Dear Reader,
How should we take that rug pull that happened on Friday morning?
As I've noted, low-volume momentum is extremely dangerous... and key technical lines have fueled large selloffs that crush the FOMO traders. So while JPMorgan Chase (JPM) popped more than 7%, the regional banks remain stressed.
PNC Financial Services (PNC) dropped 2.4% after reporting strong earnings. It's clear that institutions aren't ready to hold some of these names - and they're dumping shares ahead of a busy Monday earnings day for the regional banking space.
Sure, Warren Buffett said that the banking crises aren't over. And Wall Street analysts are starting to tame expectations for the sector in 2023 - especially with a new warning from the Fed around a recession. But don't listen to all this nonsense. You have one of the best trends in the financial sector at your back.
You need to be buying banks right now. You need to use the ongoing weakness to tap into banks that are INCREDIBLE takeover targets. How do you find the targets?
Simple math.
Buy, Hold, Sell for Profit
Once again, here is the equation to follow when tapping into the banking sector.
You want banks that are trading under a Tangible Book Value of 1.
Why? Because these stocks are trading for less than their financial worth.
We need to qualify every stock that is trading under 1 to determine why this value has been presented to us as investors. Using this metric, we can screen for dozens of community and regional banks - and ultimately determine if it offers real value. There are more than 60 names on our list. From there, we're looking for banks that have lots of insured deposits, low exposure to toxic real estate, and productive assets.
These banks are attractive buyout candidates in the financial sector. As I've previously explained, consolidation in the banking industry has happened at a rate of 3% to 5% over the last 35 years. At a time when banks are under pressure to free up cash flow, larger institutions will purchase smaller ones to build the deposit base. (Find the best banks to buy with me in Flashpoint Trader)
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Broad Market: Green
S&P 500: Green
Recap: The World's Biggest Indicator (Momentum) is Green...
The S&P 500 popped to the 4,150 line and quickly reversed. It's unclear if this is the start of a trend - but it's very evident that profit-taking favored institutions in this environment. (take advantage of the next big trend with Garrett's Hyperturn list)
What You Missed
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Or, you could just stick to investing in McDonald's at a 34x multiple and just hope for the best. But remember, it's your money and your future on the line - make the choice that's right for you.
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Stay Liquid,
Garrett
The post Taming the Bank Trade appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.