Again banks landed on the trader radar with investors grappling with a veritable triumvirate of negatives.
Moody’s downgraded the credit rating of Bank of America two notches, potentially making borrowing costs higher for the beleaguered firm. The ratings agency said the downgrade reflected in part, a belief that Dodd-Frank would make the US government less likely to backstop the bank if needed.
But it's not just BofA that landed in the crosshairs. Moody’s also downgraded Wells Fargo debt by one notch, for much the same reason.
”And in the current economic environment, that could be a cause for concern,” explains trader Brian Kelly. “Now the market will start looking at counter-party risk.”
The third prong comes in the form of negative momentum. Morgan Stanley hit another 52-week low on Wednesday, with shares now 40% lower for the year
How should you trade banks now? Should you go bottom fishing?
If you ‘do’ want to take a shot and play Wednesday’s weakness in banks, trader Steve Grasso says only do it with a stop.
He says the magic number in BofA is around $6 or there abouts. “If you go long, that’s where I’d draw my line in the sand – to cut and run.”
Trader Steve Cortes wouldn't buy any of big banks with your money. He thinks they're an absolute mess. “I’d stay away from banks – or even short them, though not today.”
Trader Stephen Weiss agrees with Cortes. “I think the situation is unable to be analyzed and I wouldn’t catch the falling knife.”
If you're looking for a long trade, Cortes adds, he would take a look at the brokers. "With M&A continuing the brokers are probably buy-able – if Goldman stabilizes at $100 I’d buy it."
What do you think? We want to know!