D-day: JP Morgan Misses Estimates, Market Sinks

     Whatever push the market got from the Fed minutes the other day is just a faded memory-turns out it was a dead cat bounce.

      http://diaryofarepublicanhater.blogspot.com/2014/04/yesterday-market-loved-fed-minutes-but.html

      Clearly the market isn't reassured:

     "U.S. stocks declined sharply for a second session Friday, with the Nasdaq Composite tallying its third weekly drop, after JPMorgan Chase posted disappointing earnings and Gap reported a decline in sales.

"There's a lot of uneasiness about how far and fast the market ran last year, so any piece of news, even a single earnings report, can have a contagion effect," said Dorothy Weaver, co-founder of Collins Capital."

     "JPMorgan Chase led declines on the S&P 500 after the bank posted first-quarter earnings below expectations. Gap also fell after the retailer reported a drop in same-store sales, with Janney Capital Markets downgrading its shares to neutral from buy. Wells Fargo, however, reported a better-than-projected rise in first-quarter net profit as the mortgage lender set aside less money to cover bad loans."

     "Based on earnings, some bank stocks are doing better than others," said Peter Coleman, who oversees floor trading as director of sales trading for ConvergEx Group."

      http://www.cnbc.com/id/101575864

      One bank stock that I have said I think might not do so well is Citigroup. It certainly didn't do well the last two days. However, why is this D-day? For the market it isn't-it was, however, D-day for me as Citi's drop made me money-as I've explained in previous posts, I had shorted the market-ie, bought up a lot of puts on C-the $44,50 put tha expires May 2. My 50 puts had initially cost a total of $1388-factoring the broker fee and fees per option. I got out yesterday early. 

      Once I saw in premarket that JP had missed its earning target and that all the banks were down in premarket for me it just became a question of getting out of my puts as soon as possible-as C was already down to $45.50 before the open. I had said the day before that all I wanted was a $45 dollar handle and this would make my position. 

      I don't know how much you can every perfect the art of market timing but my timing was for once, almost flawless. I got out at about 9:50 with it trading at about $45.25 and I received $3,722 after commissions and fees. So this is a gain of 268%. In the past I would have made the mistake of trying to wait for it to dip under $45. In fact this didn't happen yesterday at all-it bounced back to over $46 later. To be sure, I lost money on my BAC calls. I had lost most of my position on my $18 calls for May 2 a few days ago and I got out of my $17 calls for a pittance after getting out of Citi. This was probably a mistake-they were pretty much worthless-I received only $105 after fees. Meanwhile the market bounced back after so I could have gotten a better price for them. 

     Still you can't do everything. Even factoring these losses on BAC I still am up $800 on my current deposit onto my account-I started with $7,500 and now it's worth over $8,300 so it's a gain of over 12%. That's the kind of yield a money manager would boast about.

      So where to next? The other thing I did right this time is-nothing. I didn't get into another position-though I could have gone long C at this point as it did get way over $46 after dipping under $45.20. I'm not really sure where we go from here. I do agree with those people who argue that this is not really based on the fundamentals of the economy. I mean yes the numbers weren't overwhelming for the BLS number the other day but it basically met expectations. 

     As for JPM missng earnings yesterday, the reality is that it's numbers a year ago were much higher but those were based on some special, one time factors that you knew wouldn't be there in the future. So it may be overkill. If anything banks like JPM or BAC aren't really that expensive-or at least you can make a strong case for that. It still looks like this is more about the end of the trade in momentum names to more stable plays. 

     "We're about 7 percent from the highs, so we're creeping towards what you would classify as a correction, so I wouldn't be surprised, but I don't think we're heading towards bear market territory," Coleman said.

     "So far it does not appear to be so much fundamental as a turn in sentiment," said Russ Koesterich, BlackRock's global chief investment strategist, who attributes the recent selloff in high-flying shares to "forced liquidation by hedge funds."

    "A lot of investors were long the momentum trade. All of last year's big winners -- biotech, Internet stocks, this is where you've seen the biggest reversal; that momentum trade has basically been broken," he said.

    "The losses in an absolute sense outside those sectors have been fairly modest," Koesterich added.

     If this is the case then the market won't be going to bear terrirory as Coleman says. So, long term I still see BAC as a buy. However, I think for now C may still be weak. How much lower it gets from here I don't know but I wouldn't be suprised if it gets a little lower yet-I could see a 20% correction for C-it was at $50 when the news that the Fed had rejected its request to raise its dividend. So 20% off that could mean it still ends up pushing $40.

   Still I would prefer to wait to see this sock battle a few days-the bulls are still wanting to get it over $46, they don't believe yesterday's move yet.