Late last night I wrote about Bill Miller’s investor letter in the context of financial stocks like Citigroup (C) and Bank of America (BAC). Miller drove home the point that there is a huge and ongoing divergence between underperformers and outperformers in the market - but eventually, this trend will reverse and the laggards will become leaders.

I noted that most of the technical indicators for stocks like C and BAC are off the charts, on one end or another. The underlying point is simply that these two banks (the former in particular) are being sold nine ways to Sunday, which can provide an entry point for a trade - looking for a bounce - or as an attractive price to make a long-term investment. Regarding BAC, the stock opened up today. This bothered me. It proceeded to plummet and it is blinking new lows on my quotes screen as I write this, under $42.50. If I was buying this, I would break my capital into three or four segments and put one piece of it down here.

In the last piece, I also talked about Bank of America’s armageddeon exposure to variable interest entity (VIE) assets being $90.9 billion, which was 149% of tangible equity. From their last 10-Q, Citigroup’s estimate for unconsolidated VIE exposure is $117 billion, or 178.5% of tangible equity. But that isn’t an apples-to-apples comparison, as Bank of America’s exposure includes several other types of vehicles… this is going to be a big talking point in the next few weeks, and as I see more I’ll try to point it out.

Citi continues to sell off to the tune of another 5.5+%. I’d wait at least another dollar on C before I got very interested, but I think BAC under $42.50 is a reasonable price to start scaling in. Since the overall weakness is not going to lead to the latter of the two desirable scenarios I mentioned previously, let’s be looking for a complete rollover by everyone still holding either C or BAC. Capitulation comes when people want out at any price, so accelerated selling going into the close will be further confirmation we’re getting closer.

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