The Exit Cafe is dedicated to helping investors and professionals of all experience levels be more aware of changes to their risk exposure and the importance of using an intelligent exit strategy to control and act upon risk.

The editorial manager and a frequent contributor to our blog is Chuck LeBeau, an industry leader in the application of technical analysis for risk management. We hope you find our blog enjoyable, educational and valuable. Please feel free to chime in on any stories or analysis posted.

Jul 17, 2009


By Kevin Grewal, editorial director at

Three of the nation’s largest banks have released second quarter earnings reports and all three have outperformed Wall Street’s expectations. Does this mean that the financial sector has emerged from its woes and is on the verge of prosperity?

Some believe so. Advocates suggest that the sector has already hit rock bottom and really can’t do anything but go up. Signs of strength have also been seen in the ability of some banks to pay back TARP loans and raise capital. Lastly, some investors are saying that banks are relatively cheap, so could possibly be a good buy.

On the other hand, the basic fundamentals of the sector are weak and from a technical perspective the sector does not seem too healthy. As companies continue to implement lean measures, unemployment numbers continue to rise and consumer confidence remains shaky, the sector will remain weak. Additionally, most of the prominent banks believe that consumer credit is still in trouble which will hinder the overall performance of the industry.

If one does consider playing the financials, keep in mind the risk involved with them. To mitigate these risks, an exit strategy utilizing stop losses is key. Take a look at which will give you a trigger indicating that an upward trend in your financial equity might be coming to an end. Keep in mind that these triggers change as the markets fluctuate and updated data is available at

Here are some banks that have outperformed and have stirred up the question of whether or not to consider financials and their relative SmartStops:

Bank of America (BAC) which reported earnings of $0.33/share outperforming the $0.28/share expected by analysts. The large bank has performed well since seeing a March low of $3.14 to close at $13.17 on July 16, a jump of 319%. The SmartStop is at $11.51.

Goldman Sachs (GS) which reported a 33% increase in earnings and smashed analyst’s expectations by reporting net income of $4.93/share. The largest surviving investment bank is up 165% since witnessing a March low of $59.20 to close on July 16 at $156.84; its SmartStop is set at $142.14

JP Morgan Chase (JPM) who reported second-quarter earnings of $0.28/share, crushing Wall Street’s expectations of $0.04/share. The financial giant’s stock has more than doubled to close at $34.70 on July 16 after hitting a low of $15.90 in March; a SmartStop trigger is set at $33.88

Citigroup (C) surprised many by reporting earnings of $0.49/share and beating Wall Street’s forecast of a loss of $0.37/share for the second quarter. The company’s stock has rebounded nicely to a July 16 close of $3.03, a 197% jump from its March low of $1.02; Citigroup’s SmartStop is set at $2.76.

No comments:

Post a Comment