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A case for a bottom in financials

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June 25, 2008 – Comments (4) | RELATED TICKERS: BTFG , NCC , STI

The news has been so bad for so long most financial ETF's are down 30% year-to-date and just under 50% for the past year. The headlines have been filled with stories concerning the sub-prime mortgages and the real-estate backed loan troubles. It's still unclear how much more the sub-prime loan cookie will crumble. However those banks that have needed an additional capital infusion have not had difficulty in raising it. Fed policy and actions also have been overly generous in aiding the banking sector to stave off any large scale meltdown. Banks survived the long-term capital management collapse in '98 and the savings and loan troubles in '90 and they will inevitably survive this. In reviewing todays market activity, coming off 52-week lows in front of the fed's announcement financial ETF's have had a hugh amount of volume. Select Sector SPDR-Financial (XLF) will trade well over 200 million shares almost 150 times it's average,KBW Bank ETF (KBE) over 20 times it's average and Regional Bank HOLDRS (RKH) 30 times it's average as examples to this. Traders are looking for some spark to begin the rally in this sector.

Specific banks I like at these prices are BTFG, NCC, STI and KEY, all of which have had some degree of insider buying over the past month.

4 Comments – Post Your Own

#1) On June 25, 2008 at 5:16 PM, lquadland10 (< 20) wrote:

If nothing else goes wrong. Like Alt A defaults and credit card defaults or Iran.
Iran issues warning over nuclear program

By ALI AKBAR DAREINI, Associated Press Writer 1 hour, 42 minutes ago

TEHRAN, Iran - Iran's parliament speaker on Wednesday warned that the West could face a "done deal" if it provokes Iran, in a rare hint by an Iranian official that Tehran could build nuclear weapons if attacked.

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#2) On June 25, 2008 at 5:25 PM, cubanstockpicker (< 20) wrote:

I guess you may have a point, but I would look for bigger financial stocks, like t5he ones really bveaten down. The insitutionals have been buying and the contrarians too like Dremen and sorts. They sit out five years on thier stocks. If you want to steadily buy and right after the contrarians buy, there is always one or two more dips but smaller, then finally the big rise.

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#3) On June 25, 2008 at 6:31 PM, eskatonic (30.95) wrote:

I've seen guys like you on cnbc 3-5 times a day since November callling a bottom in financials. If you keep making this call eventually you will be right, but by that time you won't have any capital left.

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#4) On June 25, 2008 at 8:42 PM, colonelnelson (96.54) wrote:

As a relatively new investor, I have to admit: the financial sector scares the hell out of me.

Between daily news of write offs and write downs on bad investments, obscure accounting methods, immensely complicated investment vehicles, and the apparent lack of any reliable company reporting, it sometimes feels like the whole financial sector is a castle built in the clouds.

The only solution I can think of is that I either need to become a banking / financial expert or stay out entirely. From the sidelines, it boggles my mind to watch my bank and mortgage company lose hundreds of millions.

That said, I wish you the best of luck with your picks.

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