Ever since the emergency fed rate cut a few weeks ago, bank stocks have been roaring. I'm not going to bother listing all the banks and their performa but here's a prime example with WM - Washington Mutual.
Stock Date-Price Date-Price % Increase
WM 1/17/08-12.46 2/1/08-21.82 60%
What cause this Roar? People have been clamoring a number of reasons for this sudden surge.
1. Shorts Covering
As the doom and gloom begins to worsen, a less risk in the downfall of the price of stocks begins to unfold. The only scenario that would cause conditions to deteriorate would be the federal reserve not providing liquidity within the exchange of cash. Now we all know that the feds do not want to see major banks that are somewhat, a symbol of US's status in the world fall despite their mistakes in undertaking risk in the sub-prime.
2. Institutions Buying
As we all know, many institutions sold their positions prior year end for tax purposes. From this sell off lead to other funds and investors to close their positions and keep cash for the time being. This notion can be probably derived by the fact that bank earnings were set to release in January, and I do not think there was one investor in wall street that knew these numbers would look horrible. As such, institutions probably had their mind set on infusing investments after the earnings and what better opportunity when the global market was in panic followed by an emergency fed rate cut.
Despite this mini rally that we are currently experience, I do not believe it's the beginning of a bull market. Although I do agree that we are off the lows, I would not be surprised if we saw another bear run before seeing a bull market. If we see any rumors running about bond insurers filing bankruptcy, expect profit taking and major dip.
