Short the Banks on Continued Weakness

by: Steve Patterson

Friday’s action confirmed the S&P correction which was signaled two days prior and the DOW Industrials sell signal that occurred over a week ago. And the weak sector of the economy is the same sector that began a correction last year, the Financials. Banks showed continued weakness last week with four banks making new 52-week lows on Friday, National City (NCC), Washington Mutual (NYSE:WM), Wachovia (NASDAQ:WB), and Fifth Third Bancorp (NASDAQ:FITB). For a short term play, National City looks attractive for a short position.

National City declined 7.5% on Friday to reach a new low for the last 52 weeks of 4.95 a share. Analysts have reduced their expectations on NCC earnings over the past 90 days from a 0.35 cent profit to a 0.12 cent loss for the current quarter. The stock has declining revenue in the quarter compared to last year of 50%. 18% of the shares in float are short at this time and a continued weak market should lead to additional price pressure on the stock.

The markets have signaled a correction and the banks and financials are showing the most weakness at this time. Being short the banks and especially National City should be a profitable trade for the short term.

Disclosure: none