Why are people so bullish on BAC? AnJAILo Mozilo

Its been obvious for well over a year now that Bank of America is the dumbest too big to fail bank in the history of banks that are too big to fail. They bought out insolvent Countrywide, they bought out insolvent MER, they performed the worst of all the banks in the stress test sham. Come on people, they are gonna be nationalized, duh.

I only bring it up because I look at the max pain chart for BAC and I see that the open interest in BAC calls this month is massive. What idiots loaded up on BAC May $20 calls? There are 20,000 of them outstanding. By the way, for those of you unfamiliar with how stocks behave at op ex, watch BAC on Friday. This thing will pin to $10 like a $1 bill to a stripper's thong.

And remember Angelo Mozilo, founder and ceo of Countrywide? He's that white collar criminal that sold all his CFC stock just as the housing market collapsed (see mugshot below). Mozilo was good buddies with Ken Lewis (BAC ceo) and got Bank of America to buyout CFC, somehow... Well, he's about to be brought up on all sorts of charges by the SEC. Its about friggin time.

"The SEC staff sent a Wells notice to Mozilo a few weeks ago informing him of possible charges, The Wall Street Journal reported online, citing unnamed people familiar with the investigation. The report said the charges include illegal insider trading and failing to disclose significant information to Countrywide shareholders."

Report: SEC may charge Angelo Mozilo with fraud

Saturday Rock Blog: Sure Shot or Can't/Won't/Don't Stop the Bailouts

Bear Stearns bailed out by JPM bailed out by feds
FNM and FRE bailed out by feds
GS bailed out by BRKA
MS bailed out by MUFG
AIG $130B in bridge loan bailouts
Emergency Economic Stabilization Act of 2008
Citigroup gets $45B then splits up
GM $13B warm-up bailout
Crystler gets $5.5B in warm-up bailouts
CFC & MER bailed out by BAC bailed out by feds

What am I forgetting?

Update:
Throw BofA and Citi out of the Dow!

Lehman Brothers (RIP)

Source for the image

Feds' Lehman Plan Doesn't Sit Well With Wall Street Execs
Sale of Lehman Remains Dependent on Taxpayer Support
Barclays Abandons Talks to Buy Lehman
Bank of America Said to Walk Away From Lehman Talks
Wall Street Prepares for Lehman Bankruptcy
Lehman Files for Chapter 11 Protection
Greenspan: Crisis May Be Once in Century Event, More Firms to Fail

The rise and fall of LEH:


It looks like Lehman is going to be the test case where we see what happens when one of these gigantic financial institutions really goes bankrupt. Is Lehman "too big to fail," well I guess we'll find out. Up until now the mammoth firms that went under were bailed out by the gov (FNM, FRE), a bigger fish (BAC/CFC) or both (JPM/BSC). I'm excluding IMB in this because they were small compared to these others ($40B in assets).

I heard a trader use an interesting metaphor for the situation last week. When a pack of lions has a herd of buffalo surrounded, the one with the fewest connections at the edge of the herd is the one the lions will eat. Right now the buffalo at the edge of the pack are WM, LEH and MER while the lions are GS, JPM, BAC and WFC.

Pullbacks

I'm really tired so this is going to be a short post on the recent pullback. I ran into a great article by Bulkowski on throwbacks and pullbacks over the weekend, take a look. Bulkowski defines a pullback as the climb in price back to the base (breakdown price) within 30 days after a descending triangle breakdown. In other words, after a stock breaks badly on large volume it often "pulls back" to the price where the break occurred. According to Bulkowski's statistics, pullbacks occur 56% of the time after an average initial decline of 9% in the three days following the break. Now take a look at the S&P 500:


Depending on where you draw the base of the descending triangle the pullback may or may not have completed last week. Notice how the S&P 500 pulled back to the August low at 1370 last week almost to the penny, then sold off again. The volume was lower on Friday as the market declined so I think there is still a good chance that the we rally back up the November lows before tanking again but we'll see. Bullkowski says there is a 56% chance that the pullback occurs so returning to 1400 on the S&P 500 should be slightly more likely than continuing to fall in the short term. I would really like to see a rally back up to that 1400 area where the 50 dma will be and declining volume would be ideal ( what we are seeing so far). However, I have little faith in this market and will take profits on the long side when I can.

Right now seems like a great time to be looking at individual stock charts for completed pullbacks for short entries. I don't have any specific charts for you tonight but maybe I'll throw some up this week. A few other noteworthy news bytes:

Bush will give his state of the union address Mon night
CFC reports earnings Tues before the bell, no conference call
FOMC decision on interest rates on Wed, market predicts .50% cut
GOOG, MA, ICE and AMZN earnings this week
Credit squeeze is a windfall for the exchanges

Disclosure: I own NYX and ICE calls, also BAC puts

Getting chopped up

I haven't posted a trading idea in a while, because to be honest I'm having a difficult time predicting anything lately. My suggestions and postion on the Euro-Dollar relationship were good for quite some time, and I like that sort of trend. As I noted in a post here, that trend ended with a "head and shoulders" chart formation, and there has been no consistent movement since.

Well, the rest of the market has been that way for me lately too. I am fairly risk-adverse these days and the fact that I'll soon be taking an extended scuba vacation has kept me from playing the upcoming earnings season.

That "risk-adversity" has seen me getting chopped up and out of several daytrading positions in recent days. I've taken some small losses on positions that later on the same day would have been good profits, but there was no way to foresee that. CFC is a good example. I had puts on that bankruptcy rumor, and covered quickly after their PR, and trading resumed. I'm not going to lose sleep over the few dollars lost in that trade, but looking at where the stock ended yesterday, I can't help but get frustrated.

I've also played IWM recently, but the wild swings there have hit my stops before I would take profits, profits I could have taken just a couple of hours later. And today I stopped out of a few MDC puts, and I top-ticked that one. Ten minutes of patience would have saved me quite a bit of money. Frankly, these markets seem to know exactly what my pain tolerance is.

I've been getting chopped up, so I'm getting out for a while, and going on vacation. I'll be back in February, when hopefully the markets will be a little more sane, and a little more predictable.

Country Fried Financial T-Shirts

Its a funny graphic to post on a blog but who in their right mind would go around wearing the t-shirt? I can understand people getting excited about the money they made shorting that thing at $40 but sporting that shirt is just poor taste. And I don't think the "I watched the US mortgage market implode and all I got was this stinking t-shirt" argument works here. Plus I'd be at least a liitle worried about getting knocked out by some guy who recently got foreclosed on by Countrywide, its not as funny to those folks.

Its funny how Angelo Mozilo actually looks as fried (tan) in real life as he does in that image, heck I'd be pretty tan if I was making as much money as he is. You know on second thought it really isn't all that funny.

In the News This Week

• Subprime Delinquencies Accelerating
• U.S. Initial Jobless Claims Rose 16,000 to 317,000 (higher than expected)
• Analysts Predict Even Larger Losses for Countrywide Financial (up to 4B$ in write downs)
• Washington Mutual Sees Profit Down 75%
• Merrill Lynch to Post 3Q Loss Up to 50 Cents Per Share After Taking $5 Billion in Writedowns
• August Factory Orders in U.S. Fall More Than Forecast
• China Enjoys Ben-Carry Trade Thanks to Bernanke
• Oh, and to be fair The Dow Made a Record High Monday
• Then, The S&P Hit an All-Time High of 1,561.91 Friday

Pay no attention to the economy behind the curtains, helicopter Ben will save us!

More from the Alien: Consumer borrowing up sharply in August

and that quite frankly is so freaking nutso, that we aliens are thinking to leave this particular Solar System.