The U.S. stock market underwent a monster reversal going into Tuesday’s close, as the financial sector rallied on a report by the "Financial Times" that said the European Union’s finance ministers are looking for ways to recapitalize its many troubled banks.
Some investors are optimistic about such a deal, but trader Karen Finerman isn’t holding her breath.
“We’ve seen a few things where we’ve thought there would be some concerted action and so far, none of it’s happened,” said Finerman, president of Metropolitan Capital Advisors. “So it wouldn’t be shocking to me if this one doesn’t come to pass either.”
Plans to recapitalize European banks will cause short squeezes, but trader Dan Nathan doesn’t think it will greatly affect U.S. bank stocks. Investors will get a better sense of where U.S. banks are going when they report third-quarter earnings results.
Speaking of U.S. financial institutions, Morgan Stanley traded down to $11.58 on Tuesday, making yet another 52-week low. The stock soared into the close, though, ending at the $14.01 level. Trader Guy Adami thinks MS could go higher and recommended investors use Monday’s close of $12.47 as a stop.
“I think [with] the financials you sell into rallies,” said Adami, managing partner at Drakon Capital. “But again, at least you have something to shoot against for the first time in a while.”
Investors who want to go long the financials should go best in breed, trader Joe Terranova said. Take JPMorgan Chase , for example. The financial institution’s stock posted a 6 percent gain on Tuesday.
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CNBC.com with wires.