STOCK MARKET SELLOFF AS WALL STREET WAKES UP TO THE REALITY OF FIRST REPUBLIC DEAL

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

Delayed Reaction

Please click here for a chart of Western Alliance Bancorp stock (WAL).

Note the following:

• The Afternoon Capsule is about the big picture, not an individual stock.  The chart of WAL is being used to illustrate the point.
• The chart shows a big drop in WAL stock.  WAL is a regional bank primarily in the western U.S.
• The chart of WAL is representative of other regional banks.  PacWest Bancorp (PACW), a competitor of Western Alliance, is falling even more.
• As a full disclosure, ZYX Short has a position in WAL.  The position is now very profitable.
• As the big selloff occurred in regional banks, it dragged down the entire stock market.  
• Momo gurus were predicting yesterday that since the First Republic problem was solved, regional banks would rally and so would the stock market.  As is usually the case, momo gurus were just trying to run up the stock market without doing any deep analysis.
• In the face of positive pronouncements by momo gurus, The Arora Report persisted on staying short on WAL.  The reason is that in our analysis, the way the government wrapped up the First Republic situation is a game changer.
  • The new environment applies to other regional banks.
  • The government made no attempt to salvage any money for bondholders, preferred stockholders, and common stockholders.
  • It is unfortunate that there are a large number of income gurus who have gotten their followers heavily into bank preferreds because of their dividends and perceived safety.  The First Republic deal shows that preferred bank stocks are not safe.  A 5% dividend is meaningless if you are going to lose all of your money.
  • The First Republic deal shows that there is no reason for other banks to step up to buy a failing bank.  If regulators are forced to seize the bank, then potential acquirers can buy the assets on the cheap.
• Today, Wall Street is waking to the new reality after a delay.  
• To a large degree, what happens next will depend on the Fed’s decision tomorrow.
• 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 shows that the momo crowd is buying the dip in WAL stock. The VUD indicator for other regional banks also shows that the momo crowd is buying the dip.
• There is no smart money buying in regional banks. 

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

There appear to buy on close orders.

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.