First the good news: yesterday’s big rally that pushed the S&P 500 above 1,200 resistance was led by bank stocks. The bad news? Yesterday’s rally was led by bank stocks.

We are all well aware that 3Q earnings estimates for most banks have seen severe downward revisions. Goldman Sachs (NYSE:GS) may have seen the biggest revisions while those for JP Morgan (NYSE:JPM) have been among the more benign.

Still, Citi (NYSE:C) was up as much as 5% during the day, JP Morgan added nearly 3% and even Goldman was up 2.5%.

Now, March 11, 2009 was a Wednesday. The day before, March 10, the S&P 500 made a phenomenal 40 point move from the 679 level. And bank stocks were out in front.

That night, I wrote a brilliant Daily Profit about how disappointing it was to see the market get led higher by the flea-bitten financials. That edition was published on March 11. And it was dead wrong.

It’s often said, and I’ve repeated it here often, that financials lead the market higher. That may seem impossible today, just as it did back in 2009. But I learned a good lesson as the market rallied out of the hole in 2009.

It didn’t take me long to get bullish in 2009, despite my skepticism of the moves by the banks. And I’ll grant you — I’m suspicious of the banks right now.

But there are two things we should have an eye on regarding the banks. One, Europe appears to have a plan to recapitalize its banks – And ahead of schedule at that. Secondly, both Goldman and Morgan Stanley (NYSE:MS) may shed their "bank holding company" status to avoid Volcker rule restrictions and get back to the good ol’ profitable trading game.

Now, remember, converting to bank holding company made these banks eligible for FDIC insurance and government bailouts. They were desperate. And now that the smoke has cleared, and they’ve paid back their bailout money, they’re ready to emerge from under Uncle Sam’s protective apron.

Frankly, it’s B.S. And I’m sure plenty of people will be plenty angry about it. But don’t let anger cloud your vision so much that you can’t see the meaning of this announcement.

If these two go back to be trading firms instead banks, there could be a lot of upside for the stocks.

JP Morgan beat earnings estimates this morning. No surprise there, CEO Jamie Dimon and his "fortress balance sheet" usually beat earnings estimates. Or as Jason Cimpl of TradeMaster Daily Stock Alerts put it, "The results were not good, but they were not bad either – considering the huge decline to banks over the past three months. Despite the unpleasant results, JPM managed to report EPS of $1.02 that still beat analyst estimates of $0.92.

After digging a little deeper this morning, a large portion of income was from adjustments to debt. While its still real income on a GAAP basis, JPM isn’t going to make money over the long term by revaluing its debt to increase its equity balance. The stock is down about 2.5% ahead of the open, and most other banks look positioned to open about a percent lower."

Jason positioned his readers aggressively bullish last week Tuesday. And in a few days time his readers made 9%, 13%, 13% and 20% from closed trades while his remaining open trades are up 25%. Jason expressed to his subscribers yesterday afternoon that while he anticipates a pullback, it’s unlikely a great time to be bearish. Click here to learn more about Jason’s TradeMaster Daily Stock Alerts trading service.

China’s exports dropped to their lowest level in 7 months as it faces "severe" challenges in the form of the weak global economy. A Bloomberg article suggests the Chinese may actually try to weaken the yuan to boost exports. I can’t wait to see how Congress likes that, given the currency manipulation bill they just passed.

Then there’s Europe. Investors eagerly await a Euro-bank re-capitalization plan that is, so far, very short of details. A key issue will be whether Euro-banks have to sell stock to raise cash, or if emergency lending is sufficient.

Clearly, going to the capital markets now would be like waving a giant red flag. Europe has 10 days to get a solution together before the EU summit starts. Please Europe, please get an actionable plan together…

Write me anytime: [email protected] 

Published by Wyatt Investment Research at