Monday, April 13, 2009

Shortable Stocks

I think the following may be potentially good shorts this week.


Both have incredibly low levels of shorted shares (less than 1%) and with their current levels pricing in very good results, the risk level is low of a short squeeze of any kind. Comparing to water, the path of least resistance for both are down this week.

The VIX is due for a bounce off. The VIX and its PCR data are converging which is a sign of over optimism in the market.


  1. Beamer Dog,

    With M2M allowing WFC and GS to post great earnings, don't you think JPM, C, and BAC will too?

    Do you really think JPM and BAC will fall hard "this week"?

  2. SRS Player, make no mistake, I think the banks are being propped up by hiding the facts. Its all part of the plan to give the country a sense of optimism hoping it propels spending and a quick recovery. Not a bad plan, if it works.

    But the reason I would short JPM or BAC over any other financials is, the outstanding short shares for each are less than 0%. I would not bet a lot on this, but rather than playing SKF or FAZ, if JPM, Citi or BAC show any signs of trouble, or a good investigative reporter finds the WFC and GS earnings are hiding the real story, these stocks will tumble. Its a speculative trade, not something to back the truck on for sure.

    If you are long FAS, playing puts on BAC and JPM is a great hedge.

  3. Also, SRS player, no one has seen the details of the results yet for GS and WFC. WFC has already said they need more gov't money and GS says they need to raise $5B to pay off tarp money. So the banks get all the taxpayer money and the big bonuses based on record earnings??? They should all give back all of their earnings for 4 years to the taxpayer as thanks for bailing them out.

  4. Beamer Dog,

    Thank you for your detailed answers. I agree with you, and share your criticisms of all the lying, hiding of facts, and changing of rules in the middle of the game. Many banks are insolvent, not profitable, and do not deserve their rally-prices on any fundamental or lasting basis.

    My only disagreement with your view is that I'm afraid JPM, C, BAC, and other big banks will jump in price as each one announces "better than expected" earnings (due only to M2M distortions of the truth).

    But if you can tough out short-term declines (and you clearly can by your holding SRS), I agree with you that eventually the banks will fall again, as the truth reasserts itself.

    Good luck in your trading!

  5. SRS, I disagree on JPM, C, BAC "jumping in price". They have already jumped in price in anticipation they will match what WFC and GS have done. But GS is a different animal than the others. The key is seeing the details of their reports to see how much of it is one time fixed income.