U.S. lifts $400 billion cap for Fannie, Freddie – CNBC

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U.S. lifts $400 billion cap for Fannie, Freddie – CNBC

FRE 

Immediate Support: $1.036
Immediate Resistance: $1.297

FNM

Immediate Support:  $0.917
Immediate Resistance:  $1.132

 Things to watch out:
  • 20D MA crosses up 50D MA – A bullish sign.
  • Whether FRE & FNM can stay above the 200D MA
  • Whether FRE & FNM can show a higher high & higher low uptrend pattern.
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FRE & FNM – Broke the critical support level!

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FRE & FNM broke the critical support level (61.8% Fibonacci Retracement level) after a KBW analyst downgraded the two to the firm’s lowest rating, cut price targets on both stocks to zero from $1. KBW said their common and preferred shares would be “worthless” given the nearly $100 billion they will continue to owe the government, even if recapitalized. FRE broke the critical support level of $1.705 and FNM broke $1.483 support level. Both stocks are below the 20D & 50D MA, all other technical indicators show bearish convergence.

I sold all my stocks to take profit after sighting a bearish convergence signal. I plan to buy back at a lower price when the down trend ends. I think the US government will continue to run the companies, and the companies will not go bankrupt. However, the value of their common and preferred equity will probably be re-capitalized. Thus, buying at a very low price limits the downside risk.
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Risks & Rewards of Investing in FRE & FNM

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I bought FRE & FNM at about $0.60 and I have made 150% paper gains for these two stocks to date. Despite getting frequent reminders from my buddy to take profit, I am sticking to my original trading plan.


My trading plan
• Stock price target: $25 (FRE historical high is about $70, FNM is about $80)
• Time frame: 3 to 5 years

Potential Rewards
• 4200% (from $1,000 to $42,000) each stock


Risks
• I can lose EVERYTHING if FRE & FNM bankrupt or delisted from the stock exchange due to company re-structuring to clear all the bad debts & toxic assets! I am prepared to lose a total sum of $2,000 on FRE & FNM when I first buy the stocks.

My Risks Assessment on why I think this is a good bet!
(This is more like a gambling instead of calling it as investment!)

• FRE & FNM will not go bankrupt as US government has spent some much tax payers’ money to bail them out. They should have gone bankrupt long time ago if US government wants to do so.
• Real estate is one of the three main pillars of the economy recovery besides transportation/communication and finance sector. FRE & FNM play very the important roles to ensure real estate and property market in proper recovery path.
• FRE & FNM may not go back to previous high or reach its past performance. There is an extremely high probability the price will go up in the long term and the upside potential is huge!

Thus, in my opinion, FRE & FNM are good investment with calculated risks. The profit potential is extremely handsome even though it does not reach my price target. Of course, the assumption is they will not get de-listed during my investment time frame. Hope Murphy’s law does not applied here!

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