Van Meerten's picks

Make money in bank stocks

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This week the editors asked for comments on the financial industry, the banking sector in particular and I have to admit I'm very afraid of individual banking stocks. I don't think there is any analyst in the industry who can honestly analyze the numbers. I have an accounting and a law degree and have passed the GA CPA, Certified Internal Auditor and Georgia Bar Exams and I wouldn't even to attempt to read and tear apart any bank's 10Q. I can't trust the numbers. It's not that the bank are dishonest, they just honestly don't know what their assets are worth. Many of the loans were either "No Doc" loans and not underwritten at all or were badly underwritten with highly suspect and incomplete information.

These loans have been sold and resold, packaged and repackaged to the point that no one knows what the pay-off of the loans will ultimately be or if any of the banks have adequately reserved for their bad debts.

But there is a way for the common investor to make a good bit of money in this market. Don't buy individual banks, buy the whole sector.

Proshares has some new ETFs that are leveraged on both the up and downside. The Proshare Ultra Financial (UYG) tracks 2 times to the upside and the Proshare Ultra Short Financial (SKF) tracks 2 times to the downside of the banking sector.

Do I have a crystal ball to tell you which to buy? Not exactly, I have a tool to help you decide. Most of you have access to charting packages ( I use BarChart, but AOL and most of your on-line brokerage packages have it) that will let you chart one stock against another. Go to your favorite package and plot UYG against SFK. You will easily see which on is now out performing the other. Plot them every day and you will be able to get a feel of the industry. Which ever one you choose put in a stop loss at the 50 day moving average and be prepared to switch horses in mid-stream.

Don't expect to be 100% right but is you can catch 80 % of the upside or downside you should make out fine. Plot your stocks against each other and tell me what you think.