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Friday was one huge volume trading day for Citigroup (C) with over 1,000,000,000 (1 billion) shares traded. The stock seems to be trading as a stock that is about to go under. What would this mean to the banking industry and all banking stocks if it does go bankrupt in your opinion?
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From what I understand, mutual fund companies are not allowed to hold any stock positions that are less than $5 per share. Just another way Uncle Sam protects our money by forbidding investment firms to invest in penny stocks....
Obviously, C broke that legal barrier. However, I believe mutual fund companies are suppose to have something like 6 to 8 weeks to get rid of that position, if it does not rise back up to at least $5 again.
In practice though, many mutual fund companies may have internal policies and automatic triggers in place to sell something the moment it slips below that $5 limit. That way, they supposedly will preserve some of their own capital, rather than get caught by the cascading effect of other mutual fund companies doing the same sells.
This is doubly so when you're dealing with an inherently weakened company that has roughly $400 billion dollars worth of toxic debt on their books!
So, assuming that my theory here is correct, that would explain the massive volume we've witness, leading to further capitulation among wall street and main street alike, sliding all the way down to the astounding $3.77 at closing.
NOW, what does all this mean?
Again, assuming that my theory here is correct, that would also mean that the stock could be severely under-valued at this point, with the stock dropping only because of a legal regulation and computer triggers, rather than some kind of loss of company fundamentals.
Even for a weakened company that rightfully should be suffering a low stock price, I believe the stock price is way under-valued. The after-market action (and its equally breath-taking level of volume giving the time frame) seems to agree and have already pushed up this stock to $4.01 at this point.
You know what? I'm going to research this a bit more and see what happens on Monday, but if all goes well, I think JUST MIGHT go all-in on C. Yeah, maybe it's crazy, but you guys already know I'm crazy like that, right?
Edit: I searched around a bit more, and found that what caused the slip to begin with was supposedly concerns regarding Citigroup's balance sheet, and the necessity of having to cut 53,000 jobs.
On the other hand, as much as it hurts us little people, from an investor's point of view, job cuts are typically seen as a good thing because it means the company is reducing its overall expenses.... But the market simply did not react that way. Quite the opposite, perhaps because the job cuts are so dramatic. Anyway, I'll keep looking into it, but maybe I shouldn't go all-in after all. Maybe only a partial buy.
Last edited by Broken Arrow; 11-22-2008, 09:13 PM. -
Wow. News of a government assistance for C is spreading like wild fire right now. Uncle Sam wants to guarantee $300 billion of C's toxic debts, as well as injecting some needed capital by buying another $27 billion of preferred stock. Pre-market trading is already up by 25%! (edit: Now up by 58%!)
And who knows, barring any more negative news for the day, the market just might post a two-day gain! Imagine that.
Of course, it would be my luck to have sold my C position right before the rally.... Meh. At this point, I'm no longer interested in buying C....Last edited by Broken Arrow; 11-24-2008, 05:13 AM.Comment
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