Trader Talk

Trader Talk: Critical Moment for Banks

Don’t let the flat market fool you: This was still an important day.

First, the Street yawned at the two main news stories of the day. Despite a marathon, 5-hour Congressional session inquiring into the origin of the Bear Stearns mess, and a new series of proposals from the Senate to address the housing crisis, the net effect on the stock market was... nothing.

Nothing, because:

1) while many on the Street are interested in who knew what and when with Bear, this is backward-looking information and will not move the markets, and

2) the Senate proposals do little to address the fundamental problems of the housing market, i.e., funds for downpayments (which have increased), difficult underwriting standards, and buyers who are understandably hesitant to purchase a home that may fall in value.

Traders felt that most of the proposals being floated, including one that would give a $7,000 tax credit for people buying new homes or properties in foreclosure, would not be large enough to make a significant impact.

What did move the markets was an interview Merrill Lynch's CEO gave to a Japanese newspaper, where he said that he did not need to raise more capital. That moved up Merrill up 1.7 percent, as well as other financials.

There was little volatility; and as to volume? This was the lightest day of the year.

That's the bad news. Now let me give you the good news: Stocks have held the big gains on Tuesday for the second day in a row, even if they did drift lower into the close. Given that "Sell The Rally" is still the mantra, that is BIG NEWS.

Now we have to break out. This is the best opportunity since October for financial stocks to break out of the downtrend they have been in. That's why the Merrill news is a positive. We have a chance to begin changing the mindset. This is a critical moment for financials.

Questions?  Comments?