Yesterday, AP Online posted an "Earnings Preview" presenting a “summary of key developments and analyst opinion” related to E*Trade’s (ETFC) earnings scheduled for release after the market closes today, July 22, 2008.

The final paragraph of the “AP Earnings Preview” points out the 19 percent stock price decline during the second quarter and the July rebound. This AP report fails to associate the stock price declines and recovery with the 27.3% outstanding short interest.

May 2008 brokerage metrics were released this past week by E*Trade (ETFC), Schwab (SCHW), and Ameritrade (AMTD).  Reuters summarizes their comparative performances nicely by stating:

NEW YORK, June 18 (Reuters) - E*Trade Financial Group Inc (ETFC) on Wednesday reported its average daily trading volume rose 4.1 percent in May from a month before, slightly outperforming its rivals TD Ameritrade (AMTD) and Charles Schwab Corp (SCHW).

Yesterday afternoon S&P Marketscope posted the following:

S&P UPGRADES SHARES OF ETRADE FINANCIAL TO HOLD FROM SELL
2:22 PM ET 6/11/08 | S&P Marketscope

Since Citadel’s cash infusion in late November 2007, E*Trade’s (ETFC) share price has been range-bound:  dropping as low as $2.08, rising as high as $5.48, and sitting at around $4 for the past two months.  Illogically, this current $4 range was the exact low price range in November  2007 when no one was sure whether E*Trade would survive bankruptcy.  In November 2007 E*Trades bankruptcy price per share ranged from $4 to $6.  In 2008 the highest price has been just above $5 for a handful of days in February.

Additionally,  short interest positions continued to increase last month.  Perhaps this is just a product of hedge funds playing games with the share price in a tight range or perhaps not.  How long will it take to chase the 111 million shorts out of this stock?   Especially when average daily volume is only 15 million shares.

On November 29, 2007 Citadel invested $2.5 billion of cash into E*Trade (ETFC). Citadel had been “scrutinizing E*Trade’s balance sheet” since July 2007, when E*Trade first reported its mortgage market problems in a conference call. “So Citadel understood better than most—even E*Trade management—not only how serious its problems were but also the real value of E*Trade’s business” (source).

With this transaction, Citadel also became E*Trade’s largest shareholder with 20% of E*Trade’s stock. At this time Citadel owns 89.53 million shares; and holds $1.75 billion of 10-year bonds at 12.5% interest. As E*Trade’s biggest shareholder and debtor, Citadel influenced the appointment of Donald Layton as CEO on March 3, 2008. Layton had worked for 29 years at JP Morgan Chase, but was at that time living leisurely as a retired banker and serving on E*Trades board of directors. Pulling E*Trade out of this mortgage mess was not the way Layton planned to spend his retirement years. Why did Layton come out of retirement and accept the position of CEO? When asked, Layton stated, “The board ask me if I would do it... I didn’t get to where I am without having a competitive side” (source).

If one only hears some pundits talk about E*Trade (ETFC) or looks to analyst opinions for investment guidance, one wouldn't know that E*Trade is this year's best brokerage stock, one of the very few financial stocks with a positive return, and one of the S&P 500 stocks that has double digit gains. Technically speaking, it also has another bullish component to support its positive price actions since January--volumes. E*Trade’s pattern of daily volume is high on rising days and low on consolidation days-–a classic bullish sign.

To close watchers, E*Trade, as a company, has definitely, albeit not widely reported, been on a strong cause of turnaround:

First a couple of definitions:

The 'magic moment': When a turnaround stock starts to turn vertical, pros call it 'getting re-rated'.

This compilation of “informed opinions”* covers two important areas of research and insight. These two opinions have been extracted from the blog postings of individuals who strive for accuracy, thoroughly study transcripts and SEC filings, and then provide informed background and opinions. I obtained permission from the authors for posting their information here on Seeking Alpha.

*Seeking Alpha provides a forum for individuals who have an “informed opinion” to publish their ideas. Published materials from Seeking Alpha provide broader circulation of valuable research and opinions. Informative and insightful research and opinions should be publicly published for the good of the investment community.

Yesterday, May 14, 2008, both E*Trade (ETFC) and Charles Schwab (SCHW) released monthly activity reports for April. TD Ameritrade (AMTD) a third strong player in online brokerage services did not report any information.

On Wednesday afternoon, Steven Bertoni from Reuters reported on comments from analyst Richard Repetto of Sandler O’Neill and Partners regarding E*Trade and Schwab. Bertoni’s article points out that “Sandler O’Neill and Partners” predicted an industry wide “Daily Average Revenue Trading” [DART] decline of 2.5 to 7.5 percent in comparison to March trading volume. Schwab’s April DART decline of 7 percent was on the high side of this predicted decline range. E*Trade, on the other hand, experienced only a 1.6 percent decline, which was significantly lower than the low of 2.5 percent predicted by Sandler O’Neill, and also significantly “less than the industry average, which fell 2.4 percent.”

On April 25, Dean Laster wrote an intriguing article regarding the fact that E*Trade’s (ETFC) stock has short interest sitting at 20% of the stock’s float (see “Why the E*Trade Shorts Have It Wrong”). Mr. Laster pointed out that E*Trade has no “downside catalyst” and that all the the bad news is priced into the $4 existing stock price. In fact E*Trade’s April 17th Earnings Conference Call presented many positive upside trends for both the brokerage business and the mortgage portfolio performance, so “shorts are in effect digging their own graves.”

This week, on Wednesday May 7, Nick Perry from Schaeffer’s Investment Research wrote an article entitled “Is E-Trade Financial Corp. Poised to Make Another Run?” In this article Mr. Perry affirms the unusual circumstances that the 20% short interest position sets up. He also indicates that the current “contraction in volatility can be a sign that ‘pressure’ is building.” He points out that “a contraction doesn’t suggest which way a stock will break.” However, the “stage” is set for a “pop above the front-month calls but we still need a catalyst to spark the buying.”

The variety of comments on my Friday, April 18 article (see “E*Trade: Primed To Turn Around?”) have prompted me to provide additional stock price analysis and share trading volume analysis.

Stock Price Analysis

Marketwatch and Dow Jones Newswire point out today the stark contrast between E-Trade’s (ETFC) first-quarter loss and profits at Charles Schwab (SCHW) and Ameritrade (AMTD). So why did E-Trade’s shares jump a total of 20.7% by the end of after hours trading on April 17, 2008? The details in E-Trade’s conference call earlier that afternoon presented a successful “Turn Around Program.” A “Turn Around” from what?

Yesterday, April 9, 2008, Patricia Jiayi Ho from the Dow Jones Newswires published that China’s March automobile sales figures increased 21.4% over March last year. Consumer demand for automobiles has continued despite rising inflation. “Food-driven inflation has [had a] minimal impact on . . . spending decisions,” said Matthew Kong, an auto analyst for Fitch Ratings. The cost of a compact car is “not a big deal” to the middle class.

This spending pattern of the growing “China middle-class segment” and the expansion of urban infrastructure will continue to stimulate economic growth and stability for the entire world economy. The inflation problem is being dealt with by China and Hong Kong government leaders through recent decreases in both Income and Employment Taxes; also implemented were significant increases in minimum wages.

On March 28, Baidu.com (NASDAQ: BIDU) launched a new online radio station platform, joining hands with "15 radio stations, including China Radio International [CRI], the biggest radio station in China."