Citigroup changed CEO's and put former Treasury Secretary Robert Rubin into the Chairman of the board position after the company announced that it would be taking a possible $11 billion hit on its mortgage portfolio in the coming quarter. Mr. Rubin had been working at C already but now has quite a visible position. We were somewhat surprised by the stock market's reaction to the C news. C dropped a bit and is now trading at a price it hasn't seen since 2003.
The rest of the market decided to take a cue from C and trade down, too. Most of the indexes opened down on the day but immediately decided to rally. Then there was another dip that took the market down below the opening lows. With about 90 minutes to go the market was on its lows of the session and suddenly a fierce rally took hold pushing the SP 500 up over 20 points into green territory in about a half hour. From there the market sold off into the close with only modest losses across the indexes.
Somehow, we think the stock market thinks it has now dealt with the issues at hand. It thinks all of the bad news is out on the mortgage/housing situation and can now go back to the business of going up. We see that sentiment indicators are flashing red on the bullish side meaning, of course, that the next move should be down.
The opinion here is that we should have some more downside but the market is at a minor crossroad right now. It has to move lower in order for a bearish pattern to emerge. If it decides to rally from here, there will be a quick run to new highs in the Dow. We do not think this is the next place the Dow goes but if sellers don't come in to continue the downside, then there will be some upside pressure and could develop quickly.
We haven't worked on our Horsemen index this week but we will do that before the weekend. We think the end of tech is coming and that will signal the big downturn in stocks. We want to be prepared. The global stock bullishness is almost getting boring.