Exposing Ideas to the Envelope of Serendipity

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Tuesday, September 1, 2009

Fancy a Fling With a High-flying Financial?

As fetching as the recent exuberance that's taken place in beaten up financial stocks may be, caution and stringent risk management are imperative for traders trying to snag a piece of the action. Casualties of the financial sector meltdown left for dead not long ago have apparently been given a new lease on life, with shares of AIG galloping more than 200%-- from $13.50 to over $56.00 in the month of August alone before easing slightly off the highs in the last couple of sessions and finally correcting more vigorously today. The trade volume accompanying the recent resurrection has been unprecedented-- and to date no one has offered a satisfactory explanation for the heavy participation. Volume can generally be viewed as important validation of a new move, and it is clear that the recent turnover cannot be explained away by short-covering and day traders alone. But for those inclined to latch on in the hopes of a return to loftier levels, choose your entry spot carefully, stay alert, and recognize the inherent risk in trading this group. With the massive turnover that has been in play, these stocks can collapse as quickly as they have demonstrated their ability to shoot upwards. The enticing upside potential must be balanced with a sobering look in the rear view mirror. There are very likely rewarding trading opportunities in the group here and going forward, but a plan and vigilant risk management when venturing into the fray is essential.

FRE, FNM, and C are others in the group that have enjoyed big moves over the past couple of weeks and are now pulling back as the market comes under pressure.

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