Bank Stocks

I'm seen and hear many retail investors (people like you and I) contemplating about buying stocks in recent weeks. What they are interested in particular is the banking sector. The thought of buying Citi or Bank of America strike me several times. What kept me away? My inability to value anything on their balance sheet.  Even if I could, I do not believe them to be of true value (because the mark-to-model accounting method). Fundamental analysis aside, I can present you some analysis using my technical skill. The last thing I would hate to see is a friend or family to go out and buy bank stocks and to see their money get cut in half. So let's take a look at Bank of America (BAC) and Citi (C).

Bank of America (BAC)

This survivor acquired one of the biggest name in mortgage industry as well as a brokerage firm during the crisis. The chart tells an amazing story. The stock hit a low of $2.52 then rallied to $18.24. If you were able to catch the low and high, you would have gained 623.8%. What if you missed it but now looking at BAC and saw that it was at $48. At $16, could still gain 190% if the stock go to the high. As the student of the market, I can tell you that it will probably take a long time for this stock to test its high.

If you are looking to buy, I recommend watching the $15 and $12 range. I expect the stock to break below $15 rather quickly and $12 will be come a strong support. If you want to get in BAC, wait until the stock trade down close to $12. If you buy it at $12 and you sell at $15, that's still a 25% move. Don't be afraid to sell.

Citi Bank (C)

The one stock everyone wished they bought at $1. I wonder if the same people have the same wish for Bear Sterns, Lehman, Wachovia, Washington Mutual, Freddie Mac, Franny Mae, and A.I.G.? In hind sight, we are 20/20. I didn't have the courage to buy it then and I still don't have the courage to buy it now. The chart tells me this is a trading stadium full of gladiators. The trading range of $4.25 and $2 is amazing because that is a 112.5% upside OR -53% downside. The green box tell me there was a strong accumulation during August and those investors be able to protect their profit well. At $4.25, a good support is there but if the stock fail to hold that level, I can see it fall to $2.

If you want to "invest" in Citi, I would buy half of the position around $4.25 and buy the other half around $2.

Psychology drive short-term price but value determine long-term price.

Before you invest, understand that if your investment decline 50% your investment need to double (100% gain) for you to breakeven. Know your risk and don't be afraid to take profit or cut your loss.

Art

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