Thursday, March 19, 2009

Citigroup sets the tone

The financial shorts were emboldened today by the news of the registration statement, which took the pressure off the Citigroup shorts.

Citi's preferreds were trading around 13, that converts into 7.3 shares of common, but the cost to borrow Citi was upwards of 100% on an annual basis, putting a squeeze on those that did the trade before it widened! Assume someone shorted C at 2 (7.3x2=14.6) and bought the preferred at 12, to lock in a couple points in the spread, and with C trading at $3.37 (7.3X3.37=24.6) in the pre-market, the trade had widened 10 points in the face of those that shorted, without a commensurate move in the preferred.

At 7:00 a.m, Citigroup put out the press release on the registration statement, and CNBC picked it up at 7:30, but someone must of been asleep at the opening bell. The traders weren't, and they sold the gap up!

Now if the Government was going to let the Citi shorts off the hook, how about the other Government stocks? Look at the highs that FRE, FNM and AIG hit today. They almost doubled from yesterday's close before reversing most of their gains!

Through in possible downgrades by S&P on AXP and the late Wednesday downgrade on PRU, and the shorts were emboldened to attack the financials again. Moody's helped by downgrading LNC after the close, and the shorts got emboldened, and they are selling the financials off in the afterhours.

Traders that flipped the gap up, and those that sold, should start buying the afterhous gap down, in the non-dilutive names like BAC, which is trading at $6.66.

After all, isn't that the number of this bull market?

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