Banks: Can They Rally for More Than a Week

It doesn’t sound like a difficult task, but in the almost six months since the post-Lehman chill has descended upon the banking industry, bank stocks have been unable to put together a rally lasting more than a week.

The chart below shows eight meaningful rally attempts since last September and only one of them, the tepid post-Inauguration bounce, was able to make it to the sixth day before turning lower. Today is the fifth day since the KBW Bank Index ((BKX)) began to rally. The chart below shows data through yesterday’s close – and does not reflect the 4% drop in the index in the first three hours of today’s session. While February’s high of 27.99 is important to watch as a potential resistance point, it is probably more important that banks continue to rally past a fifth and sixth day, which would make next Tuesday a critical momentum check for the banks.

At some point, the markets will gravitate away from the banks toward the economy as the critical driver of valuations. Until then, it will continue to be all about the banks.

[source: StockCharts]

Comments

[pacman1947:]

Bill,
Your prophecy: "At some point, the markets will gravitate away from the banks toward the economy as the critical driver of valuations. Until then, it will continue to be all about the banks." tells me that we have a long wait. The Fed, the gurus, the Treasury, the foreign press, Cramer, everybody that matters says that until the credit markets thaw, we will be in trouble.

We spent trillions so far, including half of everybody's life savings in equity losses so far. The banks are the focus of the new trillions spent to bail out the system and reconstruct the credit bubble.

So now we must wait for a rally around the losers.

God help us.

Mar 13 02:33 PM

[cubanstockp...:]

Markets thaw? Does anyone know what that means? It only menas the banks have so many underperforming loans that they have no money to lend for fear of the ones that havent fallen yet due to non payment. Oh more bad news, foreclosures are now coming in because of unempolyment, talk about feeding on itself

Mar 13 03:10 PM

[James Wilson:]

BANKS HAVE $30 BILLION OR MORE HIDDEN OFF THE BOOKS.

Thats $30 Billion they can bring back to the balance sheet anytime .

Mar 13 08:59 PM

[jeandit75:]

well, banks will continue to rally because they can stop marking down toxic asset once the mark to marekt rule is being removed. This is a true benefit for them. It also means that tarp money will start to circulate in the real economy. Banks have a long way to go as they remain onver sold. The over sold conditions were justified given they were forced to mark down bad assets. We can certainly expect a few banks to book profits in Q1 and Q2 from that action. Hey, its never been a better time to buy banks for a trade.

Mar 14 04:15 AM

[Chezfrederick:]

I cannot believe that it has lasted as long as it has.

Two months operating profit on the positive side, does not rebuild hollowed balance sheets and unknown off balance sheet risks.

Further, changing the Mark to Market rules is no more than fiddling with accounting disclosures but is not a change in the fundamental values of assets on the balance sheet. It's like "pay me now or pay me later" I cannot believe that the market is gullible enough to buy the accounting girations as a sign of return to health I think it will see through all this and discount the bank capital(whatever is left of it) to reflect market values.

Asset destruction has already taken place over the past year, and deleveraging will just continue to impact remaining values as sellers continue to outnumber buyers. What value accounting rules impute to such assets, is academic and will not change the fact that the damage is there... until the real economy turns around, employment rebounds, risk apetite returns, and asset values turn around. I hope I am wrong...

I am not a bear, and I am forever an optimist, but facts are facts. Am I wrong? or missing anything worth considering?

Mar 14 01:26 PM

[investor88:]

Right of Bill to be sceptical, it doesn't hurt to be cautious until proven otherwise.

Mar 15 04:38 AM

[Khaleel:]

Has anyone looked into the cummulative Preferred Shares of the financials?
The Current Yield on them are extremely attractive even after the rally we have seen over the last few days.

Since they are cummulaive they are obliged to pay at the later date if the interest stops being paid out.
I guess what it becomes is a bet on the Bank itself to see if they can survice. Once the economy restores itself to a more stable and recovery mode these these cumulative Preferreds should rally.

Comments please?

Mar 16 04:15 AM