Investment Capitalist

Magazineline.com

The massive gap to the upside is a bitter-sweet move for those with long-term investment horizons around the financial stocks that have been mentioned here in the past two weeks. Bitter-sweet because although it should show good profits for long positions, it also places a big, nasty gap right below current prices. And being that the market has been trending south for a defined downtrend, I can’t imagine this being one of those “gap and go” scenarios. In other words, we’ll probably see prices drift into the gap and at some point, the sellers are going to start hitting bids.

It’s been easy to make profits if one is willing to display rationale and common sense in the face of all the doom and gloom talk out there. Buy Gold and Short the Dollar? Some morons on respectable web sites are posting this kind of talk STILL (albeit in the “comments” section of other peoples articles and not the websites themselves).

Where were these folks five years ago when that trade was to have been recognized? I bet they were just beginning to sell their dot com stocks in the low pennies after paying in the high triple digits! Oh I love the public. So full of hot air.

So let’s take a look:

Blackstone (BX), BB & T (BBT), Fortress (FIG), Ultra Financials (UYG), Ultra Real Estate (URE), JP Morgan (JPM), American Express (AXP), Bank of America (BAC), Wells Fargo (WFC), and Lehman (LEH) are all posting high single digit percentage gains.

There’s no question that it would be appropriate to take some profits and bring the cost basis down on the above stocks. Remember, this is a long-term market operation in the financial stocks mentioned over the past few weeks, and while this is the beginning of that operation, there will be fits and starts. So patience is a virtue. The gap underneath will close, much like the way Bear Sterns (BSC) has pretty much closed the 6 point (10%) gap already.

The Fed did exactly as it should and injected $200 Billion directly where it was needed by accepting Agency paper as collateral for loans to the financial sector. This is what Wall Street wanted to see but I imagine later in the day, everyone will begin to realize that this move will likely bring at least a temporary moratorium regarding further rate cuts.

So this story is certainly not over yet, and more will come later when some of the dust settles.
Disclosures: NONE