1:30pm (EST)

No one knows when the Financial stocks will bottom and we doubt we have seen the lows for 2011, but we are getting close. 

Here is a walk down memory lane from some of our past articles on the Financial stocks as we look at the uptick rule which could be coming back, a peak at Goldman Sachs when shares were at $150, another peak at Goldman four months later when shares were in the $70’s, and some ghosts from the past (all quotes are from that day and year):

From March 11, 2009:

“For those of you who are unfamiliar with the uptick rule, it is a rule that was lifted which made it easier for short-sellers to short stocks. Before, an investor would have to wait for a stock to make an “uptick” or a gain before they could short it.

Let’s say ABC stock is at $15 and you want to sell 100 shares short because you thought the stock as going to go down. If the stock’s last trade was to the downside, you would have to wait until it gains at least a penny before you can short it. 

As all of these financial stocks have been going down, it has been easier for the short-sellers to pile-on to the downside because the uptick rule was lifted. Now short-sellers will have to wait for a positive trade before they can short the stock.

Next, a lot of today’s rally was short-selling covering which means these same short-sellers were covering their positions. We also got other good news concerning the financials and there is a lot going on this week in Congress as well.” (END)

December 16, 2008

“A collective sigh of relief was felt by Wall Street this morning when Goldman Sachs (GS, $71.46, up $5.00) reported earnings. Not that they were worth cheering for or anything…the company lost over $2 billion for the quarter.  It was Goldman’s first quarterly loss since it went public in 1999.  Wall Street was bracing for a loss upwards of $5 billion.

Goldman is one of the last of the four horsemen as far as investment banking goes and the company is struggling to reinvent itself as it deals with an ongoing credit crunch. With Lehman Brothers and Bear Stearns gone, Goldman and Morgan Stanley (MS, $14.22, up $0.58) have had their troubles drumming up investment banking business and the M&A (merger and acquisition) activity has dried up.” (END)

September 5, 2008:

“Looks like someone on Wall Street doesn’t trust Merrill Lynch (MER, $25.45, down $0.76) either. The stock is down 3% after a downgrade out of Goldman Sachs (GS, $159.34, down $1.56) on concerns of more write-downs.

We’ve been all over this like grass on dirt over the past few months playing both call and put options. However, today’s news only confirms what we’ve been saying about Merrill and financial stocks in general, we don’t trust them. This applies especially to Merrill. The firm has already written off $40 billion and there’s likely more to come. The analyst from Goldman reduced his 3Q estimate by $1 to a loss of $5.75. For the year he sees losses at $11.55 a share, up from $10.25. Wow.

Merrill’s is slated to report earnings on October 16. The upcoming quarterly loss will mean the fifth consecutive quarterly loss for the company. You might as well make it a six-pack because the fourth quarter will be a loss as well.” (END)

July 17, 2008

“The market went on a tremendous run yesterday as the Financial stocks had a banner day after a good earnings report from Wells Fargo (WFC, $27.23, up $6.72). Many of the financial stocks that have been getting trounced came back strong as investors are starting (or hoping) to believe the sector may have hit a bottom. The Dow ended the day up 276 points to 11,239, or 2.5%. The S&P 500 mirrored the Dow’s percentage gain as it closed 30 points higher to finish at 1,245. The Nasdaq posted the biggest gain, 3.1%, and closed at 2,284, up 69 points.

The turnaround in the market is amazing considering the Dow touched a low of 10,731 on Tuesday and has bounced 500 points off that low. The volatility has been so strong that you could have made a mint by buying some cheap calls on hopes that when Bernanke spoke the Financials would listen. And they did with the help of Wells Fargo.” (END)

Of course, today’s rally is all about Ben Bernanke and it’s pretty eerie the major indexes are right near their levels of 3 years ago with Big Ben on deck, again.  The market is certainly pricing in good news but like we said this morning, something doesn’t feel right. 

We always base a “bottom” for a sector on earnings and we would like to see two back-to-back solid quarters by the Banking stocks, in general, before we would give the “all clear” sign.  Current earnings were solid for some of the Financials while others went over like gas in church with Wall Street.  We will get a better clue on their books in October which is when 3Q earnings start to roll in.

If Tech can rebound along with the Financial stocks then we could have a nice rally into the back half of the year.

We feel there is more pain into September and October, or at least one more test to the lows, before we see new highs for the year but the market sees things before us and Wall Street so we have to be respectful of the bounce back over support today.  The bulls still face another layer of concrete AND they will need to hold current levels today to make a serious run at upper resistance tomorrow and for the rest of the week.   

As we head to press, the Dow is up 217 points to 11,071 while the S&P 500 is higher by 24 points to 1,149.  The Nasdaq is showing a gaining 68 points and is at 2,413.  The final hour of trading will be worth watching.