By Nicholas Santiago on May 21st, 2010 3:24pm Eastern Time
While the markets try desperately to find support during this may decline there are a few stocks that are behaving well on the session. Ironically, these are the stocks that many blame for the crisis in the first place. Whether or not this is entirely true the large major banks are the strong stocks today.
The major large banks such as J.P. Morgan Chase & Co (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS), Wells Fargo & Co (NYSE:WFC), Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS) are all trading sharply higher on the session. These stocks have been severely oversold in the short term on the daily chart and many are at critical support levels. Therefore, a technical bounce on these stocks is not a huge surprise here.
It is important to remember that these stocks have benefited the most from the U.S. government Toxic Asset Relief Program (TARP). These companies can borrow money from the Federal Reserve Bank at nearly zero percent and buy treasuries in order to make money. When you add in their credit card business and proprietary trading they do not even need to make a loan in order to make money. There is also much less competition in the industry when you consider the consolidation that has taken place since 2008. Regional banks also continue to fail every week as well. This year alone there have been over seventy bank failures in the U.S for 2010.
Should these stocks implode in the near future it should be a signal that the major market indexes will see further downside. These leading stocks have all had sharp declines from their recent highs; however, the decline in the financial stocks has not been anything close to the commodity related names which inflated the markets in 2009. The large banks lead the decline in 2008 and early 2009. If these large banks take the leadership role to the downside watch out below.
Nicholas Santiago
Chief Market Strategist
www.IntheMoneyStocks.com
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