Stocks bounce after Citi CEO's letter, but will it last?
The obvious culprit: Citigroup (C) CEO Vikram Pandit said in a memo to employees that the company was profitable through the end of February. That's a rare bit of good news for Citi, and even if there are ample reasons to be skeptical, it doesn't take much to move a $1 stock. Citi's shares have skyrocketed more than 25 percent this morning, but is Pandit really to thank for the rally?
Another possible explanation: It could be driven by short sellers who had been betting bank stocks like Citi would continue to fall. Signs of life from the financial industry could have forced them to pay back the loans they'd taken to make those short bets. To do that, they'd have to buy back the bank stocks they'd borrowed and then sold, pushing prices higher -- a classic short squeeze
That may begin to explain this morning's rally. But the question remains: Can it last?
Given bank stocks' dismal recent performance, it wouldn't be too surprising to see investors cash in on their first significant gain in two weeks. After all, even when a stock is selling for $1, someone is buying. Those folks may decide it's time to head for the exits.
The morning's other big winners, like Bank of America (BAC) and JP Morgan Chase (JPM), have also seen their share prices punished by wary investors recently and could be susceptible to the same phenomenon.
Unless Pandit has convinced the market that the long-term outlook for his company -- and the financial sector -- has changed, profit-taking may end up ruling the day.