Wednesday, August 5, 2009
Blow-of Top in the Banks??
This move in the banks certainly feels like a blow-off top. The price action suggests flat out panic buying in JPM, BAC, and WFC. BAC (16.50) is up 32%, JPM (41.80)is up 11% and WFC (27.30)is up 17% since July 24. JPM is about 25% away from making a new all-time high, which is absurd given the long-term headwinds and structural issues related to the consumer de-leveraging that is still very much underway. Although it is too dangerous to be aggressively short these stocks, I would definitely look to purchase out of the money puts on JPM, WFC, and BAC. Volatility has come down to reasonable levels given the long-term headwinds the sector is still facing. The risk/reward no longer favors the bank bulls.