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Bank stocks (XLF +3.7%) jump out of the starting gate after the central bank liquidity push,...

Bank stocks (XLF +3.7%) jump out of the starting gate after the central bank liquidity push, shrugging off the S&P downgrades: JPM +5.4%, MS +5.9%, C +5.3%.  Bank of America (BAC +5.3%) looks to avoid collapsing through $5, at least for another day - it's a line in the sand, not because it’s a round number, but because many fund managers will be forced to sell if it closes below that mark.
Comments (4)
  • Really? Many fund managers are forced to sell? I've never heard of that $ 5 rule before, it more sounds like an urban legend. I thought institutional investors primarily look at fundamentals, not what price BAC closes at.

     

    I guess if it did a reverse split after it fell below $ 5 then all these stupid investors would jump back in? Awesome.
    30 Nov 2011, 06:43 PM Reply Like
  • Klarsolo,
    I think you missed the point. Stock under $5 a share means a margin call has to be met at a higher call %. Do some research and you will know what I mean. Each $1 that a stock falls, the margin % to hold this stock increases. Anything under $5 is over 50% required call to hold into a margin account. Some trader platforms, such as Scottrade the required amount is 75% anything under $5. Hope this helps. Keep in mind that many brokers are buying on a margin account, such as myself.
    30 Nov 2011, 11:47 PM Reply Like
  • Thanks for the explanation. I can see that retail traders high on margin can be kicked out of the stock. Maybe some hedge funds too. But the vast majority of funds which don't buy on margin apparently do not have a problem.
    1 Dec 2011, 05:39 PM Reply Like
  • The company has little to do with the day to day stock price. The rating downgrade has done some further damage to valuation. BAC's bonds dropped yesterday and now carry a BBB+ rating down from A-. With corporate bankruptcies in the news BAC is simply not investment grade anymore - its a speculation on their survival because of the inability of investors to make any sound current valuation. Future prospects are too dependent on the outcome of litigation claims.

     

    Any continued holding of their securities should be contemplated with the possibility of a complete loss. I'm selling all my preferred shares but continue to hold their bonds with the bankruptcy prospect enabling some prior claim to assets before the preferred holders get anything. To benefit on the prospect of their turn around, I'm keeping the TARP warrants as a speculation. These lock in the total loss possibility at a fraction of the price of the common shares.
    1 Dec 2011, 06:21 AM Reply Like
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