Several people have opined to me recently about AIG (AIG). I’m not going to go into the nuts and bolts of the company’s business/balance sheet/operations/government ownership. That is for every trader- regardless of his/her focus- to understand and know…something particularly important in AIG’s case. But there has been one major reason it has traded as wildly as it has on both the downside and upside over the last few months. Namely, right around Independence Day 2009, AIG had a reverse stock split. A regular stock split will give a shareholder more shares but at a cheaper price; for instance, a 2-1 stock split will give a shareholder who owns 1,000 shares of a stock at 10 a total of 2,000 shares at 5. The main reason for a stock split is to increase liquidity in the trading of a stock. A reverse split though is a different ball of wax. Usually, a reverse stock split occurs either out of desperation (i.e. a stock is trading below 1) or to attract eyeballs and institutions who typically don’t trade stocks below 5, a stock would have less shares out but at a higher price. Well, AIG was trading just over $1 when the 1-20 reverse split took place with the stock now valued at a bit more than double where it was trading pre-split. The stock would trade in a range of a few cents on huge share volume when it was down there. However, in the effort to show a ‘respectable’ stock price has been less liquidity which in turn has caused more exaggerated moves on both good and bad news. We have not seen an increasing number of these reverse splits recently and it is highly likely on the heels of AIG’s success that many companies with low priced stocks may well do reverse stock splits in the next few weeks and months in an effort to show ‘appreciation’ and ‘greater respect’ for higher prices in this big-time bull market.
Markets overnight were mixed in Asia with Hong Kong up 0.2% but Tokyo down 0.9%. Markets however are solidly negative in Europe with Frankfurt down 0.6% and London down a steeper 1.2%. Oil and gold are both down over 1% with the dollar a tinge weaker. The culprit for this morning seems to be the fact that China raised their reserve requirement overnight. This combated a decent earnings report from INTC. CPI came in slightly better than expected, retail sales worse than expected, Industrial Production (0.4% and Capacity Utilization (75.5%) are due out at 9:15AM, Michigan Sentiment (75.4) at 9:55AM, and Business Inventories (0.8%) at 10AM. For today, look for a great deal of choppiness with the decent newsflow early on followed by a gradual slowing as the morning progresses ahead of a three-day weekend. The focus will be on the financials with JPM having reported, the semiconductors on INTC’s news, big-cap tech associated with the earnings plays such as NFLX or KLAC, and the metals/materials on the huge moves in commodities.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
INTC- decent earnings; KLAC and AMAT may move with it
ELOS- received FDA clearance for its new Tanda system
CPIX- received FDA OK for new formulation of Acetadote injection
BRN- closed near a high
MIPS- closed near a high
ARMH- closed near a high on the heels of bullish analyst comments
TEX- closed near a high after positive Credit Suisse comments
TTMI- closed near a high after boosting earnings outlook
RRR- closed near a high after boosting earnings outlook
SODA- closed near a high after CEO appeared on CNBC and bullish comments from Oppenheimer
CCME- closed near a high after announcing three new contracts
EXAM- closed near a high
BORN- closed near a high
ALJ- closed near a high
MU- mentioned on “Mad Money” last night
COCO- upgrade by Oppenheimer
MTB- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
SHFL- poor earnings
LOCM- share offering
CSTR- terrible earnings warning
DNDN- share and notes offering
CVVT- closed near a low after a negative mention by Citron Research
ITT- closed near a low after being cut by Bank of America
AIG- closed near a low after announcing ore details of its refinancing plan
MRO- near island reversal in closing near a low despite announcing it is splitting itself into two entities
ANR- poor earnings
FCX- closed near a low
SMSI- closed near a low after JP Morgan downgraded it
MRK- closed near a low after changes made to its Vorapaxar studies
SBAY- closed near a low
MCP- closed near a low
HAS- poor earnings guidance
JASO- poor earnings guidance
Earnings:
FRI JAN 14 BEFORE
JPM MTB
FRI JAN 14 AFTER
None today
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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