The Tide Is Retreating for the Banks

Banks sold off to multi-decade lows in March after Timothy Geithner's initial tenure as Treasury secretary triggered a violent reaction throughout the equity markets. The sector began to move higher at that time, in response to growing optimism that mark-to-market accounting rules would ease and give banks breathing room to fix their balance sheets.

The recovery continued into late April, while market players waited for results of the much-heralded bank stress test results. That news was released earlier this month, and bulls jumped on it as another reason to buy the banking sector. But a funny thing happened after this news event -- the banks stopped making new highs and started to pull back.

This wasn't surprising, considering the widely held belief that bank stress test results would trigger a broad sell-the-news reaction. What is surprising, though, is how market bulls have chosen to ignore the downturn and continue the sector cheerleading. Nowhere has this table-pounding been more intense than with Bank of America (BAC Quote). ...