BigTrends

I don't usually focus much on the fundamental movements of stocks as it relates to my trades.   However,  I take notice when someone who claims to 'move markets' speaks up and makes a bold statement.  I've never met Dick Bove of Rochdale Securities, a well-respected banking analyst who covers many of the bigger names in the space.  He recently penned an article saying that big banks (BAC, JPM, C, WFC and others) can potentially quadruple in 2-3 years.  Well, that timeframe would be about right for that kind of move, yet I had to think about this a moment.  Wasn't it last year these banks were SELLING tons of shares to raise capital, and eventually pay back the TARP?  I looked at market caps for just those four banks, astonished to see how big they already were, but not surprised after the massive dilution in 2009.  So, let's take them 1 by 1:

C - current mkt cap is 116 billion, a quadruple puts the stock at 16 and the mkt cap at 460 billion, more than TWICE that of AAPL.

BAC or JPM -  current mkt cap is 178 billion, a quadruple puts the stock at 72 (JPM 160)  and a market cap of 700 billion, more than TWICE that of XOM.

WFC - current mkt cap is 161 billion, a quadruple puts the stock at 120 and a market cap of 640 billion, or more than TWICE that MSFT.

Think a moment about this.  Banks still stricken with bad mortgages on the balance sheet, write-offs to capital.  They have this kind of earnings power?  Again, I don't know Bove nor do I question his experience or motivation, but it seems to me this kind of prediction is outlandish and reminds me of the Dow 36,000 call just 10 yrs ago.   Are these banks really worth MORE than those companies above?  And if so, do they deserve to be among the most powerful in the world when it's clear the interest rate cycle may be turning, which squeezes profits?

Another example of being careful what/who you listen to. 

Often on Expiration Friday, you will find that certain stocks, indices, & ETFs get basically "stuck" around a certain round level that corresponds to an option strike price.

Why does this occur?  Well, there are a variety of factors ... and it is not usually just comprised of pure "market manipulation" as many think.

If a stock is lingering around a strike price, the expiring open interest there (especially if it is sizeable) may cause market makers to constantly be buying and selling around that level, esentially causing the stock to get pinned.  This is because market makers are usually hedging their delta (and gamma), and their front month option greeks will be changing as a stock osciallates around a strike price.

Another factor is that there may be a great deal of options trading hands around that strike price, which then causes the market makers to hedge with stock trades, as well.  There also is the psychological factor that traders and stocks are often drawn to "round" numbers such as strike prices, and there will be a significant number of buyers and sellers around that number, for example.  Also, many of these round areas are important from a technical perspective and may be the location of important resistance or support.

With that in mind, there certainly is a "pinning effect" that is often seen on Expiration Fridays.  This may be option related and may be "released" from the shares on Monday (but that is certainly not guaranteed).  Taking a quick scan of stock screens, here are some that jump out at me today that ended very close to strike prices:

Google (GOOG) - 430 strike
Citigroup (C)- 3 strike
Pfizer (PFE) - 15 strike
Bank of America (BAC) - 13 strike
Caterpillar (CAT) - 34 strike
Yahoo (YHOO) - 17 strike
Baidu (BIDU) -320 strike
Dish Network (DISH) - 16 strike
First Solar (FSLR) - 145 strike
SPDR Gold (GLD) - 92 strike
Mastercard (MA) - 180 strike
Wells Fargo (WFC) - 25 strike
IBM (IBM) - 115 strike
McDonalds (MCD) - 57.5 strike
JP Morgan (JPM) - 37  strike

With the S&P 500 (SPX) sitting right around the key 880 level, get braced for July Option Expiration next week, as well as a gaggle of earnings reports from some big names.

Among those due on the docket:

Monday:  CSX, FAST, NVLS
Tuesday:   ALTR, GS, INTC, JNJ, YUM
Wednesday:  ABT, AMR, CTAS, XLNX
Thursday:  BAX, BIIB, CY, CYT, GOOG, HOG, IBM, MAR, NVS, PPG
Friday:  BAC, BBT, C, GE, MAT

We get the Fed announcement on Wed, then later in the week Chairman Bernanke will testify about the whole BAC/MER mess that occurred last fall.  The first part is mostly dressing...we don't expect much from the Fed other than to say they could keep on buying treasury bonds, helping to keep rates low.  The testimony in front of Congress is going to be interesting.  What role did Bernanke play?  Was it illegal?  Will he implicate others?  President Obama is watching carefully, and if it doesn't pan out well we might have a new Fed Chairman next spring.