The banks have been very strong recently. Many have surged above their 50 day moving averages. While this is short-term bullish, keep in mind that most of their 50 day averages are trending beneath their 200 day moving averages, which is longer-term bearish.
Examine the Philly Bank Index
While the major downtrend has been broken, make no mistake, bank stocks are not immune to a pullback and a retest of the downtrend.
I want to identify overbought bank stocks to short. I am looking for those that will offer multiple points of gain during a pullback and test of the 50 day average.Â
I’ve screened for stocks in the banking sector with a 50-day average volume greater than 100,000 shares. The industries within the sector include Foreign Money Centers, Regional Banks, Money Center Banks, and Savings & Loans. Without the volume variable, there are over 511 stocks in the banking sector. Obviously many are too thin to trade.
Then, I’ve selected those stocks with an RSI(2) > 98. Read this article for a brief primer on the use of RSI(2) : Improve Your Timig With RSI(2).
Adding RSI(2) > 98 yields 29 stocks. Get the spreadsheet here: Banks RSI(2) > 98, or use this list:
[[WM]] [[RY]] [[MTB]] [[OZRK]] [[TCB]] [[CMA]] [[WCBO]] [[BAC]] [[BANR]] [[ZION]] [[C]] [[TSFG]] [[TRMK]] [[PFB]] [[CNB]] [[TONE]] [[WTFC]] [[VCBI]] [[TFSL]] [[PBKS]] [[STSA]] [[BNS]] [[SUPR]] [[BKUNA]] [[FMBI]] [[WBS]] [[GBCI]] [[UMPQ]] [[CORS]]Liquidity is important since I will have to use limit orders, so I might eliminate those stocks trading under 500,000 average volume. One from the list that I like a lot is [[ZION]]
I believe ZION will serve up five juicy points on any pullback. There are many others on the list that look juicy, but ZION fits my liquidity needs and printed a bearish candle on Friday. Do not forget that some managers will chase yield. Picking a bank with a low relative yield may also improve the success of this trade.
There are also some Banking ETFs that might work for shorting the pullback [[KBE]]Â [[KRE]] [[RKH]] [[XLF]].
Should I choose to short some of the banks, I will look to be in and out of the position within a few days. I am betting on a pullback and some profit-taking, not that bank stocks roll over from here. Honestly, I will consider the banks to have bottomed as long as they remain above the 50 day average.
Great stuff. DT can’t hold a candle to you.
DT unloaded SKF today, time to short the banks!
BTW, nice post.
Noice! I’ll peruse those charts this weekend and pick a few.
Shed, you’ve made me some madd moolah with your recent short picks in a rising market. Thanks & grats.
btw, I’m checking out some drillers for long trades. A few that come up are PTEN NBR GLF TDW
Woody,
Indeed, this is a wonderful post. Perhaps I should ask your opinion on that piece of shit SKF. I got in on a highly questionable call from a somewhat misguided stock blogger and now I’m like 6 points out of the money.
You ever read How To Make Money Selling Stocks Short? I think you’d like it. Get it out of your local library.
-DT
Juice, I’m glad you’ve profited. I should have covered more of my shorts on Thursday, because a few of them got stopped out and others hit hard on Friday. No big deal, really. I’m leaving the ones that didn’t stop out on, as I think a pullback is due. I’ll check out the drillers. I’m looking for some longs, too, just in case things run up for another week or so. (I don’t think they will, but better to be prepared.)
DT- Thanks. I’ve looked at SKF. I think it will open poorly Monday, but will likely put in a bottom around 87.50. I think it needs another day of selling in order to be severely oversold. It will snapback. I’ve been avoiding SKF and will stick with the bankers because of my trading situation. SKF is too volatile for me right now.
ESRX. Look out below. All my indicators are showing massive sell signals on this. I am also showing sell signals on the big ags, especially MON and CF.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aPSScH5rRBLM
Good post. You seem like the rare few who know how to short.
We’re with yah, shorting the Financials at IntuitiveTraders.
-giO