Some articles and commentators describe regional banks as the weak spot in the financial industry, now that the larger institutions seem stabilized by government bailouts, asset write-downs and capital raising. The charts don't give good guidance on that, but the "short interest day's to cover" paints a stark picture.
This weekly three-year chart shows the regional banks to have outperformed the large banks, but does not suggest special trouble ahead.
However, the short interest day's to cover (total shares short divided by average daily share volume), which is forward looking, tells a much different story. The day's to cover for the regional banks at 20 days is many times greater than the day's to cover for large banks, insurance companies (NYSEARCA:KIE), capital markets companies (NYSEARCA:KCE), and the S&P 500 financials (NYSEARCA:XLF).
One would assume from these short interest data that either a substantial short squeeze rally or a steep fall is ahead for regional banks.
Holdings Disclosure: As of August 5, 2010 we do not own any securities mentioned in this article in any managed accounts.
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