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E*TRADE - Now What

|Includes: AAPL, AMTD, BAC, E*TRADE Financial Corporation (ETFC), GOOG, GS, SCHW

There was a lot of good improvements made in net income, darts, loan loss provisions shrinking at a nice pace to only $98m. 

The miss on revenues was disappointing almost Apple like (who missed on EPS).  The tax break from exiting Europe was good and I'm assuming the estimates factored that in and I'm still trying to understand the $55m set aside for an Auction Rate Security (NYSE:ARS) - I'm not sure what that is for and how that might play out to be a good bet for them next qtr. 

All in all, I think it was a good qtr, I stand pat on my shares and I will sell some into a rally at $10.50 (resistance) and also do not see it going any lower than the previous low of $7.74.  The negatives include revenues and loan loss overhang, near zero interest rates over the next two years thanks for Bernake, and a lock-step financial market, however the positives still include a profitable company back on track, and consolidation will happen in brokerage, I think they will be taken out - just not sure when and what price.. Price targets may end up being lowered to $14 from $16. 

The silver lining is that this seasonally is their worst quarter just reported so on the technical side, I'm looking for them to break out of the downtrend and form some support, while on the fundamental side, looking for them to capitalize on the new retirement planning and marketing and lets see if that translates into increasing customer accounts.  The other thing that I hope they do is somehow build more product features so they can separate themselves from competitors who also include non sec reporting firms like Fidelity, however it seems that volatility while bad for investors has been good for the brokers and I think they will start to trade differently from the banks. 

The icing on the cake for anyone still holding is that a buyout is probably real in the next 6 to 12 months, hopefully before Superbowl, with loan loss provisions at a much more palatable level and pretty well known.  The other issue is that the Volker Rule may actually force banks to look at E*Trade as a way they can stay in the securities business but that is just a hunch at this point, I'm not experienced enough to know if that rule makes ETFC more attractive. 

Lastly, I see a wide range of suitors out there still, the classic likes of Ameritrade or Schwab but now also expanding to Capital One who was interested before (might try again) and I would throw in Bank of America, Goldman, Google, Apple, Intuit, Walmart, or even Best Buy (lol, they purchased Napster, who knows).... I still think they are worth $10 billion and I almost forgot to mention that a lot of what happens short term will depend on Citadel and what they do and what comes out of the Goldman Sachs report.

Short Term: HOLD, $10.50 trade, $14 target
$7.74 - double bottom bounce, wait for new trading range to develop and see what happens with the banks. 
BIAS: positive with the idea that the banks have bottomed, may retest, but I think the banks will be higher by year end, thus etfc should follow.