Banking Sector earnings season begins next week, and the market is expecting weak results after the worst quarter since the financial crisis. Low interest rates have been a serious handicap for traditional banking revenue streams and only banking\capital markets firms with trading and\or mortgage divisions can expect anywhere near normal returns.
In addition to the Covid-19 effect on banking activity a new accounting standard will be implemented this quarter which will require banks to book expected large loss provisions in the current quarter instead of spreading them out in the future further depressing net income.
Given all this negative news, investors seem to think that the worst price action in the sector has already occurred and short sellers have been covering some of their exposure over the last month, closing out $724 million of total short interest in the sector.
Three of the big names in the sector saw increased short selling, JPMorgan (JPM), Citigroup (C) and Blackrock (BLK) were the only three stocks with over $100 million of net short selling activity over the last month.
On the flip side of the coin, there were several Banking stocks with over $100 million of net short covering over the last month. Shorts in Schwab (SCHW) and American Express (AXP) may be expecting a stay-at-home bump in revenues during this crisis with more retail investors getting active in the market and consumers using their credit cards to shop online and eschew handling cash.
Short covering in the sector has been accelerating throughout the month, investors look to be positioning themselves for a price rebound in the sector after underperforming for the past several months. Short selling\covering in the early portion of next week ahead of the individual earnings reports will be a telling sign as to whether shorts in the sector are sticking to their guns or getting out of dodge.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.
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