Getting Ready to Short the Financials (Again)

I advise investors to use this rally in the financials to your benefit. If you took recent long positions in the financials, you might consider selling soon. 

More experienced and aggressive investors might start looking to take short positions soon. 

This market is very momentum-driven so you’ll want to wait for signs of a decline before going short. No doubt, the Fed’s bailout plan for Fannie and Freddie has sparked this rally, but it’s not a rally of substance, just misguided confidence.

While this has certainly been a great week for the financials (even I made a short-term trade in WM), I have little doubt that Friday will add even more volatility when Citigroup (C) reports earnings and discusses guidance. Monday will be an equally big day when Bank of America (BAC) reports.

If investors are pleased with guidance, you might want to wait a few more days, but you should be getting ready to take short positions.  Just remember how inaccurate previous guidance has been from the financials. You can use ETFs like SKF (buy it for a short stance) or you can short UYG.

You can even short individual stocks like BAC, WFC, and C. And of course you can always buy puts. Once again, wait for a reversal sign. While it may not be on Friday or even Monday, it will come and the selloff will be big.