4.18.08
This past week sure looks good if you just look at the numbers. All four of thee major indices were up over 4% for the week. A lot of folks wish they had been in and may have jumped in during the Market session on Friday. Admittedly it looked soooooo good. But let’s see what really happened.
The Financial Sector alone was up over 5% for the week. Wachovia, JP Morgan, Merrill Lynch and Citigroup to name a few, all turned in HUGE losses. We are talking Billions of dollars from each of them. This was taken as good news however since the Experts were expecting larger losses. Let’s take Citigroup as an example. They took a loss of $5.1 billion on $12 billion in write-offs for the quarter. The market seemed to like it so much the share price went up 4.5% for the session. But again, that was not the real story.
Let’s look at one more stock, and this is the one that sent the market into outer space. Google is the name. By the end of the day Google was up 20% for the day. You see the Experts again had been predicting a bad quarter for the company but instead they had a blowout quarter. When you see the kind of pessimism that has worked into the market since the beginning of the year, you will see the “short interest” in many stocks climb. That is what has happened to Google. The “Shorts” sell a stock without owning it. If the stock goes down, that investor can then buy the stock as a cheaper price than he sold it for and it covers his short position. There is money left over which is the profit on the trade. In the case of Google just the opposite was true. All the “shorts” were forced to “cover” and many investors wanted to own the stock so there were two different groups of buyers bidding up the stock. That is what is called a “short squeeze”.
There were hundreds of stocks with large short positions at the market opening on Friday. Once Google started the ball rolling it didn’t take much for a full fledged old fashioned “short squeeze” to take over.
What does this mean going forward? If the way we are reading it is right, it should reverse and go back to what it was doing before Friday. This was a rally based on better than feared news. A true “rally” is based on truly good news.
We are still sitting in 100% CASH.
Till next time
The MTA Staff
