Financials Entice, but Plan an Escape - TheStreet

Financials Entice, but Plan an Escape

Good earnings have made the financials alluring, but the risks involved require installing stops.
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By Kevin Grewal, editorial director at

Now that the second quarter has almost come to an end and four of the nation's largest banks have released their earnings reports, which have all outperformed Wall Street's expectations. Does this mean that the financial sector has emerged from its woes and is on the verge of prosperity?

Advocates suggest that the sector has already hit rock bottom and really can't do anything but go up. Signs of strength have also been seen in the ability of some banks to pay back TARP loans and raise capital. In addition, some investors are saying that banks are relatively cheap and could possibly be a good buy.

On the other hand, the basic fundamentals of the sector are weak and from a technical perspective the sector does not seem too healthy. As companies continue to implement cost-cutting measures, unemployment numbers continue to rise and consumer confidence remains shaky, the sector will remain weak. Also, most of the prominent banks believe that consumer credit is still in trouble, which will hinder the overall performance of the industry.

There are plenty of indicators that the recession is easing up, including better than expected GDP numbers. Things are finally starting to ease and the financial sector will benefit from encouraging macroeconomic news.

If one does consider playing the financials, keep in mind the risks involved with them. To mitigate these risks, an exit strategy utilizing stop losses is key. Take a look at

, which will give you a trigger indicating that an upward trend in your financial equity might be coming to an end. Keep in mind that these triggers change as the markets fluctuate and updated data is available at


Here are some banks that have outperformed and have stirred up the question of whether or not to consider financials and their relative stops:

Bank of America

(BAC) - Get Report

reported earnings of 33 cents per share, outperforming the 28 cents per share expected by analysts. The large bank has performed well since seeing a March low of $3.14 to close at $13.97 on July 30, a jump of 345%. The suggested stop is at $12.02.

Goldman Sachs

(GS) - Get Report

, reported a 33% increase in earnings and smashed analyst's expectations by reporting net income of $4.93 per share. The largest surviving investment bank is up 174% since witnessing a March low of $59.20 to close on July 30 at $162.42; its suggested stop is set at $153.35.

JPMorgan Chase

(JPM) - Get Report

reported second-quarter earnings of 28 cents per share, crushing Wall Street's expectations of four cents per share. The financial giant's stock has more than doubled to close at $38.47 on July 30 after hitting a low of $15.90 in March; a stop trigger is set at $34.97


(C) - Get Report

surprised many by reporting earnings of 49 cents per share and beating Wall Street's forecast of a loss of 37 cents per share for the second quarter. The company's stock has rebounded nicely to a July 30 close of $3.14, a 208% jump from its March low of $1.02. Citigroup's suggested stop is set at $2.68.