Fannie Mae (FNM 27.27) closed up .30 on 102 million shares, trading from a low of 25.32 to a high of 31.58! Two days ago, FNM was downgraded to sell by Goldman Sachs. Two days before that, it was downgraded to sell by Merrill Lynch.
Today, FNM announced a huge loss, and the stock hit sold off at the open, then rallied viciously, as the 5 day chart above shows, after OFHEO (Office of Federal Housing Enterprise Oversight), the companies’ regulator, said it would lift caps on the size of Fannie and Freddie’s mortgage portfolios.
Why the huge rally?
Because the shorts have no conviction. They love to talk doom and gloom, and they love to intellectualize the seriousness of the recession, but the stock activity shows they are scared out of their shorts. The shorts are the like emperor with no clothes.
The brokerage firms are complicit because they already told you to sell the stock. Who is left to sell? Nobody. Stock investors are concerned about what is going to happen, not what has happened. And the for shorts, and the bears thesis to work, we need a humdinnger of a recession for stocks to remain at these levels.
Maybe you want to drink their Kool-Aid, but I'm not!
Ignore the current macro environment, and ignore the doomsdayers. If you follow them, you'll follow it at your own financial peril!