Top News Stories November 9 2017

The day’s top news stories from stocks on the GuerillaStockTrading watch list.
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Vistra Energy Corp Candle Over Candle Off 50 MA

Earnings beat, slight revenue miss, and recent Buy ratings have made Vistra Energy Corp. stock an interesting swing long setup.

Vistra Energy Corp stock has formed a candle over candle reversal off its 50 day moving average.

Vistra Energy reported EPS of $0.64 versus the estimate of $0.32. Revenue missed coming in at $1.83 billion versus the $1.93 billion estimate. Nevertheless, the company’s quarterly revenue was up 8.5% compared to the same quarter last year.
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Jagged Peak Energy Rising Large Players Volume

Jagged Peak Energy has a positive divergence on large players volume and several bullish ratings from analysts.

Top followed analyst rating firms Bank of America and Imperial Capital both have given Jagged Peak Energy stock a Buy and Outperform rating. BMO Capital has also given the stock a Buy rating.
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IAC Stock Does Bullish Flag Breakout on Pocket Pivot Signal

IAC stock did a bullish flag breakout on October 27, 2017, with a bullish pocket pivot signal.

IAC stock is a strong seasonal play. Over the next 12 weeks, IAC/InterActive has on average historically risen by 9.6% based on the past 24 years of stock performance. IAC/InterActive has risen higher in 17 of those 24 years over the next 12 week period, corresponding to a historical probability of 70%.
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Ringcentral Price Target Raised by Bank of America

Ringcentral had its price target raised today by analysts at Bank of America. Analysts at Bank of America raised the price target to $50 from $45 which represents 21.7% upside from the current price of $41.10. Bank of America has a Buy rating on the stock.
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Battle Over Costco Stock Rages As Buy-side Analysts Raise Price Targets

A battle between Bulls and Bears is raging over Costco stock. The Bears catalyst is that Amazon is going to cut into Costco’s sales. The Bulls catalyst is that Costco just reported that sales grew an impressive 15.7% year-over-year and beat on earnings per share and revenue expectations.
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Best Bank Stocks To Buy Now That Fed Has Given Green Light For Dividends

On Wednesday, the Fed said banks such as JPMorgan Chase & Co and Bank of America Corp, had passed the second, more demanding part of its yearly stress test. The results demonstrated that many haven’t only built up adequate capital buffers, but improved risk management processes too. Charts of the best bank stocks to buy now are below.

It was the first time in years of annual “stress tests” that each bank assessed by the Fed won approval for its capital strategies.

Fed Governor Jerome Powell, who’s acting as regulatory guide for the U.S. central bank, said the process has inspired all the largest banks to attain good capital levels.

The Fed on Wednesday announced the results of the second round of its yearly stress tests. Those permitted to increase dividends or repurchase shares contain the four largest U.S. banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo. These large banks are the best bank stocks to buy now.

Following the results today, numerous banks quickly jumped in with announcements of dividend boosts and share buyback plans.

The second part of this seventh annual check-up tested the banks to decide if their existing plans for paying out capital to shareholders would still let them keep lending if hit by another financial crisis and serious recession.

Banks have a total of approximately $1.2 trillion in capital reserves as of the fourth quarter of this past year, an increase of $750 billion over 2009. They’re expected to pay out to shareholders 100 percent of the net revenue during the next four quarters, compared with 65 percent in the same period last year.

Best Bank Stocks To Buy Now

Bullish Pocket Pivot pattern on June 28, 2017. Feels a little like chasing at this level. I would prefer to wait for a consolidation move before taking a swing long entry.

Powerful breakout move but chasing breakouts is a losers strategy. I would prefer to wait for a pullback at least a consolidation period before taking a long entry.

I like the sideways consolidation pattern in Bank of America. We also had a bullish Pocket Pivot signal on June 28, 2017.

Wells Fargo has major resistance at $55. An entry above this level is prudent. The Twiggs Money Flow is just starting to round up so it has less of a chasing feel to it.

I will keep hunting for the best bank stocks to buy now.

GO HERE TO CHART LARGE PLAYERS AND THE TWIGGS MONEY FLOW LIKE THE CHART ABOVE… AWESOME TOOL

Deadly Parasitic Derivative Collapse Spreading Through Global Markets

Deutsche Bank may be on the verge of collapse. Last week Deutsche Bank reported Q2 2016 earnings of 20 million euros which is a 98% drop in earnings year-over-year.

In 2015, Deutsche Bank announced its first full year of loss since the 2008 recession.

Deutsche Bank’s stock is down -60% over the last year meaning that the bank is close to collapse.

Deutsche Bank’s shares now trade for two-thirds less than their tangible book value, a steeper discount than even during the depths of the financial crisis.

Beyond Germany, few stock traders care if Deutsche Bank collapses. The problem with Deutsche Bank collapsing is its enormous derivatives portfolio valued at 42 trillion euros! To put in perspective, the entire EU (all 28 member states) has an estimated GDP value of 14.3 trillion. Deutsche Bank’s 42 trillion euro derivatives portfolio is about three times the size of the entire EU!

One might think that with such a high exposure to the derivatives market, Deutsche Bank would have already collapsed. The reason Deutsche Bank has not collapsed is because of something called netting. For every derivative position Deutsche Bank holds, they hold another position in the opposite direction, so they roughly cancel each other out. At least that’s what Deutsche Bank is reporting that they are doing. Whether that is true or not remains to be seen. Why would anyone hedge their longs with shorts in a 1:1 ratio? You would never make any money from trading, and you would slowly lose on slippage. The OCC tracks netting on U.S. banks and does, in fact, show that even with netting, net current credit exposure (NCCE) has been rising rapidly since 2014.

When Deutsche Bank collapses, it is going to be the explosion heard around the world, and it will be a disaster many times greater than the collapse of Lehman Brothers in 2008.

US Derivatives Exposure

The big U.S. banks have higher exposures to derivatives than Deutsche Bank. As of June 30, 2016, below are U.S. banks with the largest derivative exposures.

Citigroup has amassed the largest stockpile of interest-rate swaps as they bet on central bank rate changes.

Five U.S. banks hold 93% of all derivatives: Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley. The total value of these derivatives is $247 trillion (notional).

Morgan Stanley has $31 trillion in derivatives with $1.6 trillion (notional) in credit derivatives. What is scary is that Morgan Stanley is back to speculating in the same credit derivatives market that took down AIG in 2008. I don’t think Morgan Stanley necessarily wants to speculate in credit derivatives but with revenue flat the last few years, they may be getting more desperate to prop up their stock price. Morgan Stanley’s stock is down more than -25% over the last year.

Most traders in the U.S. don’t care about Morgan Stanley’s risky credit derivatives portfolio, but they should. Morgan Stanley has more than 15,770 retail brokers managing $404 billion of other people’s money (mom and pop savings, retirees, pensions, retirement accounts, etc.cause). Morgan Stanley’s risky credit derivatives position poses a huge threat to the investing community in my opinion.

Banks and Financial Firms Will Not Disclose Information Until It’s Too Late

If you are waiting for banks and financial firms to disclose risks and even how much they were bailed out from the last time they made risky credit derivative bets, don’t.

Wall Street On Parade writes

To survive the 2007-2009 Wall Street crash, Morgan Stanley received an injection of $9 billion from the Japanese bank, Mitsubishi UFJ Financial Group; a $10 billion injection from the U.S. government and over $2 trillion in secret, cumulative, below-market-rate loans from the Federal Reserve. According to data obtained by Bloomberg News following a multi-year court battle to obtain the information from the Federal Reserve, Morgan Stanley’s one-day secret outstanding loans from the Fed peaked at $107.3 billion on September 29, 2008.

The public would have never known about these secret loans shoring up Wall Street’s reckless conduct and hubris and obscene bonuses except for the court battle of Bloomberg News and legislation secured by Senator Bernie Sanders of Vermont requiring a Fed accounting.

Credit Derivatives Exposure On the Rise In the US

The Office of the Comptroller of the Currency reports some scary facts in their most recent quarterly OCC report.

– Insured U.S. commercial banks and savings associations reported trading revenue of $5.8 billion in the first quarter of 2016… $1.9 billion lower (24.9 percent) than a year earlier. [In my opinion, when trading revenues are down, trading divisions take on more risks in a desperate attempt to meet quotas like buying riskier credit derivatives as the data points below confirm].

– Credit exposure from derivatives increased in the first quarter of 2016. Net current credit exposure (NCCE) increased $65.1 billion, or 16.5 percent, to $460.1 billion.

– Notional derivatives increased $12.0 trillion, or 6.6 percent, to $192.9 trillion.

– Derivative contracts remained concentrated in interest rate products, which represented 76.3 percent of total derivative notional amounts.

Using Derivatives To Bet On Interest Rate Changes

The OCC reports

Measuring credit exposure in derivative contracts involves identifying those contracts where a bank would lose value if the counterparty to a contract defaulted. The total of all contracts with positive value (i.e., derivative receivables) to the bank is the gross positive fair value (GPFV) and represents an initial measurement of credit exposure. The total of all contracts with negative value (i.e., derivative payables) to the bank is the gross negative fair value (GNFV) and represents a measurement of the exposure the bank poses to its counterparties.

GPFV increased by $0.8 trillion (26.6 percent) in the first quarter of 2016 to $3.8 trillion, driven by a 29.9 percent increase in receivables from interest rate and FX contracts. Because interest rate contracts make up 76.2 percent of total notional derivative contracts, changes in interest rates drive credit exposure in derivative portfolios. Declines in interest rates tend to increase exposure. This effect has increased in recent years, as the maturity profile of interest rate derivatives has increased, making credit exposure more sensitive to changes in longer-term rates.

Credit risk exposure increased a whopping 26.6% in Q1 2016. Much of that increased credit risk exposure is coming from bets on Federal Reserve rate hikes. If interest rates go up, credit risk exposure in derivative positions goes down. If interest rates go down, credit risk exposure goes up. In other words, most of the bets in the derivatives market are on interest rates rising. Better hope Janet Yellen doesn’t have to lower interest rates!

Credit Default Swaps Dwarf All Other Forms of Derivatives

Credit default swaps dwarf any other form of credit derivative trading.

The OCC reports

The notional amount for the 54 insured U.S. commercial banks and savings associations that sold credit protection (i.e., assumed credit risk) was $3.6 trillion, up $206.4 billion (6.0 percent) from the fourth quarter of 2015. The notional amount for the 50 banks that purchased credit protection (i.e., hedged credit risk) was $3.8 trillion, $224.9 billion higher (6.3 percent) than in
the fourth quarter of 2015.

It is interesting that many people are reporting having received a letter from their credit card company informing them that their interest rate is going up from 19.9% to 25% in August 2016. Some people have even reported receiving credit limit increase letters too. How kind of these bankers to go long credit default swaps while raising your credit limit and interest rate to insane levels at the same time.

Folks derivatives are dark financial products that cause excessive risk taking that ultimately leads to disaster. I have little doubt that the next global financial crisis will, at its core, once again involve speculative derivatives betting.

US Banks To Be Decapitated If Brexit

If you are looking for a black swan event that could plunge the weak US economy into a full-blown recession, Brexit could be it.

Big US banks have already taken brutal losses over the last year.

Bank of America has more than $2.1 trillion in assets. Bank of Amerca’s stock has plunged -20% from a year ago.

Citigroup has more than $1.8 trillion in assets. Its stock is down a shocking -23% over the last year.

Wells Fargo’s has more than $1.8 trillion in assets. Its stock has crashed more than -15% over the last 12 months.

Major banks in the U.S. are in trouble as a result of years worth of low-interest rates. The Federal Reserve has been trying its best to raise rates to prop up falling bank profits.

With so many U.S. banks on the edge of the precipice, a Brexit could push them over the edge.

Daboo7 talks about how Deutsche Bank was caught illegally manipulating the price of gold.