Bank of America Is Now the Fulcrum

Today is make or break for the short-sellers, the SKFers, the bears on banks. I cannot stress how important the Bank of America (BAC - commentary - Trade Now) deal is. The syndicate desk placed this stock with great hands, restricting flippers to one-fifth of their orders and giving mutual funds only about a quarter of what they wanted. Plus, given the stealth selling that BAC did ahead of this, the company seems done for now -- maybe forever -- although it can't give back TARP funds. However, it should be able to do bond financing that will put it in a good position to do so. And with the velocity of sales picking up at the same time as the new housing starts go down -- stunning figures there -- it is possible that we could see a reversal of some of Bank of America's soured loans while we see what happens with a big lender begins to get a major share of what can be a lucrative mortgage market. We might look back at BAC at $10 and say, "That was our last good chance to buy it," as there are many, many analysts set to reiterate their buys this morning.

On the other hand, if people have to sell other banks in order to raise the capital for this surprise offering, and the bears sense it, then they can come flying in from the get-go with puts and the ProShares UltraShort Financials (SKF - commentary - Trade Now) and lean on the group, which is awash in new stock that people have profits in.

I know if I were a short-seller I would do my best to go after the weakest players, the ones that have credit cards (because of the new federal rules) and the ones that are underwater from the pricings. You can see the shorts targeting Capital One (COF - commentary - Trade Now) for the former -- even though it is incredibly well run -- and Bank of New York (BK - commentary - Trade Now) for the latter. I am sure the shorts want to operate on Wells Fargo (WFC - commentary - Trade Now), which always seems like it is prey in these situations. The stock's still well above the pricing of the secondary, but I don't think it will have much support here if BAC breaks down -- the two banks look too much alike.

Given that Hewlett-Packard (HPQ - commentary - Trade Now) can be used to color tech ugly, that would leave only oil as a group that can't be brought down.

Remember what got us up here: banks, oil and tech. If two out of three break down, we will not be able to mount an advance.

But if Bank of America is Ford (F - commentary - Trade Now) -tight -- to use an analogy to one of the best secondaries I have ever seen priced -- then we are off to the races, because this is the last big slug of bank equity that needs to be done unless the economy takes a huge fall from here.

At the time of publication, Cramer was long Wells Fargo and Hewlett-Packard.

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