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Financials exploded higher on Tuesday despite awful earnings news from the likes of American Express (AXP, news, msgs) and Wachovia (WB, news, msgs), with gains accelerating rapidly into the close.
Some of the market's gains over the past two weeks can be attributed to short-covering, but the scope of the rally and the volume associated with the gains suggest there is more at work here than a short squeeze.
There's a growing perception on the Street that the current quarter's miserable news on bank losses and increased provisions for loan-loss reserves may mark the worst of the credit crunch.
I'm not sure that's true, as we are beginning to see the mortgage mess spill over into consumer loans. Plus, there's still the commercial side of the marketplace that is likely to feel the pinch as banks cut back unprofitable operations and the economy slows.
Nevertheless, the rotation can't be ignored. If I had more time in the current round, I would add shares on a pullback.
But this round of Strategy Lab ends this week, and, in light of the huge short-term gains, I'm going to place some tight exit points on SunTrust Banks (STI, news, msgs) and JPMorgan Chase (JPM, news, msgs). I'll sell all shares of SunTrust at $40 or better and sell all JPMorgan Chase shares at $41 or better.
I'll sit on the rest of my portfolio and ride what's left of the bullish wave.
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