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Fast Pro: Short BofA if Rally Continues

The financials led the market higher in mid-day trading Tuesday. So is it finally time to jump aboard the banks? The “Fast Money” pros say not so fast.

Bank of America posted an earnings report that beat on both revenue and profit, while Goldman Sachs saw only its second quarterly loss as a public company.

BAC rallied on the news, and trader Steve Cortes said if that rally persists, he’s going to short the name. He cited the bank’s lingering mortgage exposure and consumer indebtedness exposure, which he called “very foreboding.”

ISI Group’s Ed Najarian pointed out that when you strip out DVA gains and other non-recurring gains, Bank of America’s core number is break even, or even a slight loss.

“[It was] maybe a little better than the very weak expectations going into the quarter,” he said, “but [it is] still performance that they need to significantly improve upon.”

But there are two names Steve Cortes likes—Goldman Sachs and Morgan Stanley , which reports before the bell Wednesday.

“The whole financial sphere has really been killed and is so out of favor, that I do think there is value there,” he said, especially since they don’t have serious housing exposure.

However, he’s yet to hit the buy button on Goldman because of its exposure to China.

While Goldman posted deeper-than-expected losses, Ed Najarian said when you take out the private equity losses, you have core earnings losses of only about a dollar. And that’s better than the muted expectations for the financial firm going into the quarter.

Stephen Weiss hasn’t changed his position—he’s still staying away from the banks.

“This was just a relief quarter,” he said, adding that he doesn’t know what was short covering versus real buying.

“They are very cheap stocks, [but] there’s just not a real catalyst to get them not to be very cheap stocks,” he noted. “I’m not buying them. There are plenty of other places to make money in the market.”


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Trader disclosure: On Oct. 18, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders:

STEVE WEISS
Weiss owns RIMM
Weiss owns KO
Weiss owns EUO

RICH ILCZYSZYN
Ilczyszyn owns ZSL

LIZ DUNN
(RL) : Macquarie Group Limited is currently providing Ralph Lauren Corporation with non-securities services.
Macquarie Group Limited or one of its affiliates received compensation for products and services other than investment advisory services from Ralph Lauren Corporation during the past 12 months. During this time, Macquarie Group Limited or one of its affiliates provided non-securities services to Ralph Lauren Corporation.

ED NAJARIAN
Neither ISI nor its affiliates beneficially own 1% or more of any class of common equity securities of the subject companies referenced in the Report. No person(s) responsible for preparing this Report or a member of his/her household serve as an officer, director or advisory board member of any of the subject companies. No person(s) preparing this report or a member of his/her household have a financial interest in the subject companies of this Report. At various times, the employees and owners of ISI, other than those preparing this Report, may transact in the securities discussed in this Report. Neither ISI nor its affiliates have any investment banking or market making operations. No person(s) preparing this research Report has received non-investment banking compensation form the subject company in the past 12 months. ISI does and seeks to do business with companies covered in this research Report and has received non-investment banking compensation in the past 12 months.

REBECCA PATTERSON
No disclosures

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