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Monday, August 25, 2008

Profit from Financial Weakness

Today's blog entry is a recap from an email I sent August 2nd to my mailing list.
A good friend of mine and long time winning day trader pointed out some financial stocks that are ripe for profiting from.
All of these stocks are down from August 2nd, but they still have more to fall.
Of particular is PNC. The reason I like this stock is the risk seems low compared to the potential profit of shorting this stock.

To the right is a graph of PNC over the last two years, and notice when its P/E ratio and EPS was good the stock was topish at 70-75 range. Recently it tanked hard, but came back in the financial rally to the 70-73 range. Why do I like PNC as a short?
1) Its historical top range is 70-75 bucks, its recent lows is 50 bucks, currently near 70 bucks.
2) Banks are NOT going to have banner earnings reports, especially large banks being affected by a cooling economy.
3) Risk to reward is "cover" at 77 or 50 bucks, assuming you shorted at 72 (august 2nd), 5 dollar risk against you, with 22 dollars (or more) for you downward.

Other stocks to look at are:
Bank of America (BAC), at 34 August 2nd, now 28, target 10-15 bucks to cover
US Bancorp (USB) at 32 August 2nd, now 30, target 15 bucks to cover
Wells Fargo Co (WFC) at 32 August 2nd, now 28.70, target 15 bucks to cover (maybe 10)

All of these should hit in next 12 to 18 months, yielding 50% or more profit. Look at the charts, look at their all time highs, consider the economy, set your pain point to get out if wrong, and roll the dice. Always consult a professional adviser over a free blog person's two cents.
UPDATE 11/23/08: see follow up comment

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