Shorting Washington Mutual on Market Weakness

Yesterday was a very weak day for financials as Lehman (LEH) led a number of Financials and the S&P 500 down in early afternoon trading. The biggest new 52 week lows were almost entirely bank stocks. Wachovia (WB), Bank Of America (BAC), Washington Mutual (WM), Regions Financial (RF), Fifth Third Bank (FITB) and Keycorp (KEY) all made new lows. Washington Mutual looks the weakest of the bunch.

Washington Mutual didn’t collapse the way Lehman Brothers has fallen the last two days but after removing one its board members, fell 2.78% on the day. Analysts have marked down their estimates for the current quarter from a loss of 0.25 cents to a loss of 0.87 cents in the past 90 days. For the current year, analysts are looking for a loss of $2.92 for the bank where three months ago they were expecting a loss of only 0.92 cents.

The stock is down 80% over the past year and has a short position of 18% of the float. The bank stocks could experience a rally and a stock with this much of a short position could be squeezed higher on a big rally day. But with the market struggling, the DOW in a new correction, and financials showing additional weakness, I think you can short Washington Mutual for a short term gain.

Comments

[truthinvesting]

I covred thisone about 10 and rode it down a long time. starting to short here does not leave enough margin of safety although WM is horrible

[seattleite]

nice call

[muley101]

I think the safer play is to watch the indicators and go long with a bracket order of 2% stop and 1% - 2% profit, depending on the news of that day. I have been making some pretty good money taking a quick 1% - 2% profit in a few minutes.

[muley101]

Shorting these stocks at this point (6/9/08) is very dangerous. The government could announce some new bailout program that could send them up quickly and wipe you out.

[James Davis]

Yeah, they could provide a printing press in the lunchroom of all these mismanaged banks.

Just churn out $100 bills till you cover your mistakes.