FNM halted today's runaway slide at 41¢, a resistance level tested repeatedly in February and March of last year. The stock's ultimate close, at 56¢, is at a support level that held in February 2009 and that stands just below support in December 2008.
| trend | adx | psar | pps | macd | macd trend | sto | sto trend | |
|---|---|---|---|---|---|---|---|---|
| FNM $0.56 |
That is a long way of saying that the FNM decline, on news it would delist from the NYSE, may have been a selling panic, but it was one molded by the stock's trading history.
In Wednesday's tumultuous slide, FNM treated several levels as reversal points:
Intra-day Reversal Levels
- $0.96, +71.43% (day's high)
- $0.70, +25.0%
- $0.63, +12.5%
- $0.60, +7.2%
- $0.58, +3.6%
- $0.56 <== You are here.
- $0.55, -1.8%
- $0.45, -10.6%
- $0.41, -26.8% (day's low)
The indicators, of course, mostly swung bearish. The macd and the parabolic sar moved to bear phase; Person's Proprietary Signal had already been bearish for eight days. The fast stochastic, interestingly, remained in the neutral zone, although pointing down toward oversold territory.
The sharp retracement of the decline after the 11:20 a.m. Eastern low shows the extent to which the morning's panic was ill founded.
In a post this morning I illustrated how such a decline is ill supported by FNM's financials. The stock ended the day 37% above the day's low.
The main story of today's decline lies in how a delisting should be interpreted.
Investopedia has an outstanding article on the subject that identifies two negative impacts: People lose trust in the stability of the stock, and restrictions on institutional investment in over-the-counter stocks kick in.
Neither of those applies to Fannie Mae.
FNM reached a high of $70.57 in August 2007, the beginning of the acute phase of the recent collapse of capitalist finance. The stock declined to a low of 30¢ in November 2008, as traders and investors decided that the company's mortgage holdings -- many of them -- weren't worth the paper they were printed on.
A government conservator took over the smoldering wreckage and, armed with bailout money, has been trying to rebuild from the rubble.
Any loss in trust in FNM was factored into the market nearly two years ago. When a stock collapses from $70+ to one-third of a dollar in just a few months, no one believes in it anymore. Many people and institutions may hold FNM as a legacy of purchases when the company was thriving. But new trades are purely speculative.
Exchange rules say a stock is a candidate for delisting when its shares trade consistent below $1, which FNM has done often since 2008. So the delisting should come as no surprise for institutions. I can't imagine any selling their FNM holdings at less than half of Tuesday's price because the delisting caught them by surprise. Those that need to exit by the July 8 delisting date will do so in an orderly liquidation of their shares.
The real question for FNM, now as it was in 2008 and 2009, and as it will be in 2011 and 2012, is do the shares have residual value? The government has said they won't force FNM into bankruptcy.
That's a long way from saying that shareholders will realize any value from their shares, given the amount of money the Feds have spent trying to keep FNM afloat.
Of course, that's a long way of saying that FNM is too big to fail.
In light of those policy questions, the delisting is truly insignificant, and today's selling panic (or mega-arbitrage opportunity, maybe) is extreme.
OK. The credit bubble burst. Housing, burst. Shockwaves reverberated. Markets collapsed. What lies ahead as we remerge from the wreckage.
Disclaimer
Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.Abbreviations:
- psar - Parabolic Stop and Reverse
- adx - Average Directional Index
- pps - Person's Proprietary Signal
- ma20 - 20-day moving average
- macd - Moving Average Convergence-Divergence
- sto - Fast Stochastic
- trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
- adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
- psar, pps, macd: green for bull mode, red for bear
- sto: green for overbought, red for oversold, yellow for the neutral zone.
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