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Mikey's Short Term Trading Rules

1) Make up a list of stocks, commodities or ETF's to trade. This list should be names that have good earnings and high relative strength.
2) Monitor this list and throw out the weaker names
3) Buy only stocks or ETF's that are intermediate and daily up (green) and the market is Daily and intermediate term up (green)
4) Buy pullbacks on these stocks to the 20 and 50 day averages
Usually you get 4 to 6 20 day pullback buys and 2 or 3 50 day pullback buys in an intermediate term trend
5) More agressive traders can buy the 7 day average in the first 3 to 8 weeks of the uptrend.
6) Buy pullbacks not runups. A buy should not be easy or exciting but difficult and somewhat scary. DO NOT CHASE
7) Place stop at 5% below the buy price. Do not remove
8) Sell 3 to 5 days after the stock price takes out its most recent 2 week high with at least 15% gains
9) Uptrends that are 12 weeks or more may be ripe for a correction. The first 2 pullbacks to the 50 day are usually safe.
Intermediate term uptrends and downtrends generally last from 8 to 16 weeks with 12 weeks being the norm.
10) Shorting is a viable strategy in downtrends for experienced traders only. In general, reverse the above rules
11) Tweet Mikey @themarketshadow with questions or ideas

Thursday, June 2, 2011

Moody's Reveals Huge Taxpayer Subsidy for Banks

The news that Moody’s is reviewing the debt ratings of Bank of America, Wells Fargo and Citigroup shows how dependent these banks have been on the invisible and unwilling support of the American taxpayer.

Moody’s [MCO 39.69 0.28 (+0.71%) ] explained in its press release that the debt ratings of the three banks have incorporated “unusual levels of uplift” based on the assumption that they would be prevented from failing by the United States government. It’s now reviewing that assumption based on the Dodd-Frank financial reforms that promise an end to bailouts.

"The US government's intent under Dodd-Frank is very clear," says Moody’s Senior Vice President Sean Jones. "Going forward, it does not want to bail out even large, systemically important banking groups."

Nonetheless, Moody’s is skeptical about the No Bailout promises of Dodd-Frank. In particular, Moody’s doesn’t buy the FDIC’s claim that it can “resolve” large, complex financial institutions without risking a disorderly disruption in the marketplace. Which means that regulators would likely resort to a bailout when the chips are down.

The higher credit ratings make it cheaper for the banks to borrow—which means that the US taxpayer is essentially subsidizing them with an implicit guarantee. This is worth billions to the banks

It also means that the banks are likely less financially sound than their credit costs would make them appear to be—because bond buyers don’t have to be as vigilant about risks. In short, they’re our new Fannie Maes and Freddie Macs.

Moody's gives both Bank of America [BAC 11.29 0.05 (+0.44%) ] and Citigroup [C 40.01 0.36 (+0.91%) ] a C-minus in terms of their financial strength. That would get their senior bonds rating of Baa2 without government support. Because of government support, Bank of America senior debt is rated A2—five notches higher—and Citi’s is rated A3—four notches higher. Wells Fargo [WFC 27.16 0.22 (+0.82%) ] gets a C-plus rating for its financial strength, which would give its debt a rating of A2. Because of the presumption of government support, it gets a three notch boost up to Aa2.

It’s not just these three banks that Moody’s rates more highly on the assumption of government. Moody’s says the it assumes the government will support Bank of New York Mellon, JPMorgan Chase [JPM 41.61 -0.15 (-0.36%) ], Goldman Sachs, Morgan Stanley and State Street.
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