I’m baaack!

After an outrageously good time last week, I’m ready for more fishing this week…..in the markets.

One thing I noticed since coming back from vacation, is the positive action I’m starting to see from many sectors. Yeah, I know….you can’t tell by looking at “the market”. When I left for vacation on 07/18, the Dow was at 11,500, the S&P at 1261 and the Naz at 2282. So WTF am I talking about? Did I lose my mind in Alaska?

People, in just over two weeks, about half of the 40 industry sectors I watch, have seen sentiment shifts back to bullishness. I’m telling you, demand is starting to come back into stocks. This is what typically happens in this kind of environment when the financial news is so negative. This is the perverse nature of the market, sometimes.

Taking a look at the banking sector, I’m seeing some improvement in sentiment. If you’re thinking about bottom fishing, this is the spot to drop your line.

Did you know that earlier this month, sentiment was so negative on the banks that only 8% of bank stocks were on PnF buys signals (bullish percent indicator)? You have to go back to 1987 to find sentiment so negative on the banks. Last week,  that number had improved to 16%, and now it stands at 36%. My point is, things are improving. Still, there are problem banks, no doubt.

Not all banks are created equal, though. One stock that I’ve nibbled on today is (STT: 36.92 -5.07%)@ $68.83 (13:39 ET).

It has pulled back from $74 and I think it’s a good buy here.

There aren’t too many stocks in the banking sector that are reporting second quarter gains. However, STT actually reported a 50% increase in net-income for Q2:2008 as well as a 39% increase in revenue. Additionally, of the 18 analysts on the street that cover the stock, the average recommendation is an “Overweight”. STT appears to have a fundamentally solid picture.

From a risk/reward standpoint, it looks very favorable. The bullish price objective is $98. On the downside, I’d set my stop at $65, a point at which it would break a double bottom. So, at $69, there’s an upside objective of $29 vs. downside of $4.

That’s over a 7:1 reward to risk.

But let’s not be so optimistic. From the PnF chart, it looks like there’s strong resistance to the upside at $85. Let’s revise the risk/reward ratio to $16 upside ($85 - $69) vs. $4 downside.

That’s a 4:1 potential reward for every dollar risked. I’ll take that all day long. 

Do not be surprised if the banks eventually lead us out of this bear market. The sector has not looked this favorable to buy, since 2004. 

Another sector to look at is REITs. I like (RYN: 30.23 -1.24%) here around $45.50

Also, waste management companies like, (AW: 10.36 -5.22%), $11.55; (CLHB: 63.52 +1.53%), $77.97; and (TTEK: 17.08 +0.59%), $23.95, are worth a look.

I’m busy for the remainder of the day—-playing catch up.

Happy trading.

Disclaimer: This information is not intended to be used as the primary basis of investment decisions. Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. Trade at your own risk