FIRST REPUBLIC DRIVES THE STOCK MARKET – WALL STREET’S FEAR GAUGE RISES

To gain an edge, this is what you need to know now.

First Republic

Please click here for a chart of First Republic Bank stock (FRC).

Note the following:

• The Afternoon Capsule is about the big picture.  The chart of FRC is being used as FRC is driving the stock market lower.
• First Republic Bank focused mostly on the western U.S. catering to rich clients.
• Until the Silicon Valley Bank failure, First Republic Bank was the envy of the banking industry.
• When you look at the chart, keep in mind that the 52-week high of FRC is $171.09.  It is trading at $9.03 as of this writing.
• From the post in ZYX Short on Monday:

WAL and FRC are regional banks primarily focused on the western U.S.  Both stocks were hard hit until WAL reported earnings.  After earnings, WAL stock jumped.  The real reason the stock jumped was that deposits had stabilized.

FRC just reported earnings.  The momo crowd had run up FRC going into earnings on hope strategy in anticipation of an upmove in FRC similar to WAL.

FRC earnings are good, but deposits are a problem.  Deposits are now at $104B vs. $145B consensus.  Ideally, FRC should be shorted here.  However, JPM and several other big banks put $30B of their own money in FRC.  They have a reason to safe guard FRC and try to run it up.  The concern is that tomorrow morning analysts from the banks that deposited into FRC may feel that they have not choice but to shout “buy buy buy” to appease their bosses.  For this reason, WAL is a reasonable proxy.  Since the stock has already run up, there is more room on the downside.

• The chart shows when FRC earnings were released.
• The chart shows that FRC stock took another leg lower on the news that Constellation Wealth Advisors, its wealth management team, is leaving the bank.  The team manages $13B.
• It appears that all efforts to sell the bank, even with the assistance of the government, have failed.
• The reason nobody wants to buy the bank even though it is a great franchise is that it has a big hole in its balance sheet.
  • Apparently, First Republic Bank is holding interest only mortgages that it extended to its clients when interest rates were lower.  Many of these mortgages are now worth 25% – 35% less than the amount loaned.
• Earnings from PacWest (PACW), another competitor of WAL and FRC, are due after the close.
• Earnings from Microsoft (MSFT) and Google (GOOG) are also due after the close.
  • To reduce  risk, smart money is lightening up on positions ahead of earnings.
  • Normally, the momo crowd buys ahead of earnings on hope strategy, but today, the momo crowd is nervous because of First Republic Bank.
• The momo crowd is selling stocks as fear from the First Republic Bank situation spreads.
• Only yesterday, we shared with you that many investors had been complaining that Wall Street’s fear gauge VIX was broken.
• Today, VIX is up nicely.  It has risen to 19.69, up 16.58% for the day.
• In yesterday’s Morning Capsule, we wrote:

The reality is that VIX is not broken and has been working as intended.  However, it appears broken because the character of the options market has changed.

• The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
• The VUD indicator is orange, indicating net supply of FRC stock.

Money Flows

The momo crowd money flows since the Morning Capsule are 🔒 (To see the locked content, please take a 30 day free trial).

Smart money flows since the Morning Capsule are 🔒.

Short squeeze money flows are 🔒.

A Special Note To New Subscribers

Note the smart money behavior.  Smart money tends to sell into strength on strong up days.

New subscribers should consider adopting smart money’s way of investing and trading.

Sentiment

Sentiment is 🔒.

Sentiment is a contrary indicator at extremes.  In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.

Close

Orders on close have been to the sell side, but they are beginning to switch to the buy side as of this writing.

There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.

Gold

The momo crowd money flows in gold are 🔒 since the Morning Capsule.

Smart money flows are 🔒 in gold since the Morning Capsule.

Oil

The momo crowd money flows in oil are 🔒 since the Morning Capsule.

Smart money flows in oil are 🔒 since the Morning Capsule.

Buy Zones And Buy Now Ratings

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Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.