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Long Regional Banks Trade Is Over: Terranova
CNBC.com | January 31, 2012 | 01:07 PM EST

If you think regional banks are the way to play financials, top trader Joe Terranova says you’re late to the trade.The conventional wisdom suggests that regional banks are buys for the following reasons: 1) they had been oversold, 2) they have the least exposure to overseas financial woes and 3) they stand to benefit most as the US economy recovers.However, Terranova says with the KRE about 5% higher in only a month, “That trade has passed.” In other words, the thesis is now baked in. And Terranova believes regionals still face a major headwind -- a lack of revenue prospects.

Instead he says the better bank play is bullish bet on a capital markets recovery with long positions in Morgan Stanley, Goldman Sachs or the KCE. “That’s a far more favorable trade.”If the price action is any indication, Terranova may be onto something.

On Tuesday Goldman traded sharply higher on big volume with technical analysis suggesting the stock could be breaking out.Although trader Brian Kelly agrees with Terranova’s bullish thesis on the investment banks he also thinks the regionals have more room to run. “I’d play in KRE up to 28,” he says.

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