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Big Banks Under The Gun

This morning the major market indexes are all trading lower continuing Friday's decline. While many sectors such as energy and industrial metals are trading lower it is the financial stocks that are really putting the pressure on the stock market. This morning there is a lot of chatter that the Volker rule will pick up steam and become law. Paul Volcker is the former Federal Reserve Bank Chairman from 1973 – 1987. His current plan is to restrict banks from making certain kinds of speculation(proprietary trading) investments if they are not on behalf of their customers. Paul Volcker has argued that such speculative activity played a key role in the financial crisis of 2008. He is now a key advisor to President Obama.

This morning stocks such as J.P. Morgan Chase & Co (NYSE:JPM), Wells Fargo Co (NYSE:WFC), Bank of America Corp (NYSE:BAC), Goldman Sachs Group Inc (NYSE:GS), and Morgan Stanley (NYSE:MS) are all trading lower. Since the bull rally began in March 2009 it has been the financial stocks that have bounced and rallied the most since that time. Therefore, what leads markets higher will often lead markets lower and right now they are the main financial stocks.

This is options expiration week and a lot of puts have been bought on the major stocks now. Therefore, it is possible for the stock market to see a small bounce this week. However, when the financial stocks decline traders will listen. Right now these financial stocks are saying there is trouble ahead even if the markets do bounce this week into Friday's expiration.

Nicholas Santiago
Chief Market Strategist