Market Wrap – On August light volume E-Trade rallies and AIG drops
By Robert Perrego, at 5:04 pm on August 31st, 2009E-Trade Financial Corp. (NSDQ: ETFC) investors got good news on the last trading day of August as Citadel Investment Group LLC, canceled plans to sell 120 million shares of stock, which represents about 1/10th of their holdings in the retail broker. Citadel came to E-Trade’s rescue in November of 2007 with a $1.6 billion cash infusion for 12.5% of the company. E-Trade was neck deep in the mortgage mess, as they had established a sizable home mortgage and home equity business over the years. When the mortgage market exploded, E-Trade found themselves holding a lot of toxic debt. In the same deal Citadel also bought $3 billion of this toxic mortgage debt for $800 million. When all was said and done, Citadel was to own 20% of the company. At the time it sure looked like a good deal for Citadel, but then the market just kept getting worse.
This was in November 2007 with E-Trade at about $5 a share, and at about the same time, the Abu Dhabi Investment Authority was injecting billions into Citigroup Inc. (NYSE: C). Time would tell that both these buys were too early as E-Trade closed today at $1.76 and Citigroup has become the poster-child for the saying ‘I shoulda sold all of it last year’. Citadel now says they own about 1.1 billion shares (including all convertible securities held) while total shares out and the float being just slightly more than 1.1 billion shares. Yeah – I can see how they would like to sell some, I sure would want to.
There are over 300 million shares sold short in E-Trade, and as Citadel holds most the company float, I am wondering why they do not call whomever they trade through, make their shares unavailable to borrow, and start buying their stock and squeeze all these shorts till they run to cover driving the price up. THEN sell that 120 million shares. I am just thinking like a trader and waiting for that call from Goldman.
Speaking of short squeezes, American International Group (NYSE: AIG) dropped $4.90 or 9.75% today and was down as much as $7.43. Looks like that short squeeze is over for now as the stock had fired up from $34 to as high as $55.90, then hit its head on the 200 day exponential moving average at $52.30 and could not close above it. Today AIG only traded 69 million shares, well below the 148 and 130 million shares traded last Thursday and Friday. Heavy volume is usually found at bottoms and tops, so considering the past two days activity, today’s volume drop off and the failure to break resistance, it looks like the top is in for awhile.
One of my favorite companies, nothing to do with their stock but their product, Marvel Entertainment, Inc. (NYSE: MVL) was bought by Walt Disney Co. (NYSE: DIS) for $30 a share plus 0.745 shares of Disney stock or about $4 billion today. Marvel almost went bankrupt in the fall of 2001, but then management wised up and started making movies out of their thousands of comic book characters and raking it in at the box office. Spiderman, X-Men, the Fantastic Four and The Hulk have all had sequels and even a ‘three-quel’, and have been very profitable. Currently there is a a sequel in the works for the very popular Iron Man release in 2008 and I have heard other Marvel heroes such as Thor and Captain America have movies in the works. There is no doubt Disney can find a high level of synergies with all the intellectual property of Marvel and whether the product is TV cartoons, blockbuster movies or a series for the Disney Channel in the vein of NBC’s hit series ‘Heroes’, this deal makes sense.
Another acquisition today was Baker Hughes Inc. (NYSE: BHI) buying BJ Services Co. (NYSE: BJS) to bulk up in size and compete with industry leaders Halliburton Co. (NYSE: HAL) and Schlumberger Ltd. (NYSE: SLB). the $4.87 billion price tag was larger than the $4 billion for Marvel and together we had just south of $9 billion in mergers and the market still dropped.
China had its biggest drop since June on tightening government credit policies and lost almost 7%. The selling spread market to market and hit Wall Street with the Dow being sold off right from the opening bell. A late day recovery pared the losses to only 47.92 points (-0.50%, 9496.28) and we maintained the trading range we have been in for five days now.
The S&P 500 lost 8.31 points (-0.80%, 1020.62) with the Nasdaq 100 down 18.05 points (-1.09%, 1625.19). The energy sector got hit the hardest down 2.45% today consumer cyclicals second worst at minus 1.59%.
Oil dropped $2.78 (-3.84%, $69.62, 4:44 p.m.) and New York Spot Gold, after getting hit for over 410 early recovered to lose only $4.40 an ounce and was trading $951.20 at 4:55 p.m.
It’s all about unemployment this week as the numbers traders will be focused on are the ADP employment report released at 8:15 a.m. on Wednesday. Thursday’s Jobless claims (-562K) at 8:30 a.m. and then the Employment Situation report on Friday, which should show the unemployment level increasing to 9.6%. It does not matter how high the market goes and how many ‘green shoots’ everyone talks about all day, if the job situation does not start firming up soon, the economy is in trouble. That is basically the long and short of it and why traders will be eagle eyeing these numbers.
