Speculating With Bank Stocks

Speculating With Bank Stocks

Momentum in the market went negative this afternoon. Did you notice the moment that tech stocks flipped? It came at precisely 12:01 pm. That was when the UVXY, the short-term volatility futures ETF, started going higher. This is a broken, ugly product, but most investors don’t understand how it works.

Typically, we see a wave of negative momentum take over the market. We witness a period of accelerating selling and minimal buying. That came in the final minutes of the 11-am hour. 

With the rise of the UVXY, we also witnessed a wave of capital into the FNGD – a triple bearish ETN that is also inverse of FAANG capital flows. Yes, this is hard to understand. But it’s the final ring of hell in the markets. 

This afternoon’s selloff and late switch in momentum are why I took so long to send this article to you today. First, I needed to dive into the data from that crazy final hour. With earnings season truly starting tomorrow with a wave of bank stocks, I have to wonder if the selloff is over.

Over the last two weeks, we’ve witnessed a wave of capital rotate out of tech stocks and into bank stocks, insurance firms, and energy companies. It turns out that when we look at the aggregate, the top-performing sector has been in energy. 

Tomorrow, I have to pay very close attention to a handful of inverse ETFs in the financial sector. I wouldn’t be surprised to see the financial sector roll over for a period tomorrow, and funds like the BNKD and FAZ perform well after the shakeout from earnings. 

Speculating With Bank Stocks

It’s been interesting to look at expectations among analysts and amateurs. Each earnings day, I look at what Wall Street analysts predict on Estimize. Then, I look at the estimates of members in the Estimize community (largely of retail investors, bloggers, writers, and individuals who have conviction about their predictions for a stock and its performance). 

For example, Wall Street analysts anticipate that JPMorgan Chase (JPM) will report $3.01 per share. However, Estimize volunteers (all 71 of them) project that JPM will report $3.30. That’s nearly 10% higher than the Wall Street estimate. So, it’s pretty clear that retail investors expect that JPM will blow estimates out of the water. 

The same goes for Citigroup (C)and Wells Fargo (WFC), which report earnings tomorrow morning. If these figures fall short of the retail expectations, I wonder if a fade is inevitable. So, be careful speculating with bank stocks. There’s a storm brewing in the markets… 

We’ll push into next week with fervor and look to protect our capital ahead of next Friday’s expiration date for options (Third Friday).

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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