Option Investor
Play Updates
Click here to email James
Printer friendly version

Long Play Updates

US Bancorp - USB - close: 35.06 change: -1.25 stop: 32.99

An article out Friday morning by the Wall Street Journal suggested that "safe" banks like USB and WFC still hold risk and sport lofty valuations during this financial downturn. The opinion certainly didn't help shares of USB on Friday. The stock closed with a 3.4% loss and is poised to breakdown under the $35.00 level. Technically the move on Friday is a bearish engulfing candlestick pattern, which can be interpreted as a bearish reversal. The general trend over the last few weeks is bullish but I'm starting to think USB is going to dip toward the $34.00 region before moving higher again and that might be optimistic. We are playing USB and WFC under the expectation that these are two banks that will not only survive this crisis but come out ahead and better positioned to grow in the new financial landscape. We knew these were going to be volatile stocks, which is why we are using such wide stop losses. The market's sell-the-news reaction to the vote on Friday is a bad omen for USB bulls and more conservative traders might just want to abandon ship now to protect their capital. We would consider buying a bounce from the $34.00 level but do so carefully. Our first target is $39.95. Our second target is $42.20.

Picked on October 01 at $36.68
Change since picked: - 1.63
Earnings Date 10/21/08 (confirmed)
Average Daily Volume: 22.7 million


Wells Fargo - WFC - close: 35.16 change: -1.54 stop: 32.95

WFC was at the center of a dramatic merger story on Friday. The company announced a deal to buy all of rival Wachovia Bank (WB) in an all-stock deal that values WB at $15.1 billion. The move was a shock since WB had already been pledged to Citigroup (C) in a FDIC broker-deal last Monday. WFC was higher on the session following the news before eventually turning lower in the post-bailout vote sell-off. The stock has closed under $35.00 but found short-term support at its 20-dma. We already cautioned readers that technicals on WFC had been deteriorating and Friday's move is a bearish engulfing candlestick pattern. We were not playing WFC for its technical picture but on the expectation that after the bailout plan was passed those banks that are poised to take advantage of the new financial landscape would surge higher. Stocks in general saw a sell-the-news move, which doesn't bode well for the banks. More conservative traders will want to consider an early exit now or raising their stop loss toward $34.00. We are not suggesting new bullish positions at this time. We have been using a very wide stop loss because the financials are so volatile. Our first target was the $42.50 mark and suggest readers sell 50% to 75% of their position there. Our secondary target was $47.50.

Picked on September 30 at $ 37.53
Change since picked: - 2.37
Earnings Date 10/16/08 (unconfirmed)
Average Daily Volume = 54.5 million

Short Play Updates


Closed Long Plays


Closed Short Plays


Premier Investor Play Update Archives