Citi Splits (c, cme)
The machines have to find another plaything. Citigroup (NYSE:C) completed a10-for-1 reverse stock split yesterday. Today, the shares "magically" trade above $44 a share, instead of $4.40, where they closed on Friday.
Now, if you follow the markets closely, you know that Citi has been a favorite of the high velocity trading firms, who using computer algorithms to scalp pennies from stock price movement. Being a low priced stock that did huge daily volume, Citi was perfect for the machines. And you could see it in the volume. There were days when Citi accounted for as much as half the shares traded on the NYSE.
But now, at $44, the machines will need to move on. That's going to mean less volume on the NYSE.
*****As for Citi, the reverse split doesn't do anything for the company's valuation. The split is just an easy way for the company to put its failure behind it. It was once a +$40 stock based on its earnings and balance sheet.
I'd rather the company keep the scars from the financial crisis as a reminder...
*****Oil prices are back on the downside today. We've seen some downward revisions for U.S. economic growth. Oil inventories have been rising. And some would say the death of bin Laden removes some of the fear premium in oil prices.
But don't miss the fact that the CME is raising the margin requirement for oil futures contracts by 25%.
Margin requirement hikes by the CME helped spark a vicious sell-off in silver last week. Oil's a bigger market, and probably has more institutional support than silver, and so will be less volatile.
Still, higher margin does have an effect. It's a little bit like the Fed raising interest rates to mop up liquidity. We might expect oil to continue to trade somewhat lower. But let’s keep an eye on oil stocks.
We discussed the fact that oil stocks did not participate in the latest run higher for oil prices. In fact, this was something of a warning sign. But now that oil has come off its highs, we might see oil stocks start to rally sometime in the next 2 months, because the underlying supply and demand fundamentals haven't changed.
Fatih Birol, the chief economist at the International head of the International Energy Agency (IEA), recently told CNNMoney:
"We don't see enough oil in the markets. The major driver is supply and demand..."
The IEA says that demand is outstripping growth in supply by 1 million barrels a day.
I remain bullish on oil stocks, especially domestic producers working the Bakken oil pool, which contains at least 4.5 billions of barrels of oil. The recent correction for oil prices has left Bakken oil stocks trading at very attractive valuations.
One top Bakken stock recommended by Wyatt Investment Research now trades with a forward P/E of just 11, even though profits will grow 250% this year.
50% gains or better are expected for this Bakken oil producer. For more, click HERE.
