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Regional Banks Take Hit


Smaller doesn't mean safer.

Rotation in the market happens swiftly these days. Much like romantic partners in Hollywood, the hot money crowd on Wall Street has no qualms jumping in and out of sectors, often changing their minds about what's attractive and what's not in 24-hour intervals.

Today agriculture is "cute" again, although volume isn't what it once was when this was the only place to have money at risk. On the other end of the spectrum are financials, which have been anything but attractive this year and today are mostly lower on convincing volume. When the sobering news at investment banks began pouring out like hot lava many investors in the space decided regional banks were the way to go, employing the logic there was limited exposure to subprime and other sophisticated investments that backfired on the Street like Dr. Frankenstein's monster.

However, the regional financial plays don't look so hot either. Like Gloria Swanson in Sunset Boulevard, this niche of the financial space is experiencing its own comeuppance. This afternoon Comerica (CMA), Regions Financial (RF) and US Bancorp (USB) are some of the larger names in the space under considerable pressure today. It's just a scary place to be: Even if exposure to fancy investment vehicles was limited, the fact is borrowers in all categories are falling behind. Consequently earnings estimates for the group have begun to adjust lower. Comerica, for instance is now expected to post earnings of $0.62 for the current quarter. Back in late February the Street was looking for $0.86.

The shorts are gearing up as well as the short position on CMA is now nearing 11% of the float.

The Regional Bank Holders Trust (RKH) has a blend of financials, including money center banks (read investment banks) and regional holdings, too. The ETF is on the cusp of breaking down under a staunch support point of 112.0.

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No positions in stocks mentioned.
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