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Bank Trading Shows Faith in Strong Earnings

Earnings season starts off well, strong buying trend continues. The wave of money continues to wash over the stock market.

Bank of America and CNBC's parent company General Electric will be reporting tomorrow. Both are again trading on the upside, both at new highs, a day after JPMorgan reported stellar earnings.

This is a good sign, an indication that traders think earnings will continue to be strong.

The facts on banks so far:

1) revenues are up due to better fixed-income trading; international business appears to be improving as well.

2) credit costs are declining: reserve builds are lower or zero. Delinquency trends in credit cards are also declining, as was reported today by Bank of America, Discover, and Capital One.

The downside: declines in real estate defaults are not yet improving to a great extent, as foreclosures remain high.

Please note: tomorrow is option expiration day. There is a lot of activity, for example, around the $5 call in Citigroup. Volume did pick up about 10:10 ET as Citi passed $5; it has already traded over 500 million shares, close to a normal day's volume.

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