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Bank stocks see flood of supply on back of foreclosure concerns

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Bank stocks have recently seen a flood of supply on the back of investors’ concern over sloppy foreclosure practices, according to a report by Convergex Group.



The report, by Nicholas Colas, Convergex Group chief market strategist, and Tom Smykowski, head of Convergex’s exchange-traded fund desk, shows that over the past two weeks four of the five largest weights in the S&P large cap financials group have traded anywhere from 20 per cent  (Citibank) to 100 per cent increased volume (Bank of America).

The largest ETF that tracks this index – Select Sector SPRD – Financials, symbol XLF – is down six per cent in terms of daily average volume over the past two weeks.

Colas and Smykowski say that in past financial sector meltdowns, the XLF had a front seat to the show, trading large slugs of its entire share count daily and altering its share count frequently – and occasionally dramatically – to keep its shares in supply/demand balance.

They believe that the disparity between trading volumes in underlying stocks and ETFs shows that the selling is coming from large owners of specific names, rather than macro players negative on the group. Indeed, it is those macro buyers that may be the first to show up on the buy side.

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