-- Posted Tuesday, 2 October 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Tuesday, October 2, 2007
“Phenomenally accurate forecasts”
Who ever said DaBoyz don’t have a sense of humor? Even those of us who were on the wrong side of the trade got a good laugh yesterday when Citi shares went bonkers on word that the subprime mortgage debacle and a few related problems had cost the banking colossus nearly $6 billion in the last quarter. The news was out before the bell, allowing DaBoyz to do what they do best: i.e., plunder and sodomize panicky traders in the first few minutes of the day, before the victims knew what hit ‘em. The pros deftly pulled their bids as Citi began to trade, causing the stock to plunge 80 cents as market orders that had accumulated overnight were matched to a relative handful of buy orders well below Friday’s settlement price.
At that point, DaBoyz were just getting their beaks wet. The instant the selling dried up they sprang a new trap, this time on the bears. With selling exhausted, shorts began to cover, only to discover there were no offers other than a sprinkling of limit orders that had gone unfilled on the way down. This precipitated a short-squeeze so vicious that Citi was actually up 25 cents on the day before the session was barely ten minutes old.
Spin This, Pal…
Now, this was a quite impressive trick: running a stock sharply higher on news of a $6 billion quarterly loss. There was no way the announcement could have been interpreted positively, either. Citi’s profits will be down an estimated 60% from a year earlier, with write downs of $1.4 billion for LBO-type activity, $1.3 billion for mortgage-backed securities, $600 for credit-trading losses and $2.6 billion for consumer credit losses and future reserves. With all those bad numbers, it’s plain to see that it could only have been short-covering that drove the stock up.
We got on the wrong side of the trade when we shorted Citi well into the squeeze. At the time, the stock was up a dollar on the day and nearly $2 above the opening low. Even so, we watched it go against us by another 50 cents before it finally topped out and sold off moderately into the close.
Now, here’s the punch line. While Citi was getting short-squeezed into the ozone, so were the shares of homebuilders, including Lennar, Pulte and D.R. Horton. Can you guess which banking colossus had upgraded its opinion of those companies before stocks opened on Monday?
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 2 October 2007 | Digg This Article | Source: GoldSeek.com
