[caption id="attachment_840" align="aligncenter" width="500" caption="Citigroup versus S&P 500 ETF"][/caption]
The possible folding of Citigroup is creating another wave of panic on the market today. As the second biggest bank in America, this is unlike the collapse of Lehman, WaMu, Fannie and Freddie. While the previous institutions are also gigantic financial institutions and an integral part of the financial system, Citigroup is different because it's a part of the daily lives of many Americans. While I am not an economist, but I am a consumer. I personally feel this is psychologically a bigger deal.
However, is this a time to panic? Perhaps. But from a trader's standpoint, I think we would be a little too late now. In hindsight, anyone would have wished to unload the financials back in 2007. But who am I kidding, I definitely don't have that foresight.
What I do notice though, is that the failed retest of \$10 for C last Friday and this Monday was a pretty good sign that C is going down. A failed retest of the \$8.5 level on Tuesday and Wednesday was a confirmation. I tried to short C then but was stopped out. Frankly, I didn't think it would be this bad (my target was \$7).
Since then, Citigroup and the market continued to decline at an accelerated pace. Rather this is simply a case of correlation or causality is unknown by me. It doesn't matter. The point is, even an amateur like me saw C to be going down on Wednesday. Do you think the professionals would have missed it? Wouldn't they know already C would be going down in flames? And probably months ago too!
I think it's good to assume that the current panic on Citigroup trading below the magical \$5 has been factored in the market already. So am I saying we'll be making a reversal soon? Not really. C trading below \$5 is one thing, but there's also the bigger picture we should consider. Would this trigger a new leg of this bear run due to a vicious spiral of panic? Don't forget, we have recently broken some multi-year supports. This leg of the market downturn still haven't eased off yet.
Yes we may be going down, but I believe the time for panic was over, this is a time for finding values and positioning yourself for the longer term (hey, it has to go up some time, right?). I wouldn't dare short this market though, even a target of 600 on the S&P is just 150 points away, but look at the S&P chart on any time frame and you can see the vast green pasture to the upside. The risk/reward potential just isn't that good for a short here.
I believe I have learned my lesson. There is no profit in calling for bottoms. I will wait for the market to play it out and watch the price action for entries.