With the financial stocks shrugging off a huge share offering from Merrill Lynch today, I wanted to touch on the group. Should you buy? Sell? Short?
I have no official recommendation—all I can say is that the sector remains in a downtrend by our measures. But I will also point out that the best financial stocks have likely put in a meaningful bottom. How can you tell which are the best? Just ask the market!
Bank of America (BAC), for instance, has exploded off its mid-July lows on humongous volume. Notice how the stock surged above its 50-day moving average (which is an intermediate-term trend line), pulled back for three days on subsiding volume and is holding up relatively well. Note that the company recently approved a huge buyback and reaffirmed its annual dividend, which I believe yields around 9% annually.
Wells Fargo (WFC) appears to be another relative winner. It gapped up on its earnings report a couple of weeks ago, and is holding well above its 50-day line.
On the flip side, despite the bailout talk, Freddie Mac (FRE) hasn’t even come close to its 50-day line. While it’s safely above its recent low, there’s not much buying power seen here.
And Merrill Lynch (MER) is even worse; the stock actually touched new-low ground this morning before finding some support. Even so, it’s a poor-looking chart.
I’m not buying any of these names, preferring to focus on companies with exciting stories, strong growth and with stocks that are near new peaks (signifying solid institutional support).
But if you’re a bottom fisher, I suggest you listen to the market’s message–it’s currently voting more strongly for names like BAC and WFC, as opposed to laggards like FRE and MER.