After a day where the Dow Jones closed down 504 points, what’s next?
Lehman went bankrupt. Merrill barely made it. And now they are after the other big investment banks.
Well, I believe you should just continue to follow the recent trend, and short the financials…even more!
First, Standard and Poor’s cut of AIG‘s key credit rating could trigger billions of dollars of collateral payments on its many derivatives trades. The stock was down about 56% today, yet there seems to be room for at least another 20% drop tomorrow, especially after S&P’s rating cut. The same way Lehman’s stocks lost value in the high double digits day by day, AIG seems to have some room for the same faith in the very short run.
Then there are the other two remaining investment banks: Goldman Sach’s and Morgan Stanley. It seems like they are next to be scrutinized by Wall Street. Goldman is expected to report quarterly earnings tomorrow, yet it seems that not even positive numbers will take out all the pressure from them. This means that shorting both stocks, which were both down around 12% today, is the best choice. The short pressure will be high and the probability of bad news is high.
On a more positive note, I would reccomemnd buying Merril Lynch Stock. Bank of America offered a premium of $29 per share on the acquisition deal, yet the stock price stands at $17.06. The chances of the deal not going through are slim, so it would be a good idea to buy the stock. If the deal does no go through, then that’s bad news for Merrill and the overall market, with the possibility of another minus 500 points on the DOW.
Overall market conditions are bad and volatility is high, therefore, be cautious of any type of buying.
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