I just saw a headline scroll across that E-Trade Financial Corp (ETFC) has agreed to settle allegations related to anti-money laundering rules. The stock showed a quick dip into negative territory after the news hit. However, I am not sure I would view this as being an all-too significant event, at least from the standpoint of expectations.

Chart Courtesy of Thomson Financial

As I noted earlier this month, E-Trade is a heavily-shorted stock. Total short interest has been rising for a number of months and data collected by our Quantified Analysis group shows that 28% of the stock's float is sold short. Analysts are also extremely skeptical. According to Zacks, not one of the 11 analysts who follows the stock gives it a "buy" rating.

Now, to be fair, it is hard to say the skepticism on ETFC is out of line with the performance. The stock has lost more than 80% of its value in the last 52 weeks. A look to the weekly chart below shows the dramatic plunge that took place in the second half of last year. The shares hit a low in January and have been drifting sideways since then. There was a quick pop that I discussed in the link above but some of that gain was given back after the recent earnings report.

At some point I think it becomes difficult for bad news to have much of an impact when expectations are very low. Said another way, I think that the stock starts to price in the bad news. The first phase of that usually begins with a basing period of sideways action and I think that is where we stand now.

Chart Courtesy of Thomson Financial