Paulson & Co. Betting That Bank of America Can Double

Stocks are slightly lower in early trading after some weaker than expected housing data weighed on sentiment. The standout so far in this down tape are the bank stocks, which are bucking the weakness and trading solidly in positive territory.

The leading stock is Bank of America (BAC), which is up +3.2% this morning and getting closer to testing its overhead 50-day average. Volume is picking up nicely as well. I haven't seen the story yet, but the news out is that hedge fund honcho John Paulson has bet that shares of BAC will nearly double by the end of 2012. I have seen analyst reports that show the normalized earnings power of BAC, once we begin to emerge from this credit crunch, and I agree that a $30 price target in the out years is not unreasonable.

The housing data out today showed that housing starts for October came in at 529,000 vs. expectations for 600,000, while building permits came in at 552,000 vs. expectations for 580,000. As I have said, this housing data will continue to be lumpy, but the overall trend I think shows stabilization in housing prices, which is the most important factor.

The dollar is lower again today, which is boosting commodity prices. Oil has bounced after some positive inventory data came out, and it nearing $79.85, while gold hit new highs earlier at $1150.

Asian markets were lower overnight; the 10-year yield is higher at 3.36%; and the VIX is 1.25% lower to 22.13.

Trading comment: After that big up day on Monday, the stock market hasn't given much back in the last 2 days (so far). This is likely frustrating to the bears, and could result in further upside as we near options expiration on Friday. If you don't think there is much bearishness left among investors, look at the TickerSense weekly blogger's poll, which showed bulls plunged to 25%, while bears spiked to 56%. The negative bull/bear spread of -31% is the most negative showing since early July, and the 2nd most bearish reading since Sept. 08 (Lehman bk).

long BAC