Investor Soup experienced a “phenomenon” the other day.

I did a research report on Washington Mutual (WAMUQ) and posted it to my trade alert section.  Link to my research report.  The response was overwhelming!  I have had literally thousands of unique users follow that link and view it on my site.

That report was a straight forward research report, but I recieved a number of emails asking for my OPINION of the stock.  Well, here you go…

First off, I must repeat the warning that is posted at the beginning of the research report:

Washington Mutual Inc. is in bankruptcy. Investors should be cautious in buying common stock of companies in bankruptcy. It is extremely risky and is likely to lead to financial loss.

Any questions?  No?  Good. It is clear that WAMUQ is not out of the woods, yet.  I find it interesting that a penny stock has a market cap of $354 Million and its branches still number in the thousands.  But WAMUQ’s problems may be much bigger than their branch network.

A particularly harrowing article I read on Seeking Alpha quoted the ongoing legal battles between debtors and WAMUQ and stated that “In their motion to disband, the debtor’s counsel revealed – for the first time – that WaMu’s debts could surpass $50 billion making hopes of any recovery for the equity, “extremely remote.””

There you have it….Equity holders have NO chance with this one.  And, I believe it.  Does that mean that WAMUQ should be avoided?  Not at all, but do not make the mistake of thinking that WAMUQ might be a good position for your IRA.

The chart is telling me several things that nimble traders will want to look at.  I have laid out those items on the annotated chart below:

With WAMUQ, it pays to keep an eye on the chart and on the news.  WAMUQ has been a great trader and could conceivably turn (and turn quickly), so watch the chart.  Look for confirmation that the trend is reversing.  The candles are indicating that buyers are still interested in the stock because it has not been closing at the low of the day.  However, the trend is clearly bearish.  However, my gut is telling me that WAMUQ will turn and turn quickly.

The other thing to watch is news.  WAMUQ has a blizzard of lawsuits, injunctions, and motions between itself and the Fed, FDIC, Goldman Sachs, Regulators, etc…  The Government could pull the plog on WAMUQ at any time.

Lastly, WAMUQ is a sad story.  A proud, venerable institution that traces its origins back to 1889, it fell victim to the its own poor banking practices and the financial tsunami that wiped out so many banks.  WAMUQ is gone for good….what is going on now are just the death throes.

Good luck and good trading,

Jeffrey Dean, Editor-in-Chief