Today the market looks UNBEATABLE up 221.11 DJIA points, 2.60% and almost back to the 200-sma. A number of the higher beta indices like .NCOMP and .NDX are already nicely above their respective 200-sma. Sound really nice right? All the while one of America's all time great companies, General Motors: GM finally filed for bankruptcy today and yet another JP-Morgan: JPM announced near the close they will need to raise still $5-Billion more to pay back the TARP!
Not long ago, back in late 2007 I was short with a majority of my client base, a now notorious company by the name of Countrywide Financial at around $35/share. Countrywide was in the process of floating a bond offering to raise cash. Basic Wall-St. training teaches you issuing new shares is dilutive and bearish to the existing share price. Despite common sense telling you the more shares, the less the existing shares are worth, they ran the stock to around $45. Does any of this sound familiar with today's situation!
When the deal was finally floated and the shares once again began trade freely (more about this later), the stock began a death dive to below $20, finally getting bought out at $6 by Bank of America: BAC. You see like the song says, they needed the money. And everyone knows that investors like to jump on the band wagon and would rather pay up for stock then buy it when the market is down. so if you need to raise money, you better do it during a market rally, GET IT!
So what are the lesson to learn, if any from this experience? Well for one, you cannot build your views based on short-term moves. Technicals can change / the charts, well they lie (if you cold just follow the charts, everyone would be rich! But over the longer term, fundamentals will win! (more later)
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