How would nationalization of some banks affect the XLF? I have been trying to figure that out. Some of them are obvious candidates BAC,C. Their prices are already pretty low so there won't be a big negative impact. I have been listening to Geitner and Bernanke and both are saying that there has to be a decisive action (unlike Japan), so they want to err on the side of aggressiveness. I don't think they would want to keep nationalizing banks in 2010 and 2011. So they'll probably take over 4-5 banks. National and local and give money to the rest. For the rest of the banks it will be a vote of confidence so their prices should go up. Two main problems. First - timing. It could take months for the Treasury to figure it out. They will need a whole bunch of people to manage the banks, so I can't really blame them. Second, the top 4 holdings of XLF are (GS, JPM, BK, WFC) have weight of 30% in their index. If JPM or GS go down (highly unlikely) then the whole ETF is screwed. My inclination is that XLF( and the whole market) should get an explosive move upward if we get some clarity on the financial industry, but it has been falling like a rock . Even JPM and GS movement was weird last week. I am surprised that no news has been leaked about how the stress tests are going.
Don't be alarmed if you haven't noticed this already....but the market hasn't been distinguishing between stocks in a sector when fear or euphoria hits one or two stocks. The whole financial sector goes down even with whispers of bad news from individual banks. Even though the XLF tracks mainly JPM and WFC etc, do you think those stocks are going to do well when nationalization is announced for another bank in the sector? If you do, you haven't been following the sector lately. The financial stocks are virtually coupled together these days. And even when bad news hits the european financials overnight, it has generally hurts U.S financials the next day, per se.
Well, I think there is a lot of uncertainty about the banks and every news is a piece of the puzzle. I think if some banks are nationalized and others bolstered additionally that provide some clarity and be beneficial for the financial stocks as a whole. We'll see, I guess
>30% gain in 5 days!! I guess we are about done with the advance. without going through option quotes i would guess the best strategy was going long calls last Friday.