Is stalled dead?
If a stock does nothing for ages, does that mean it has to roll over?
Right now, you can see the short positions building on the banks. There isn't a soul I know who believes they didn't go up too far too fast. Not one!
They are all at levels that seem totally unsupportable vs. where they were before Trump was elected. They seem like the easiest sales in the world.
But with rates down huge Monday and showing no signs of lift, how come they haven't rolled over? Sometimes I think you have to ask yourself what's keeping them at or near these levels, despite the bonds?
First, I have been saying the toughest thing to do here is to hold on to these stocks. The sales are almost too easy to make. I have said that Bank of America (BAC) , for example, can go to $20-21 and that if you are really nimble you can sell it and buy it back.
Looking like a good sale now.
But you know what? I am itching to buy it back when it has fallen 10% from that last sale, because I don't have a lot of stocks selling at 10x earnings that are trying to buy back 7% of their stock in 2017. And I don't know if it will get there.
Now, I know that it's pretty easy to say that Citi can give up all of that gain from the forties because it didn't blow out the revenues. But all that really happened was that it had a big currency hit, and if you back it out you had an in-line number. Of course, in-line doesn't cut it after a huge run like it has had, so I get that it will sell off.
Nevertheless, in a market with incredibly high valuations, how do you find stocks below book value selling at 10x earnings that are buying back so much stock? If Citi were an industrial, you would be screaming for it.
I know Wells Fargo's (WFC) more difficult. Here you have a stock that's got regulatory challenges that you would like to think are behind it with this new administration -- but that seems like a stretch. Still, you are buying what was the highest quality bank, with a huge market share, for 12x earnings when the company said on its conference call that December was quite strong. Its earnings are accelerating, for heaven's sakes, and you want to sell it?
Goldman Sachs (GS) and JP Morgan (JPM) are interesting, in that they have now come down quite a bit from their highs -- GS at $232, down from $247, with that pesky window closing for the insider sales -- and JP Morgan's stock is down almost $5 from a week ago.
Again, they are in no man's land, just like the rest: not down enough to buy with no real catalyst, but too low to sell vs. where they could be in a year with multiple rate increases and better economic activity, two themes I am not willing to give up on after a day filled with protectionist talk.
Anyway, I think that if you got one sign of a stronger economy, any sign, and rates started going higher, then I think you will wish that you had done some buying.
So I say, hold and get ready to buy. They remain the cheapest stocks in the market. Remember, no institution's whole portfolio can be made up of Skyworks Solutions (SWKS) , Alphabet (GOOGL) , Facebook (FB) and a random industrial that looks like a Trump stock. That's not how they play it. You shouldn't either.