Merrill: Bank Stock Rally Overdone

The bloom has already started to come of the rose, but even so, at least one firm’s analyst saw fit to say something. Merrill Lynch has warned against the “sell energy, buy financials” trade, as reported in the Times of London:

Merrill said yesterday that the unwinding of the classic bet of the credit crunch may already have been overdone, giving warning that banks across Europe could still be forced to raise between $70 billion (£37 billion) and $120 billion in new equity on top of the $120 billion already raised. Barclays and HBOS looked most vulnerable among UK banks to having to go back to their shareholders for more equity on top of the £4.5 billion and £4 billion, respectively, already raised.

Merrill said that the rush to buy back into banks may already have gone too far after it stress-tested their balance sheets. It also said that fears over the sliding energy price were being overplayed.

If you believe in technical analysis, Ben Bitroff has some charts that he says show that financials are overbought.

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  1. Ginger Yellow

    Please don’t call it the Times of London. It’s a national newspaper. I understand the need to differentiate it from the NY Times, but what’s wrong with calling it “the UK’s Times newspaper” or something like that? London has many local papers – the Times isn’t one of them.

  2. Anonymous

    Does anyone else find it strange that
    other financial firms that are in the process of tanking themselves seem more than ready to issue “expert advice” warning of the impending doom, and bad decisions made by their financial firm counter parts? Seems like an unwise thing to do when most of them are already on their knees about to crawl around the market looking for white knights.
    Earl L. Crockett
    Santa Cruz, CA

  3. Rick

    Re: Ben’s charts… I am having trouble re-creating them on my platform (thinkorswim). A day chart of SPX using parameters for K and D of 14/3 (and 3/14, just to be safe that I didn’t have it the wrong way round) does not produce the overbought ‘slow stochastic’ that is pictured here.

    Main point: charts depend HUGELY on the formulas used by the platforms. And, by manipulating those parameters (sound familiar to all you CDO modelers?) “different results may apply”).

  4. dearieme

    “London has many local papers – the Times isn’t one of them.” Quite: it covers – ooh – the whole triangle London, Cambridge, Oxford.

  5. doc holiday

    This utter stupidity and shilling of the worsy kind:

    >>>> Hey Yves, take a look here ******

    Commodity Shipping Lines Reel as Baltic Index Tumbles (Update4)

    The Baltic Dry Index, the benchmark for shipping costs, fell for 23 consecutive sessions through Aug. 12, the worst decline since the third quarter of 2005. The index will average 40 percent less next year and sink another 47 percent in 2010, according to Goldman Sachs Group Inc. STX Pan Ocean Co. Ltd. and the other 11 smaller members of the Bloomberg Dry Ships Index have retreated as much as 34 percent in three months.

    “What we have is a classic cyclical downturn,'' said Andreas Vergottis, research director at Tufton Oceanic Ltd., the world's largest shipping hedge fund manager. “People are not buying cars and people are not buying houses, and when that stops, it travels backwards all the way back to the mine.''

  6. Marsha Keeffer

    Thanks, Earl – methinks such pronouncements are placed in hopes the obvious will sound intelligent and attractive.
    Doc – you’re cooking with gas – excellent!
    Marsha in Soquel, CA

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