A friend who must remain anonymous asks:

"Sent you a message on your Facebook acct…you adding to Merrill Lynch (MER – $42.97)?  Can't get a read on the big pullback..do the institutional traders know something we dont?"

I'm not adding to MER and I'm actually out of it for a while.  My stop loss rule got me out just after I wrote about Thain. (Sadly, I did not apply that same stop loss rule to some other stocks recently).

The institutional traders are selling everything financial.  There is nothing special happening with MER that isn't happening with Lehman (LEH – $42.03 ), Goldman (GS – $160.92), Citigroup (C – 20.16), Morgan Stanley (MS – $40.62) and the rest.  And if there is I'm not sure what it is.  Unless you have really done a lot of research and figured out something special about specific financial companies, I'd rather play the financials using the financials iShare (XLF -23.66) at this point.  I'd rather not take the specific risk of any one company at this point.  If you believe financials are cheap you might as well buy them all.  The fund provides diversification and thus is much less risky.  I don't know if any of these firms are going under but I'm sure they are all not.  And when they bounce back up they will NEARLY all bounce together.

I don't know exactly when the bottom in financial stocks will be but I do feel we are much closer to the bottom than the top at this point.  I've been adding to my positions in small increments.  (OUCH!! I don't apply a stop loss rule to long-term trades only short-term ones.)

Disclsoure:  I own XLF.  I do not own MER but I have bought and sold it in the past year.  I own LEH, GS, C and MS.  I am a former Managing Director at Lehman and Morgan Stanley.  I still participate in the executive compensation plan of Lehman.  I am a participant in the executive compensation and pension plans of Morgan Stanley.

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