Britannia Radio

		March 04, 2010

Make the Bankers Pay By Jeff Clark  The banking sector is setting up to be one of this year's best short-sale candidates.  On Tuesday, we looked at how the political pendulum is swinging against the banks.  Policies that were once supportive of the banking business are now becoming  restrictive.  The discount rate is on the rise. The Treasury is going to stop propping up the value of  mortgage-backed securities.  And the geniuses in Washington are  proposing new  regulations that will increase the  government's power over the banking system.  It's hard to imagine how this doesn't turn out bad for the banks.  Investors can look to profit on this trend by taking a short position in some of the larger  "money center" banks.  Names like Wells Fargo (WFC) and Bank of America (BAC) come to mind.  Perhaps the best trade, however, is a short sale of the Financial Select Sector  exchange-traded fund (XLF). XLF is a  basket of about 80 financial-services stocks.  Over the past year, the fund has been as high as about $15.50 per  share.  And its low last March was down around $6.  For the past seven months, XLF has been stuck in a tight range between $13.50 and $15.50.  Here's a look at the chart...  We looked at this chart a few weeks ago. Back then,  XLF was threatening to break below its support line at $13.50.  A drop below support would have kicked off a bearish trend and likely pushed the stock  down to its next support line at $12.  But that didn't happen. The banking sector, and the overall stock market, bounced off  support and has enjoyed a nice rally.  Now, however, XLF is approaching the upper end of its range and should hit resistance  soon. This is a reasonable  spot for aggressive traders to short XLF. The current bounce is  extended, and there's resistance just about $0.40 overhead.  A more conservative trader could wait until the stock drifts back lower and punches  through the $13.50 support line.  That will confirm the downtrend and bring the lower target of $12 per share into play.  Given the anti-banking sentiment in the nation – and the potential profit-diluting effects of  new regulations – XLF could fall even farther than that.  Best regards and good trading,