May 21st, 2008

Regional and Local Banks; Today’s Market Retreat

Regional and Local Banks

I was going to write a speculative piece about the alternative possibilities of where the “hot money” might flow after the oil and commodities bubble bursts, which I think can’t be too far off now. That “hot” speculative money started with techs in the late-90’s, moved on to homebuilders and real estate in the first half of this decade and since 2004-5 has spilled over to commodities and energy. And during each step of the way, it’s grown by leveraging and compounding profits made in the previous bubble. Something that I’d personally like to do as I follow the herd.

When I look a t the stock market landscape from a 30,000 foot aerial view, I see few places for all those billions (or by now its maybe trillions) to be put to work. It would have to be areas with stocks totally depressed (as were Oil & Gas to 2002 or Homebuilders to 2001 or precious metals to 2004) and with a huge float from many stocks.

Might it be a return to tech where stocks (like the semiconductor industry where stocks have been depressed since 2002) or biotech (with 250+ stocks most of which hit their highs at their IPO date).

Here’s a wild shot in the dark … how about small local and regional banks. My chart database contains 430+ small banks (excluding National, Foreign and Super-regionals). What a fertile ground for roll-up strategies. The stocks of many, if not most, have been severely damaged by the sub-prime credit problems of the bigger banks. Maybe there’s a new role for them to play in mortgage generation moving forward. But does the country actually need over 400 local banks? Probably not and there’s an opportunity for those with deep pockets to roll them up into 10-20 new national consumer and small business service banks. But what do I know, I’m just a “big picture” dreamer.

Today’s Market Retreat

But, instead, I was distracted by today’s continued market retreat. Even after a 1.61% decline today (following a 0.93% decline last Friday after Thursday kiss to the 180-day moving average), the Index just touched the upper boundary of that channel it struggled to free itself of between January and mid-April. Take a look:

Note that the 60- and 90-day moving averages are still reversed and that the Index is still above both and at the support trendline. As I wrote this morning, there’s nothing much to worry about…yet. The average decline the 6 previous times in this configuration was on the order of 2.5% which, if my math is correct, is exactly where the market closed today. It could stop here or it may decline another 2.1-2.3% and find support at the two moving averages.

I wouldn’t do anything different until this is resolved.

  • I did add some to my silver ETF position (SLV) but wouldn’t add any more energy stocks (if you already have them, as I do).
  • I wouldn’t sell any other positions if you jumped the gun and bought before an complete “all-in” signal is triggered when the Index crosses above the 300-day moving average (as I ignored my on Market Timing Indicator and did).
  • I wouldn’t buy any other stocks, regardless of whether they’re “undervalued”, depressed, have strength and “move against the tide”. Trying to be a hero now will just cost you money and time.
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