It's finally happening...there are signs of capitulation in the regional banks as selling has intensified, the Dumb Money is giving up the ghost here and, well....is this finally the bottom we have been waiting for???
Let's step back. There are three events today that are causing a MILD PANIC in financials:
1) KeyCorp doubled the guidance on potential losses, mostly from mortgages but also from home equity and educational loans (there is also speculation the dividend may be cut);
2) Wachovia Bank , which priced a huge 145 million share secondary of common stock at $24 on April 14, saw the price drop below $24 early this morning (selling intensified);
3) Brokers (but especially Lehman , whose quarter is ending on Friday), are notably weak today, as the Street has seen slower client activity, and write-downs of leveraged loans and fixed income continue. There are also vague concerns that hedges that were put on to protect against losses in fixed income were less effective this quarter.
I want to focus on regional banks....KeyCorp's problems are a microcosm of every problem that is facing other regional banks.
1) Now following big banks with more credit losses;
2) More dividend cuts, capital raising likely
3) Earnings estimates still coming down fast, with many analysts and bulls predictably about to say, "I was too early."
As the Street has realized this in the last week, the selling has intensified; many large regional banks (Keycorp, Wachovia, Fifth Third, Regions Financial) are now at multiyear lows.
How much more can you squeeze out of shorts here? In other words, unless you are a believer in Total Armageddon, we appear to be getting closer to Capitulation. This, as one trader said, is the time to be sharpening your pencils, while the Dumb Money is selling.
Questions? Comments? firstname.lastname@example.org