Despite jitters in the market, strength in the banking sector trumped weakness elsewhere and pushed the S&P higher for the third straight day.
Traders on the floor suggested that gains were largely due to a growing belief that the government was about to unleash serious firepower in its attempts to put a floor under the housing market.
According to those reports the White House has a massive refinancing plan in the works – to the tune of $1 trillion.
However CNBC’s Diana Olick tells us, “I’ve just been been told by administration officials they are not considering a $1 trillion refinancing program.” She goes on to say, the idea wasn't even new; it’s been tossed around for 3 years.
“But the market is ripe for this kind of rumor,” say the Fast Money traders in response to the developments.
The sector has been so weak, investors want to be believe that the tide has started to turn - and they want to get in, ahead of what could be a massive rally. Even market rumors are enough to trigger buying.
“The Street is very willing to believe it,” adds Jon Najarian. “Options action in Bank of America,” have been very bullish.
Does that mean bank stocks are on the brink of a sell-off? Not necessarily.
Trader Brian Kelly says another major factor driving gains in bank stocks is “the Bernanke letter and the white paper from the Fed – a program in which the foreclosed homes get off the balance sheets of banks and rented out."
On Wednesday, Federal Reserve Chairman Ben Bernanke wrote a so-called ‘white paper’ in which he said foreclosed properties should be converted into rental units.
"Just the potential for that kind of program is enough to generate and sustain a rally," Kelly says.
To support his thesis - he says it wasn’t only the banks that traded higher, so did the Homebuilder ETF and USG , a maker of building materials. “That shows it was the white paper and not the refi chatter that the market reacted to.”
Kelly also expects to see strength in Lowe’s and Home Depot on the news. “People will come in and fix up those homes.”
Trader Tim Seymour sees another reason that banks may continue to rally. “Simple rotation into laggards,” he says. “Deutsche had a note out that said banks would surprise on their numbers – better loan growth – better mortgage revenue – better credit conditions.” As far as he’s concerned that’s a buy signal.
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Trader disclosure: On Jan 5, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns APC; Terranova owns OXY; Terranova owns XOM; Terranova owns VRTS; Terranova owns IBM; Terranova owns CSCO; Terranova owns AXP; Terranova owns SBUX; Terranova owns CSX; Terranova owns SWN; Terranova owns AXP; Najarian is long call spreads AAPL; Najarian is long call spreads BAC; Najarian is long call spreads C; Najarian is long call spreads JPM; Najarian is long call spreads ORCL; Najarian is long call spreads DNDN; Najarian is long call spreads PNC; Najarian is long call spreads FDO; Najarian is long call spreads DLTR; Najarian is long call spreads DG
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