Fannie Mae-No Politics (FNMA)

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** FNMA / FMCC ** Quick Analysis **

This will be a rather detailed post. Everything expressed here is just my opinion based on what I have observed so far. I will start by covering some background information. Then I will move on to how the market has been reacting to FNMA / FMCC with 3 charts – Daily (with studies) – Weekly and Intraday (without studies – just to gauge the recent events without too much clutter). The last 2 charts will be quite important.

This post was meant originally for another board - So skip the stuff you might already know


BACKGROUND INFORMATION:

Float is just over a billion shares (FNMA) and about 650 million (FMCC).

Good dollar volume traded on a daily basis, to say the least. During the run, things get explosive – very volatile. I expect the volatility to reduce IF/WHEN the pps is much higher than now.

I only trade (some momos, some swings) – Don’t play by the fundamentals – However, a few key things to note:

Company is under conservatorship at the moment.

Company is profitable – They are making BILLIONS and billions of dollars in profits – That’s the reason behind the interest in these stocks.

They are filling up the hole – so to speak – very efficiently now.

Within the next few quarters, the payments would be complete – following which there will be some sort of ‘decision’ made.

However, as with all govt. matters, that ‘decision’ will take some time from now – Till then there will be enough juice in these plays to make good $$$$ - Hopefully even more after that (but its too early to comment on that now).

In addition to the profits, there is more DTA and a potential 200 Billion to be received from banks. These would give a further boost to the company’s financials.

Note - the ‘hole’ created in the financials of these companies in the past - Were due to the bad loans from these banks – 2 banks have paid so far – more in line – payment expected anytime in the near future – These will all be positive catalysts.

Some recent negative catalysts – Corker bill scare, etc – Caused the recent drop (last week) - That bill has a very low chance of passing – And as we can see, it has bounced after that scare.

Many other bills may be proposed – Keep in mind – The outcome is a slow process.

The media publicizes these events – Creates fear sometimes – The only effect is has is that it relieves scared people from their money – Those who have a plan and stick to that, have benefited from this game of GREED vs FEAR.

Look at the money – Look at the numbers – Do the math – All else is BS

The news you watch – Is the same news everyone else does – So figure out how you can be in the 10% - Reality vs Perception.


NOW, GETTING INTO HOW THE MARKET HAS REACTED SO FAR

Daily chart (with studies)

There have been two runs so far.

Leg 1: 0.30 to 1.50, followed by a correction and a sideways / accumulation period after that.

Leg 2: 0.80 to 5.00, followed by another correction and some swings after that.

(All numbers used above are approx. – refer chart for exact numbers)

A leg 3 is expected by many – If/WHEN that happens – How to spot that ? – IMO, some green days with consistently larger than avg. volume is a fair indication of the next run.

How I have played the run is mentioned in the end – spotting the top / bottom are important.

Although after the leg 2, the ticker was swinging above the MA 50, due to the recent Corker panic, the 50 broke. BUT the MA 100 acted as support – it bounced from there – and now again closed above the 50 MA – Good sign.

Although it has a black eye now, I’d say the chart was reset and the movements will be easier now.




Weekly chart

This is a clean chart with just volume. If you draw the lines, you can see the most likely direction the market has decided for it.

The correction after the 2nd run was a bit extreme – But the run itself was extreme too – Nice balance.

Some have made money in these tickers. Those who have lost – have probably lost coz of inadequate entry / exit points.

Also note that the dollar volume is much higher during and after the leg 2, when compared to the same phase during and after leg 1. Thus it is getting more interest with time.

The leg 3 – IF/WHEN that happens – Is expected to gather even more interest.




Recent activities

The black eye we saw in the daily chart (the 50 MA breaking) was due to the Corker scare. Lets take a closer look at that in the chart below (clean one again, 30 min candles).

The news of this bill had come long back. Many thought it was already factored in the PPS. But again, there is no end to how the market reacts to emotions. The media caused the panic and she dropped to the 1.00 mark (again approx numbers). However, as mentioned before, the MA 100 acted as support and she bounced back up.

Note – The double bottom – Then the move UP after that – A few important points to note regarding this:

1. Some DEEP pockets provided support – Retail was scared.

2. As can be seen now – It was MORE than just a bounce from the 1.00s – It’s a clear direction again.
(Since the fall to 1.00 was from the 1.80s, a bounce would have been up to 1.25 or 1.30 and fallen again, BUT that has not happened, HENCE this conclusion).

3. Long story short – Tree shake – Many leaves have fallen – New leaves don’t take time to grow.

Many catalysts ahead – Plan ahead and stick to your own game plan– Don’t fall prey to daily market conditions.

Earnings expected 08/08





My trades on FnF

I was new in March. Played FNMA wrong on that 1st run. Learnt from that and a few other losses then. Looked at some charts and this is how I played again from May.

It was on my watch when it was sideways at 0.80 – Didn’t wanna play then coz I didn’t want my money to get stuck for a while there – I trade – Don’t invest.

It tried to break 1.00 a few times, but failed to do so with conviction. When it did that finally, I started playing: Uptrend - Correction / Bounce - Phase after that till now.


Uptrend:

In the 3rd week of May (I think) it closed at 1.20. I went all in. Reasons ? Closed at HOD. Broke previous resistances. Crossed 1.00 with conviction with larger volume. Run confirmation. More head room.

I kept flipping on the way UP. The first buy was at 1.20, the last sell was at 4.94. As the PPS got higher and higher, I started going in with smaller position sizes. Reason ? Correction due anytime.

The last part of the spike was a MOASS. How to spot the top ? As long as the intraday has dips on the way up, it’s a healthy sign. When the intraday is all green candles, that’s a squeeze and a sell off/correction can occur anytime.

My last trade on the uptrend was a park at close at 4.03 (initial plan was to sell the gap but waited seeing the squeeze) and a sell the next day at 4.94 (5.00 is a psychological resistance being a round number).


Correction / Bounce:

There were 2 intraday bounces that I played. First one was 2.39 to 3.60 (the bounce being from 2.30 to a little higher than my exit – on the day she corrected from 5.00+). The second was on the following day – a smaller range though.

The third bounce was on the daily chart. Lasted for 2-3 days I think. I couldn’t maximize my gains on this bounce coz I had bought some free shares with a part of my profits on the way up. I dumped them all eventually – Glad now that I did – Bought back much lower and had full capital at my disposal again.


Period after that:

Hung around the 2.00 mark. I mostly remained sidelined. Reason ? I do well on the volatile phases, have misfires in the less volatile phases. Stick to what works – Leave what doesn’t.
I used to play when it dropped and found support, then flipped again when the momo broke.

Recently - from last week. Corker scare was coming. Again, reality vs perception. When I read the news, I try to gauge what ‘others might think about it’ and not what that news ‘means to me’. I had some shares when it found support in the 1.70s, which I sold in the 1.80s and waited. Media bashed like hell and the MA 50 broke. We have to identify the different zones in each play. Charts don’t act always. This was a perfect example - Too many emotions were reflected.

I started playing again from Wed (29 June) last week. Some momo plays on the Wednesday bounce (didn't make much coz I had to time it thrice as the bounce kept breaking). Some momo AND swing plays on Thu, Fri, Mon, etc (after seeing the double bottom and confirmed support on Thursday). Now, seeing the market reaction, I’m in swing mode with a smaller position – Have some free powder for momos. IF/WHEN the next run happens I will play swings only - gotta maximize profits.

Good luck everyone.


FNMA and FMCC run parallel with a maintained difference between them. Many believe that FMCC will convert the lead into a lag (being parallel of course) upon Q2 earnings. I switch between them when the 'difference' changes for some extra peanuts (and also to counter fill issues on rush zones. From the last few days I have a swing position in FMCC - Free powder for the usual momos.