Short sellers walk away from JP Morgan (JPM), Wachovia (WB) and Bank of America (BAC)

In September, short sellers exited the major money center bank stocks. Shares sold short in Wachovia (NYSE: WB) fell 13.8 million to 36 million. The drop at JP Morgan (NYSE: JPM) was 7.7 million to 37.5 million. At Bank of America (NYSE: BAC) short interest fell 9.5 million to 31.7.

Wall Street appears to believe that none of these big banks face the kind of mortgage problems that have hit more vertical financial institutions like Countrywide (NYSE: CFC). And, it would appear that their investment in loans for private equity transactions may only cause modest earnings problems if numbers from Lehman (NYSE: LEH) and Goldman Sachs (NYSE: GS) are any indication.

All three stocks were hit when mortgage default problems topped the financial news and private equity deals seemed at risk for failing. Wachovia was down as much as 22% year-to-date in August. It is now down 10% and JP Morgan and Bank of America are off less than 5% since the beginning of the year.

The Federal Reserve 0.5% rate cut is also likely to help the banks weather the credit crisis, at least for now.

But, the improvement in the bank share prices could be a sucker rally. The economy appears to be headed for a recession or, at the very least, a flat period. The passing of the late July and August market turmoil may not last for long. And, those long the bank stocks may end up regretting it.

Douglas A. McIntyre is a partner at 247wallst.com.