Part-2 of financial problems haunting the Stock Market

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Jan 15 2009
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Share prices of U.S. banks are unbelievably cheap nowadays and if you think it’s already damn cheap it could go down further. Faith is fast fading for stocks such as Citigroup Inc. (NYSE: C, stock) and Bank of America (NYSE: BAC, stock). The problem could be bad enough for Citigroup to let go of controlling stake in its Smith Barney retail brokerage business, a crown jewel, to Morgan Stanley (NYSE: MS, stock). Bank of America, the largest U.S. bank, is seeking billions of dollars of government aid after it realized that credit losses at Merrill Lynch & Co, which it bought on January 1, were much higher than expected.

Investors are now betting the U.S. financial institutions could reveal its Part-2 of problems soon. Citigroup is expected to report its fifth straight multibillion-dollar quarterly loss (estimated at $10 billion or more) on Friday. In addition oil prices tumbled below $35 a barrel Thursday as new employment claims rose and government reports show that unused gas and oil inventories continue to build. The Energy Information Administration said Wednesday that crude inventories grew by 1.2 million barrels for the week ended Friday after jumping 6.7 million barrels the previous week. U.S. oil inventories have been rising for months, suggesting that the recession has slashed energy demand.

It appears that the bull would have to cut short its orgasm and pass the baton back to the bear. If the earnings continue to be bad and banking institutions were to drop bombshells, it could spell more troubles and the emergence of financial crisis Part-2. Nevertheless the news that Apple Inc.’s (Nasdaq: AAPL, stock) Chief Executive Steve Jobs is taking a leave of absence due to health issues is enough to see the stock plunges further today but remains stable at above $81 resistance level. It’s good time to take some money off the table though. Hence, I’m locking my AAPL Jan 95 Put and Feb 90 Put options.

On the other hand the Dow is trading dangerously at 8,000 and I smell bloods below 7,000-level. So, trade or invest with care as the bear is back. Chinese New Year rally could be stop here and never recover till next year *grin*.

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