By Kate Gibson
One of the U.S. stock market's most volatile sectors on Thursday
proved to be its most active amid talk of short-covering and ahead
of Friday's anticipated results from insurance giant American
International Group Inc.
For a second day, trading volume in the financial sector
accounted for "an extraordinary percentage of overall NYSE
trading," noted Peter Boockvar, equity strategist, Miller Tabak
& co.
In Thursday's trade, Citigroup Inc. (C) and Bank America Corp.
(BAC) alone are 25% of total consolidated NYSE volume, Bookvar
said.
Shares of Citigroup climbed 6.2% to $3.80 and Bank of America
rose 0.2% to $16.70 a share.
On Wednesday, Citigroup "was part of a rebalancing and was the
excuse for the large volume but amazingly, volume today is almost
tracking yesterday's pace," Bookvar added.
On Thursday, the financial sector's early gains faded in
afternoon trade as the major indexes posted losses for a second
day, with the retreat coming after a four-session winning
streak.
The Dow Jones Industrial Average (DJI) fell 24.71 points to end
at 9,256.26, while the S&P 500 (SPX) dropped 5.64 points to
997.08. The Nasdaq Composite (RIXF) shed 19.89 points to
1,973.16.
Leg up?
"My sense is this thing does have some legs," said Max Bublitz,
chief market strategist for SCM Advisors, of Wall Street's recent
upward swing.
"A lot of the institutional managers did not participate, and
are trying to play catch up. Hedge funds participated even less. So
there is a little squeeze going on, if not a short squeeze, a
non-participation squeeze," said Bublitz.
Shares of AIG (AIG) gained for a second day, finishing 2.4%
higher. The insurer's shares jumped 60% on Wednesday with some
attributing the move to investors scrambling to cover short sales
after the firm set a stock split earlier this year. .
Short interest in AIG hit its highest level ever less than three
weeks ago according to the online Wall Street Journal, which cited
New York Stock Exchange data.
"Short interest and possible 'squeeze' result when something
material happens to a company that was unexpected, such as buyouts
or major contracts," Marc Pado, U.S. market strategist at Cantor
Fitzgerald, said in an email.
"AIG has been talked about because of its 20-for-1 reverse
split. What happened, in this case, is it is no longer a penny
stock. Many funds cannot hold stocks under $5 or even some under
$10 per share. That's why they do the reverse split. Once split,
companies can now buy, and that can force those short to try to
cover or get squeezed," he added.
Miller Tabak's Bookvar on Wednesday noted a similar situation
with shares of manufacturer and chemical maker Georgia Gulf Corp.
(GGC).
"GGC is another stock that had this big reverse stock split, and
its stock went from $7 to $36 in five trading days. It's another
example of where the float has dramatically shrunk, and now there's
a massive short squeeze going on," he said.
The New York Stock Exchange on Tuesday said it had contacted
Georgia Gulf due to the "unusual market activity" in the company's
shares, with the firm declining comment.