Monday, November 19, 2007

Goldman Sachs Downgrades Citi

There were some developments on Monday. Let's start with the news on Citigroup, C. A Goldman Sachs analyst downgraded the number one bank to a "sell" rating due to its mortgage holdings. The analyst thought there might be $15 billion of problems in their CDO holdings (collateralized debt obligations). C was down nearly 6% to 32. C was trading around 48 just a month ago. Other financials faired poorly as well.

Is GM a financial? Well, many do consider it a finance company and not a car company due to its GMAC loaning activity, both for houses and cars. Tuesday GM was treated as a finance company. The housing market/mortgage market is working to take down GM. Monday, the stock was down about 8.5% on mortgage worries. This represents a new 52 week low.

Then there was the news from Lowe's. They are suffering from the current problems in the housing market. LOW dropped to its Lowest point in several years, down about 7.5% on Monday. Housing stocks were pounded again, down over 5% as a group. They are down about 50% over the past year.

But...then after the market closed the big news from HPQ (Hewlett Packard) gave the bulls some hope. Even though the stock was down during the day along with the market, its news did manage to bring it back. There is a chance that this news can revive the flailing tech bulls, at least temporarily.

Let's spend some time on the near term market movement. The market is oversold and probably needs to rally some. This evening, the Asian markets opened down strongly but have managed to come off their lows, for now. Our stock futures are up probably in response to the HPQ news. Some of the analysts we read are looking for a rally to relieve some of this oversold condition.

As we look at the situation this week, there seems to be a strong sense of selling going on. The rallies that happen are suddenly knocked off their feet. The holiday week brought some significantly bad news on the housing front, including the Goldman Sachs downgrade of C.

We think the market participants have strong underlying bullish notions. They think the market is only temporarily going down and that ultimately, very shortly, the market will come back to life. They could be right but what if they aren't. If the market continues to go against them, these people may change that underlying notion to some fear and drop out of the stock market--in droves.

More tomorrow...

FSI: 94.89
Arithmetic and Market Cap are not showing much different numbers so we will post the Arithmetic version from now on.

1 comment:

Anonymous said...

Definitely a positive spin on market activity this morning. Seems like the 13,000 mark is where everyone thinks the DOW should stop and rest.

I don't think that is correct and believe the markets will go down from here despite the oversold conditions. Money is getting tight and Eddie Murphy economics (Trading Places) would suggest that people are beginning to think about holiday expenses and how they are going to pay for them. I think this is the wrong time for the market to show weakness and the timing of it should lead us down the path to 12,000 DOW. From there, all bets are off.