Wednesday, September 15, 2010

Bank of America Mortgage Pushbacks

I couldn’t figure out why Bank of America’s (Symbol BAC) stock was acting so poorly, with the stock failing each time it rallied into the 50-day average.

It is now becoming clear why the stock has been acting so poorly –

That’s right, the investors who are stuck with a bunch of the junk mortgages BofA and Countrywide (BofA bought them) originated are now trying to give them back to BofA, claiming that the original mortgages were fraudulently created with bogus numbers for such things like the income of the home buyer.

At this point, the amount of mortgages that BofA may have to eat is $20 billion. I think BofA “earned” $3 billion last quarter, so $20 billion is of material significance.

The key point here, is that stocks price in information long before it is known to the public. That is why I look at charts, because they show me what the big boys are doing with their money. You simply can't hide wide spread selling.

Precious Metals at Resistance

I used to look at the world like this, because it used to work –

The Euro was in a narrow trading range for a few weeks and has now broken out.
Buy the breakout was my old mindset…

Now I see this –

The Euro (6E Z0-D) is in a potential two-step rally into significant daily resistance at a key today. There is no way I would buy here, I would wait for a pullback into logical support and look for an entry.

Asset classes are now so closely correlated that the movement of the Euro has a material impact on other assets.

The S&P 500 (ES Z0-D) is now retesting the key Time/Price High of August 5th. This is a potentially bearish setup forming, with prices stuck here at either a double top or a move to 1,146 setting up a reversal pattern. Next Monday and the 25th look like key dates.

Silver (SLV) is now at critical resistance. It was a nice move off the breakout above $18.25

And Gold (YG Z0) has hit its first upside target. It looks like the date is September 29th

Gold Stock ETF (GDX) broke above critical resistance today. Again, I used to be interested in buying the breakout, but you can see how the price was driven higher right as the underlying commodities are running into upside targets. The magnitude of any pullback will dictate my next actions. A weak pullback will be bullish.

Investors Think The Markets Are Rigged

CNBC released a poll today showing that 86% of investors think the markets are rigged. The average investor feels that the markets are designed to benefit the big bank and are structured to intentionally disadvantage the small investor. Regarding the regulators, the average investor believes something between they are incompetent and they are on the take.

I told you this was going to happen. The markets are rigged. The regulators are on the take, choosing to look the other way and hoping to later get employed by big banks. Americans aren’t stupid. And they are voting with their feet, as they flee Stocks for Bonds. I will post on the Bond Bubble later today – buyer beware in your Bond holdings.

High Frequency Trading Fraud (HFT)
FINRA has finally fined somebody over the practices of “Quote Stuffing”, “Flash Trading” and entering incredibly large volumes of orders with the intent of manipulating stock prices. I have been cranky about this for years, because I keep getting Limit Orders filled on the mysterious price spikes right before the markets ramp in the direction of my original position.

People won’t be comfortable with the markets until the criminals are not allowed to profit by messing with price, with the intention of screwing the little guy to their benefit. Now the conversation has to shift from speculation that prices are manipulated by computerized trading to the fact that we now can prove the computers are manipulating prices.

I expect a whole mess of “Whistle Blowers” coming out of the woodwork now that FINRA has issued a $2.26 million fine. How much money do you think a guy could make if he proved that Goldman, or some other bank were manipulating stock prices…