Are banks the new meme stock?

Finance


Amateur trader Matt Kors said he lost nearly $30,000 betting on the recovery of First Republic, a bank seized by regulators last Monday. As such, we decided it made more sense to bet on a decline in local lenders.

He took short positions in Pakuwest (PACW), Western Alliance (WAL), Zions (ZION) and the SPDR S&P Regional Banking ETF (KRE), an exchange-traded fund that tracks the performance of regional banks.

So far his unrealized gains are over $17,000, according to a screenshot of his position shared with Yahoo Finance on Friday.

“I’m just doing the opposite, because that’s what made me money recently,” said Kohrs, who talks about his trading and other financial topics on his YouTube channel. Live distribution started in December 2020.

Coles was part of the memestock movement that attracted a younger generation of investors early in the pandemic, with amateur traders banding together on social media to boost the stocks of certain companies.

Now, some of those same investors are piling up bets on regional banks as the region’s banking industry remains volatile after three medium-sized financial institutions were seized over the past two months. .

CFRA Research analyst Alexander Yokum told Yahoo Finance on Thursday:

negative emotions

Turning your back on banks is a new deal for retail investors. When the banking turmoil began in March, many bought stocks at a discount, hoping for a recovery.

This week, the situation changed when retail investors began taking short positions in a number of local banks, according to data monitored by Vanda Research. The new money they added to put options was seen as a sign of negative sentiment, reaching $45 million in the five days through Thursday, well above average.

That behavior was in line with what large institutional investors like hedge funds have been doing with similar bets for some time. Banda said those investors added another $100 million to set options in the same five days, which is also above average.

Marco Iacini, senior vice president of research at Banda, said large institutional investors are now selling these positions to retail investors, which “helps drive prices higher.” .

On Friday, shares of several regional banks, which had tumbled in the first four days of the week, rebounded dramatically. PacWest is up about 82% and Western Alliance is up 49% of him. Zions is up 19% on him.

The rise follows news that federal and state officials are assessing whether the recent volatility in bank stocks was caused by “market manipulation.”

The National Bankers Association has asked the SEC to investigate short selling of bank stocks and social media activity.

SEC Chairman Gary Gensler said, “The SEC places particular emphasis on identifying and prosecuting all forms of wrongdoing.”

Some analysts also questioned the recent crash in local bank stocks this week.

Timothy Coffey, managing director of Johnny, told Yahoo Finance on Thursday:

Western Alliance, one of the regional banks, issued a statement disputing a Financial Times report that it was considering strategic options including a sale, highlighting this perceived disconnect.

“It is shameful and irresponsible to allow the Financial Times to be used as a short-selling tool and as a conduit to spread false narratives about financially sound and profitable banks.”

“If you die, you die”

Another sign of growing interest among retail investors can be seen across Reddit’s financial forums, including WallStreetBets, where local banks are currently in the spotlight.

Western Alliance is the fifth most-mentioned stock in a series of Reddit forums tracked by social analytics aggregator Ape Wisdom, with First Republic at number six and PacWest at number seven.

Sentiment on WallStreetBets changed after the Federal Open Market Committee’s rate hike on Wednesday. Commentators argued that it was unrealistic when Federal Reserve Chairman Jerome Powell called the seizure of the First Republic an “important step to draw the line underneath” the recent turmoil.

A popular meme summarizing this view, called “JPOW’s Message to Local Banks at FOMC Meetings,” portrays Ivan Drago, the fictional Russian boxer in the 1985 film Rocky IV, as “He’s dead.” He dies,” with the famous saying.

Federal Reserve Chairman Jerome Powell speaks at a press conference in Washington, Wednesday, May 3, 2023, following a meeting of the Federal Open Market Committee.  (AP Photo/Carolyn Custer)

Federal Reserve (Fed) Chairman Jerome Powell said at a news conference on Wednesday. (AP Photo/Carolyn Custer)

Kohrs, a 28-year-old investor who now has about 340,000 subscribers on his YouTube channel, said on March 14 after researching the bargains some investors had made during the 2008 financial crisis. said he had purchased shares in First Republic.

Now he and the other retail traders he interacts with on social media are all betting on banks. I’m wondering if they’ll offer the kind of support they did to my favorite stocks that crashed early on.

“It’s hard to see groups gathering behind so many bankers,” he said.

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