It can easily be seen by most traders that when the bank stocks trade higher the major stock indexes trade higher. Obviously, the opposite is true when the large bank stocks decline the major stock indexes will usually follow. If we go back in time, we will realize that every bailout whether it was the TARP bailout or the bailout of Greece was essentially a bank bailout. Who really cares if a bank goes under? In a capitalist society companies are supposed to be allowed to fail and then file bankruptcy. The good parts of a business will be sold off, the bad parts will no longer exist. However, these banks have not been allowed to fail and have become even bigger since 2008. The four large major banks in the United States monopolize the market in the country while smaller banks go under every week.
J.P. Morgan Chase & Co.(NYSE:JPM) is regarded as the best bank in the United States. This stock has underperformed the stock market since February 2011 when the stock traded as high as $48.00 a share. If the best bank is struggling what can we expect from rest of the too big to fail institutions such as Well Fargo & Co.(NYSE:WFC), Citigroup Inc.(NYSE:C), and Bank of America Corp.(NYSE:BAC)? Just look at the price action in BAC stock, the stock has been decimated recently. This is not the sign of a healthy financial institution. We can only wonder how these banks would fare if they had to use the old mark to market accounting rules. Right now these banks use a mark to model accounting standard. Are you kidding me, model to what?
The major stock market indexes are extremely oversold at this time. Therefore, a bounce higher in these markets cannot be ruled out at this time. It is a very good idea to keep an eye on these leading bank stocks as they have signaled the problems in the economy before they occurred. These are the market leaders on both the upside and downside right now. In essence, every trade is a bank trade.