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Financials Seem To Be Above The Trading "Fray"

In the face of a wobbly market, financials for the second day have been moving higher on the Fed's big surprise rate cut and the hope for more. For several weeks now, we've heard pundits of all sorts debating whether the group is hitting bottom, as it airs its dirty laundry this earnings period. Clearly, the shorts fear that view is true because they have been covering positions in a big way.

"These things have been beaten down tremendously, and (Fed Chairman Ben) Bernanke is saying he means business," said Peter McCorry, who trades bank stocks at Keefe Bruyette. "There's the anticipation from the marketplace that he's going to do it again at the end of the month."

"The vast majority of this is short covering," McCorry said. "It's a safer bet to cover a short. I wouldn't say their psychology in that they're covering shorts and going long, but it's a safer position" in the face of the Fed's expected action.

Another trader speculated about 80 percent of the action he saw today in the financials was the result of shorts covering.

The sector was off the day's highs but still up about 1.5 percent in the early afternoon. It is also the only S&P group in the green. Look over at tech--down 5 percent right now, and telecom down 5.3 percent, as the Nasdaq knocks around in bear market territory.

Some traders say the whole psychology surrounding the financial stocks has changed. It was financials and retail that helped lead the market out of its deep trench yesterday. Today, the group overcame pre opening rumors that a couple of big European banks could face big writedowns.

J.P. Morgan Chase is up more than 4 percent, Citigroup is up more than 1.5 percent and Merrill Lynch is up just under a half percent.

Even Ambac , which indicated its seeking investment capital, is rising. No doubt it's also helped by comments from investor Wilbur Ross that he might buy into the troubled bond insurance group.

Bear Stearns is up more than 4 percent and has been surrounded by unsubstantiated takeover rumors that Credit Suisse is interested in buying it. Bear Stearns was not immediately available for comment. Credit Suisse has no comment, according to CNBC's Charles Gasparino.

Check out what Bob Pisani says in his Trader Talk about financial stocks and shorts.

Touche Trichet
Yesterday, Bernanke was the hero (well sort of). And today, European Central Bank President Jean-Claude Trichet is the villain in some traders' eyes. Trichet told legislators in Brussels that the ECB needs to keep its focus on fighting inflation.

Here's what he said: "In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets."

"My own personal opinion is there is no villain," said CNBC's Rick Santelli. "This guy is doing what old line central bankers do in Europe. He remembers wheel barrels full of money."

Now, some traders took Trichet's remarks as a direct conflict to speculation that the ECB was "cooperating" with the Fed in its interest rate cut and would support its moves to keep the markets liquid. Meaning, it would not move against the Fed directionally in order to keep currency markets more orderly.

The dollar index though has held up pretty well since the Fed's move.

But then perhaps the ECB fights inflation just like U.S. officials back up their comments that the strong dollar is in the best interests of the U.S. All talk, no action.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.