Stress Test for Banks or Investors

The buzz these last few days and circulating around the trading floor this morning surrounds the details and outcome of the Bank Stress Tests. What will they show? Who will get exposed? Which, if any are solvent? The tests originally designed to assuage investor concerns. Instead the tests have raised fears and increased rumors on who will pass, more to the point who will fail. The treasury has attempted to get out in front of the release of these results and inform jittery investors this is not a pass fail test, more a way to identify which institution requires additional capital. Apparently, after the results are announced and the under capitalized institutions identified, they will be given a window of six months to raise capital from the private sector. Sounds reasonable. It has raised some fears and rumors a large bank will be thrown under the bus to prove the soundness of the test and add validity.

Financials should receive some detail beginning Friday and into the weekend. The Federal Reserve and Treasury have done some of their "best" work over the weekend these past twelve months. Do we really want to be too long with the markets closed. Which leads to a potential strategy. For investors with a taxable account, as a way to minimize taxes (eliminating the need to sell profitable positions) may wish to utilize the Short Proshares. For NASDAQ utilizing PSQ- short the QQQQ. For the Dow utilizing DOG-short the DJIA, and for S&P SH-short the S&P 500. For more aggressive investors there are additional Proshares that return twice the inverse return of the relative indexes.

Barring any surprises these positions may be unwound or sold come Monday after assessing the news,reactions and current environment. The market has run into some resistance recently and has had difficulty overcoming. But, the retracements have been minor and met with good buying. I believe we are in a base building phase fairly well contained by 860 on the upside and 806 below current levels on the S&P 500. Earnings are likely to help drive our next big market move and they are coming in fast, furious and widely mixed.

So, as the weekend approaches, if you seem to be tossing and turning more than normal, this strategy may help keep the Ambian in the medicine cabinet.

Have a prosperous day!