SchraderTrader

Buying the Oversold Financial Sector

At this point in time I believe it's still premature to be allocating funds to financials. Recession-level earnings haven't been priced in to firms' models yet and there may be a couple more big shoes left to drop in the sector (credit downgrades, bankruptcies). Citigroup is one of the most vulnerable to these potential downgrades and it's almost a crap shoot as to whether or not they'll get through unscathed. On a risk/reward basis, the downside risk is somewhat limited but big enough to encompass a 20%+ decline from yesterday's close. The upside risk would be missing a major move. By now investors missed Citigroup's ride from $23/share to $30/share (a 30% swing) and it has come back to ~$28. In my opinion, still a dangerous place to be recommending a stock with so much downside left to retest its previous low.