Bank Stocks on Monday

After 4 straight weeks of strong gains, it will be telling this week whether bank stocks pullback or whether they continue their rise.  

The Dow Jones Financial Index is up about 36% over the past 30 days.  If you used a leveraged ETF, as I wrote about yesterday, you would be up anywhere from 72% to 108%.  Not bad for a month's returns.  However, this was clearly due to their oversold nature.  It may be time to take profits.  

This week Citigroup (C), JP Morgan (JPM), Bank of American, Wells Fargo (WFC), U.S. Bancorp (USB), Goldman Sachs (GS), and Morgan Stantley will all be closely watched.  Along with some of the regional names, PNC, Sun Trust (STI), and Fifth Third (FITB).  

It is probably time for a pullback, but markets rally in unpredictable ways.  It is likely that they will shoot past their fair value and then fall hard in the coming days, assuming they are close to their fair value.  

The market might be getting a little ahead of itself.  All of the large banks have yet to detail their credit losses and add to reserves for the quarter.  We have seen a further decline in the prices of homes, and there has been a trend lately in commercial real estate that is not favorable.  

With the new FASB rules in effect, it will also be telling about the marks that the particular companies make on their loan portfolios.  It would be prudent for the companies to continue increasing reserves and to be conservative in their "new" valuations based off the recent FASB decision.  However, prudent is clearly not what average Wall Street CEO's main concern. American Express' recent decision to maintain their dividend is a perfect example of imprudence.  

During the conference calls it might be important to see if the banks talk anymore about FAS 140, and the potential effects it will have on their balance sheets.  FAS 140 due to come into effect in 2010, if not suspended, will have dramatic effect on a number of bank stocks and financial service companies. 

This is particularly true in regards to Citigroup.  If FAS 140 is put into effect Citi will be required to bring on their balance sheet a total of around 98.2 Billion, plus additional loss reserves.  This could possibly result in another round of government fund raising and further dilution in the value of Citi's stock.

Given the recent actions by the Financial Accounting Standard Board, and their recent modifications under severe duress.  It is not unlikely to think, they may be forced to either push back the FAS 140 rules to a later date, or to completely stop the FAS 140 rules from taking effect.  

Because we are a little less than 2 weeks away from earnings season for the bank stocks.  I would put my money on a strong pullback in these names over the next week or more.  After Goldman reports, likely better than expected earnings, bank stocks may continue their rise or engage in a sharp pullback due to concerns about credit card losses and commerical loans, depending on the details of each conference call.  Stay tuned.  

• Bank of America reports April 20th
  
• Citigroup reports April 17
  
• Fifth Third reports TBA
  
• Goldman reports April 14th
  
• JP Morgan reports April 16th
  
• Morgan Stanley, TBA 
  
• PNC reports TBA
  
• Sun Trust reports April 23
  
• U.S. Bancorp reports April 21
  
• Wells Fargo on April 22nd