Bank and thrift stocks made solid gains Friday in a rally that carried over to broader markets.
In coming days securities will get a going-over by investors before buying begins again in earnest, analysts said.
"It's a time for careful choices," said Peter Green, the chief technical analyst at Gruntal & Co., New York.
Balance-sheet management will be a big concern. Analysts said they think that should benefit Norwest Corp. and Astoria Financial Corp. - companies that typically use conservative techniques in handling acquisitions.
Norwest, which is buying Wells Fargo & Co., was up $2.25, to $34.125, on Friday. And Astoria Financial, which closed its deal for Long Island Bancorp this month, rose $5.125, to close at $35.25.
The gains came in a topsy-turvy trading day. The market opened up sharply, fell back, and then regrouped in the afternoon.
The Standard & Poor's bank index jumped 7.04%, and the Dow Jones industrial average rose 2.17% The Nasdaq bank index was up 5.01% and the S&P 500 2.60%.
The market will continue to flail about as it searches for a bottom, Mr. Green said.
He declined to say specifically when or where that may be, but did agree with others who expect some firming up later this fall.
Right now it is hard to make choices with so much "indiscriminate selling" going on, said Kenneth Puglisi of Sandler O'Neil & Partners LP, New York.
As a potentially promising sign, Mr. Green said, he noticed some "washing out" recently of hedge funds and momentum investors, which cause a lot of the volatility.
The market will be on the comeback trail when remaining investors "react appropriately to bad news or good news," Mr. Green said.
The bank group, Mr. Green said, is also "coming close to bottom, but is not there yet."
But some buying opportunities are emerging, Mr. Puglisi said.
Among community banks, he likes Associated Banc-Corp for its "very good asset quality and tight credit culture." Shares of the Green Bay, Wis., institution were up $3.8125, to $30.5625 on Friday.
Mr. Puglisi also said well-positioned companies include North Fork Bancorp, Melville, N.Y., a proven consolidator with one of the best efficiency ratios in the industry. Its shares rose $1.875, to $18.1875.
In recommending Sterling Financial Corp., Spokane, Wash., Mr. Puglisi cited "astute management" and a significant goodwill claim against the government. Sterling's shares rose $1, to $15.
Most thrift stocks are in a holding pattern "as investors hold their breath waiting for the next refinancing wave," Mr. Puglisi said.
In looking for bargains among the downtrodden thrift group, investors should step very cautiously, emphasized Caren Mayer, a thrift analyst with NationsBanc Montgomery Securities.
In deploying capital, some institutions may reach for yield at the expense of credit risk, Ms. Mayers said.
Companies may also become so committed to maintaining balance-sheet size and leverage that they create credit risk, analysts said.