Citigroup (C) is today’s most active stock in terms of volume, trading almost double the number of shares of the second most active issue Bank of America (BAC) with less than an hour left before the close. Citi is also one of the only Dow components in the green right now, as the market has experienced a fairly significant midday swoon. Nearly all of the financial stocks are down for the day, even after Goldman Sachs (GS) reported outstanding results yesterday after the close. Goldman surprised the market with a secondary offering this morning and the stock is being punished today as a result. With the financial sector ETF (XLF) trading off by more than 5%, why are Citi shares up more than 8%?
“Most of the financials are up this morning down, including Goldman Sachs, but Citigroup, well, that is up and up sharply. A short squeeze of epic proportions is occurring right now…Remember what is going on with Citigroup about to exchange all their preferred for common, $40 billion in preferred, including the government and bit of an epic short squeeze is going on here, too complicated to get into.” CNBC 4/14/2009.
The short squeeze on Citi is causing shares to rise while almost every other financial stock losses ground. While money flow data for Citi shares today is negative, the stock’s volume is more than double its average daily level, with an hour left in trading. Many shorts have profited handsomely from the collapse in financials over the past year. As the sector reached its nadir, many stocks were trading in single digits (with Citi shares at one point below a dollar). At the first sign of a turnaround in the underlying business, no matter how tepid, it was likely that shorts would want to exit their positions. Clearly, at least some of the recent rally in financials must be attributed to short covering and today’s action in Citi certainly looks like a short squeeze to us.