Tuesday, January 15, 2008

Stocks Slammed; CitiGroup Loss Worst Ever

The destruction of corporate America continued unabated on Tuesday fueled by a nearly $10 billion 4th quarter loss at Citigroup (C), the worst quarterly loss in the company's 196-year history.

The far-flung financial services empire took write-downs of $18 billion on bad paper, mostly mortgage-related, and cut its dividend nearly in half. All of the bad news was reported in the company's 4th quarter earnings statement, released prior to the market's opening bell. The company lost $1.99 per share in the quarter.

Citigroup closed down 2.12 (7.3%) at 26.94 as it announced plans to raise $14 billion from government-owned investment trusts in Kuwait, Singapore and the state of New Jersey, and cut an additional 4,200 jobs. The dividend was cut from 54 cents to 32 cents and Standard & Poor's cut the bank's credit rating.

Aghast at the numbers, Wall Street trembled, and sold off throughout the session.

Dow 12,501.11 -277.04; NASDAQ 2,417.59 -60.71; S&P 500 1,380.95 -35.30; NYSE Composite 9,172.17 -267.17

But Wall Street's woes do not end at CitiGroup's doors. More financial firms, including Merrill Lynch (MER), Washington Mutual (WM), Wells Fargo (WFC) and J.P. Morgan (JPM) on Wednesday and Thursday of this week. Adding to the downbeat tone was the reported -0.4% retail sales for December. It was the worst holiday season for retailers in recent memory and the worst showing for retailers in six months.

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After the bell, Intel (INTC) reported profits of $2.27 billion, or 38 cents per share, up from a profit of $1.5 billion, or 26 cents per share, in the same period a year ago - a gain of 51%. But the chipmaker missed its own sales forecast and investors took the opportunity to punish shares by 14% in after-hours trading.

In the broader market gauges, declining issues held sway over advancers to the tune of 4799-1556, a better than 3-1 ratio. New lows once again expanded, to 796. There were only 79 stocks posting new highs.

The Dow bounced off the key 12,500 level just after 3:00 pm, rallied over 100 points, but gave it all back in the final half hour.

Certain that stocks are headed still lower and the economy is either already in recession or headed for one soon, there was little buying save for short-covering.

From a technical standpoint, the Dow has made a triple bottom breakdown, with no visible support until the 12, 100 level. The Dow has lost over 1000 points since Christmas 2007 with no end in sight.

What can be expected in the near future is a pattern of stocks being sold off regardless of their earnings reports. While companies showing poorly will surely be beaten down worse than their competitors, even positive results are going to be met with disdain and vicious selling.

In the longer term, a 33% retracement from the highs in October would bring the Dow to about 9550, the NASDAQ to 1875 and the S&P to 1050. While those numbers are probably not going to be exact, they should be kept in mind as guideposts to the ravages of the current bear market.

The actual time and date of the bottom cannot be fathomed, a time-frame somewhere between August and November would seem reasonable, though the bear market could easily extend well into 2009. The failing economy should propel voters to repudiate the Republican administration and sweep Democrats into power. The emotional response may take some time to actually reveal itself in stocks, as will bona fide changes in government to begin making substantive changes.

There is no doubt that stocks and investors are headed for hard times, but it is exactly during these times that bargains can be found and fortunes made as well as lost. The best advice is to stay out of the market or maintain short positions until there is an actual reversal of the primary trend. That will be reported right here on this blog. No other source should be trusted, except that of the Dow Theory Letters, published by Richard Russell, the preeminent market analyst of our day.

Oil closed down $2.30 to $91.90. Gold and silver recorded marginal losses.

NYSE Volume 4,561,016,500
NASDAQ Volume 2,440,952,250

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