April 2, 2014

Doug Kass on momentum trading

I recognize that there is a body of market participants who worship at the altar of price momentum.

Sometimes, however, when traders and investors blindly follow charts from the lower left to the upper right (hat tip Sir Denny Gartman!), those late to the party get burned, as has been the case recently with the biotech sector.

This brings me to the current infatuation with and rotation into money center bank stocks.

I own only two bank stocks: Citigroup and Northwest Bancshares.

Though the financial sector has recently perked up, one has to question the piling on.

I have spent my life following the financial sector -- I understand the group's profit dynamics.

Banking industry profits are basically a function of several basic variables: the level of loan demand, FICC activity (i.e., trading in products tied to interest rates, corporate credit, mortgages, currencies and commodities), the trend in credit quality, interest rates and the slope of the yield curve.

Loan demand remains tepid, growing slowly. 

FICC activity has contracted and has turned from being a tailwind to being a drag on bank industry profits.


Credit quality has been improving for three to four years.


Story via http://www.thestreet.com/story/12542919/1/kass-time-to-make-a-withdrawal.html

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