Banks Could Be in Virtuous Spiral Higher: Pros

Traders on the floor are again talking about the sustainability of the bank rally and whether the sector is beginning a long march higher or about to roll over.

The latest conjecture was triggered by Wells Fargo, after analysts upgraded rival Citi to outperform from market perform. Traders can’t help but wonder if Wells move is at least based in part on a reflection of strength they’re seeing in their own business.

According to Brian Kelly, trading this space has everything to do with your outlook on the economic recovery. “The banks are a buy if you think the economy is going to improve,” he says.

And lately all signs point to an improved global economy.

“US economic data is fairly good. Even in Europe, PMIsthere was expansion. That’s positive news for the economy,” Kelly says. He’s a buyer of big banks and regionals.

Trader Simon Baker agrees. Not only does he think an improving economy is good for banks; but he also thinks a bank rally is good for sentiment. “It’s very promising that financials are leading the market,” he adds. It bodes very well.

And on top of that, “The Fed is telling us that if we hold cash, we’ll lose 2% on inflation, so I want to own stocks,” adds Kelly. All told, banks could be entering a somewhat virtuous spiral higher.

But should you play the space with Citi, as analysts at Wells Fargo recommend? In this space, the Fast Money traders prefer to put money to work elsewhere.

Trader Stephen Weiss likes JPMorgan , Goldman and/or Morgan – as bets on improvement in the capital markets.

Brian Kelly likes regional banks. “I’d play the KRE up to 28,” he says. In the same space Simon Baker likes regional bank, Fifth Third .

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Trader disclosure: On Feb. 1, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Weiss is long POT; Weiss is long EUO; Weiss is long AAPL (SHORT PUTS); Weiss is long BRCM; Weiss is long FCX; Weiss is long WLP; Weiss is long QCOM; Weiss is long SNDK; Weiss is long HAIN; Weiss is long UGL; Weiss is long VZ; Weiss is long KO; Weiss is long WLT; Cortes is long MO; Cortes is long SO; Cortes is long Treasuries; Cortes is short FSLR; Cortes is short Crude; Cortes is short Canadian Dollar;

For Brian Kelly
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Shelter Harbor Capital is long US Treasury note

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For Simon Baker
Baker is long QCOM

Baker is long AMZN

For David Palmer
No disclosures

For Edward Aaron
RBC Capital Markets, LLC makes a market in the securities of Whole Foods Market, Inc. and may act as principal with regard to sales or purchases of this security.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from Whole Foods Market, Inc. during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to Whole Foods Market, Inc.

RBC Capital Markets is currently providing Whole Foods Market, Inc. with non-securities services.

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For Bill Chappell
The following companies are clients of SunTrust Robinson Humphrey, Inc. and the firm has received or is entitled to receive compensation for investment banking services involving their securities within the last 12 months: Green Mountain Coffee Roasters, Inc

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An affiliate of SunTrust Robinson Humphrey, Inc. has received compensation for products or services other than investment banking services from the following companies within the last 12 months: Green Mountain Coffee Roasters, Inc

For Dennis Gartman
Gartman is long gold

Gartman is short crude

For Jeff Kilburg
Kilburg is long TLT

For Jason Helfstein
Oppenheimer & Co. Inc. makes a market in the securities of AMZN

For Mike Murphy
Murphy is short WHR