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Random Thoughts: Why Bank Shares Are Ripping


Chatter of a structural shift abounds.


Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community.

Gate Sniffage! - 10:31 a.m.

  • Ss over Ns as we race from the gate, with early traction in the financials (ex-Goldman (GS)) competing with supply in the master beta realm. We spied the lethargy in Research in Motion (RIMM), Amazon (AMZN) and Baidu (BIDU) pre-market, and true to form, they flipped the downside switch.

  • In the interest of full disclosure, I nibbled on some RIMM puts for a very quick schnitz with a tight (trailing) risk profile and a conscious nod that it might be magnetized to $40 into expiration. Not married to it, mind you, just looking for some shekels as we edge through our journey.

  • Bigger picture and broader tape, I'm looking to trade two-sided at current levels. Should we edge back towards S&P 600, I'll skew my book to the buy side (as I did the last few weeks). If we jack higher towards S&P 800, I'll fade (read: sell) 'em with tight and defined risk.

  • I do believe that the incessant efforts by global central banks will "kick in" at a point, but I'm not in the camp that we've made THE ultimate bottom all else (the dollar) being equal. Keep in mind, Minyans, this is no garden variety one-and-done recession.

  • The most bullish thing on my screen? NYSE internals are hanging tough at 2:1 positive.

  • The most bearish thing on my screen? The tenor of tech, by and large.

  • I'll be back, Minyans - take a deep breath, loosen that grip on the handlebars and let's do our best to enjoy this journey.

Answers I Really Wanna Know - 11:09

  • Will we again see a "game changer" announcement (fair value accounting, mark-to-market, CDS) into Friday's expiration for maximum "bang for the buck" effect?

  • Through the lens of trading two-sided -- and with a conscious nod towards "S's over N's" -- does discipline dictate adding some upside exposure against the small Research in Motion (RIMM) schnitzel?

  • Or is the weakness in tech a simple rotation back into the banks?

  • Y'all see NYSE 3:1 positive, paving the way to another push higher?

  • Did I really dream that Syracuse and Louisville would again meet in the national championship game?

  • Hey, do you think Freddy Mercury (in the link above) was an Othello fan?

  • All that stress at FAS $3 kinda seems silly now, eh?

  • How will quarter-end play into the near-term price action given hedgies are massively under-invested if not outright short?

  • Sorta supports picking up some upside SSO hedges, eh?

Hungy Hungry Hippos - 11:57 a.m.

It's just another manic Monday as Citigroup (C) sprints 35% higher (aka 63 cents), Bank America (BAC) tacks on 13% (77 cents), AIG (AIG) adds 66% (33 cents) and Wells Fargo (WFC) and JPMorgan (JPM) add a svelte 5% (about a buck). I am, of course, leaving Fannie (FNM) and Freddie's (FRE) 35% gains off our list as, well, that's only fifteen cents each

Why? There's (unconfirmed) chatter around that the government is in the process of "de-hypothecating" shares they own in the financials, which means they wouldn't allow any shares owned by the government to be borrowed (and subsequently shorted).

Given the size of these moves -- along with stated mission to stabilize the system -- it certainly wouldn't shock me if this proved true

As chatter continues to swirl that some game-changing rules are on tap (which would explain the outsized percentage moves in the Freddies, Fannies, Citis and AIGs of the world), the rest of the tape is trying to assimilate the ramifications. Talk about playing a game during an earthquake, eh?

For my part, after taking a stab at some Research In Motion puts this morning (which will be stopped out above $41.50), I added some Ultra S&P 500 (SSO) (on the first pullback, with a trailing stop) as an upside hedge/pseudo-spec and an eye towards S&P 800. We vibed the "S's over N's" out of the gate and that's how I'm playing, at least for the day.

Keep in mind that tomorrow is Turnaround Tuesday and even if this is an uptrend (within a broader, secular bear market), we could well see a reversal tomorrow. Where you stand is a function of where you sit. For some, the near-term nuts in guts is where it's at. For others with a longer-term lens, moves (counter to your positioning) should be used to add exposure.

For both, I would again put Friday's expiration on your radar, for if there is something up the government's sleeve, it wouldn't shock me to see them unleash it into the option expiry.

Fare ye well, Minyans, and best of luck as we truck through the muck.


Position in RIMM, SSO
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