncture for BofA.  This leaves less than a 3% move next week before a key technical test would come into play.

JPMorgan Chase & Co. (NYSE: JPM) is at $41.77; its 50-day moving average is $42.86, and its 200-day moving average is $38.18.  Two days ago that 50-day moving average was $43.05 and the 200-day moving average was $37.90.  The stock traded at $47.16 on both October 14 and October 15, meaning that its moving average will be sharply lower as well.  By next Wednesday, that means that this 50-day moving average (assuming static prices today) would be about $42.66, only about 2% above the current share price.  While JPMorgan is the safest of the big money center banks, its 50-day moving average has been more of an overhang above the price rather than an actual resistance level in recent weeks.

Wells Fargo & Co. (NYSE: WFC) is at $26.92; its 50-day moving average is $27.69, and its 200-day moving average is $24.86.  Two days ago that 50-day moving average was $27.83 and its 200-day moving average was $24.27.  On October 14, the shares were at $31.28 and were at $31.32 on October 15.  Its 50-day moving average is also descending and will be closer to $27.53 in the middle of next week if prices remain static here.  Again, that leaves only about 2% before the moving average would be tested.

Goldman Sachs Group, Inc. (NYSE: GS) is still in a slightly different boat at $164.00.  Its 50-day moving average is 171.70, and its 200-day moving average is $153.40.  Two days ago that 50-day moving average was $172.74 and its 200-day moving average was $152.71.  On October 14 the price was at the peak at $191.87 and the October 15 price was $188.23.  That 50-day moving average is likely to be $1.00 less by the middle of next week, which would leave only about 3.5% before that 50-day would come up for a test. It was only early November that the 50-day moving average was tested, back when the stock was tying to go from $175 to $180 when financial shares were higher.

Citigroup, Inc. (NYSE: C) is not really one of the bogeys that is up for a test here with shares at $3.32 today.  Its 200-day moving average is above the price at $3.71 and the 50-day is $4.04.  Two days ago that 200-day was listed as $3.69 and the 50-day moving average was $4.04.

The Financial Select Sector SPDR (NYSE: XLF) is the most representative chart in this entire argument of whether the 50-day moving average is worth paying attention to.  The XLF is even closer than its major constituents with a share price of $14.49 today.  The 50-day moving average is $14.55 and the 200-day moving average is $12.83. The four top stocks in that ETF account for about 38% of the whole ETF.  It has used the 50-day moving average as a key pivot point (and resistance) from the end of October, all through November, and into December.  The pinnacle was also 50-days ago at $15.67 and it was at $15.53 the following day.  By next Wednesday that 50-day moving average may be $14.50, making this test come into play immediately if the prices remain static.  In short, the XLF is already with 0.5% of being at a critical test of that 50-day moving average.

We do not usually conduct technical analysis on the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) because of its daily resets and because it has tracking errors, yet you can see how it has used the 50-day moving average as a key pivot point from October through November and into December.  At $75.68 today, its 50-day moving average is $75.72… The 200-day is $60.23. Just two days ago that was $76.30 on the 50-day and $59.71 on the the 200-day.  On October 14, the ETF share price was at $93.89, so its 50-day declining moving average is up for grabs soon as well.  Could this triple leverage ETF make the event come up immediately????  We also looked at the inverse ETF, the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) shows a different picture.  At $19.10, its 50-day is $20.10 and it has been under that line for four trading sessions now.  This one has even more tracking error, so this should only be used for conjecture as a support line here versus a resistance line on the others.

It can also be seen in some of these stocks that in the last six weeks a series of lower lows and lower highs has been in place.  It is hard to imagine a significant technical event changing the market on the week between Christmas and New Years when so many participants are not in.  Unfortunately, that looks like it is going to be the case.

You can sign up and join our free email list for daily email regarding analyst upgrades and downgrades, top day trading stock alerts, key technical analysis data, IPOs, secondary offerings, M&A, new ETF strategies, Warren Buffett news, and other key developments.

JON C. OGG

These earnings also going to have a direct impact each day in the trading of the highly volatile Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ).  Be advised that Direxion has been making its own disclosures that these triple-leverage ETFs target effective moves during the trading session rather than how they trade through time and from closing bell to opening bell the next day.  Our take is that you could easily see double-digit percentage moves in these two ETFs on Wednesday, Thursday, or Friday because of the sector volatility.

We have compiled details based on Thomson Reuters consensus estimates and provided some more detailed coverage on what to look for and how these stocks have performed since the March 9 close (regarded as the lowest market closing bottom) and since the June 30 close to see how these have done over the last quarter.

JPMorgan Chase & Co. (NYSE: JPM) reports earnings on Wednesday morning and is effectively the first of the banking giants on deck.  It is also deemed the cleanest of all the money-center banks.  Estimates are $0.49 EPS and $24.81 billion.  Since the end of June this is up almost 33% and since the March 9 close this is up 186%.  With JPMorgan being the cleanest bank and the only major financial stock reporting earnings, this one could easily set the bar for how banks and financial have to report earnings.

Citigroup Inc. (NYSE: C) is up for earnings on Thursday morning.  We just noticed how traders are using a certain call option as a lotto ticket investment strategy.  Estimates were -$0.21 EPS as of Friday, but the consensus is now -$0.23 EPS.  We noted over the weekend how this was up 55% since June 30 and up over 300% since the March 9 close.  Deutsche Bank just gave it a BUY rating today ahead of earnings.  Citi is also still under the TARP.

Goldman Sachs Group Inc. (NYSE: GS) is also on deck for earnings this Thursday morning, and the tone has been set for a negative reception now that Meredith Whitney downgraded it before the report.  Consensus estimates are about $4.24 EPS on $11.02 billion in revenues.  What everyone is used to at Goldman is a significant win over earnings estimates as the last report was almost 40% better than estimates and the March report effectively doubled the estimates.  In short, whisper numbers may be demanding closer to $5.00 EPS from the Golden Slacks boys.  Shares are up 26% from the June 30 close and are up over 150% from the March 9 close.  Either way, Warren Buffett’s Berkshire Hathaway, Inc. (NYSE: BRK-A) is up huge on its investment in Goldman Sachs.

Bank of America Corporation (NYSE: BAC) is reporting on Friday morning.  The departure of Ken Lewis has not taken the wind out from the shares very much but does pose a wild card for how the quarter will go.  Estimates are currently -$0.06 EPS on about $27.7 billion in revenues.  As noted over the weekend, this one is up 32% since the end of June and since the March 9 close this is up over 300%.  B of A is still under the TARP.

Prosperity Bancshares Inc. (NASDAQ: PRSP) is far from a major bank on the national or super-regional scale, but it is growing to be a more and more important bank throughout Texas.  We would caution that there is a smaller pool of analysts than in the major bank stocks.  That being said, the estimates are for Prosperity to come in at $0.61 EPS on $91.8 million in revenues. This bank is ‘only’ up 15% since the June 30 close but is up 51% since the March 9 close.

As a reminder, some of these estimates are likely to change before the earnings based upon each prior report.  Ditto for any whisper-number expectations.  You can join our open email distribution list to get updates each morning on analyst upgrades and downgrades, top day trader alerts, IPO’s and secondary offerings, Warren Buffett and other guru activity, M&A and more.

JON C. OGG
OCTOBER 13, 2009

Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) is probably the biggest go-to instrument for traders betting against the market because it offers triple-leverage in a bet against the financial stocks in the Russell 1000 Financial Services Index.  At 1:30 we have seen over 65 million shares trade hands and this 3X-leverage inverse ETF is up 10% at $25.55.  Average volume on most days is about 40 million, and now anyone who bought this one in the last 7 trading days is up.

The ‘slightly less bearish’ winner here is the UltraShort Financials ProShares (NYSE: SKF), which offers ‘only’ twice the inverse of the daily performance of the Dow Jones U.S. Financials index.  This has now seen over 25 million shares trade today and is up over 6% at $28.40 versus an average daily volume of roughly 29 million shares.

UltraShort S&P500 ProShares (NYSE: SDS) offers twice the inverse of the daily performance of the S&P 500 Index.  Shares are up 4% at $45.40 and its average volume of about 39 million shares should be eclipsed here in literally the next few minutes.

And then with oil busting under the $70.00 mark, you have the UltraShort Oil & Gas ProShares (NYSE: DUG) that offers twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index.  This one is up 3.5% but ‘only’ on 5.2 million shares versus an average of over 8 million shares per day.

Think the housing and real estate recovery is bogus?  There is the UltraShort Real Estate ProShares (NYSE: SRS) that is up over 6% at $12.20 on over 24 million shares versus an average daily volume of about 29 million shares.  This one offers twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index.

AIG, Vonage, Fannie and Freddie….. all were running like they were on steroids.  When there is a flight to junk, the contrarians are usually making their bets to go the other direction.  There are obviously many other inverse and inverse-leveraged ETF and ETN products.  But these have tended to be the most liquid or at least the most active ones.

As a reminder, these leverage and inverse-leverage ETF products often do not mirror their index levels.  But by now, even the pygmies know that.

JON C. OGG
SEPTEMBER 1, 2009