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SEC rumors spook markets yet again

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Rumors have started to surface yet again that the SEC will investigate the nations two largest banks, Citigroup (NYSE:C) $28.71 -3% and J.P. Morgan (NYSE:JPM) $22.51 -3.39% into the companies past dealings with Enron.

These rumors have spooked investors and the Dow Industrials (INDU) 8,023 (-167 points) trades lower as both C and JMP are components of this often quoted market average.

Concern over an SEC investigation also has the S&P 500 Index (SPX.X) 823.60 -2.35% and NASDAQ Composite (COMPX) 1,228 -4.76% near session lows.

It should be noted that both C and JPM officials have denied any wrongdoing as it relates to past ratings or dealings with Enron and the SEC has not made any official statement to any investigation of C or JPM.

Regardless, the financial sectors are under pressure. Related to C and JPM, the KBW Banks Index (BKX.X) 658 -2.86% has other "like stocks" under pressure as investors quickly apply "guild by association" to many of the larger investment banks.

Goldman Sachs Chart - Daily Interval

Traders that use "stop losses" in their options trading may have been stopped out from a recently bearish profile in shares of Goldman Sachs (GS). However, options traders that have "learned" to NOT OVERLEVERGE and only risk in the option what they would in an underlying equity short and can give a trade time to work may still be long and targeting the $62.17 level of retracement. With a "fitted" retracement from the high to the point and figure chart's bearish vertical count, there is some decent tie-in with the levels shown.

Perhaps yesterday's recovery from the lows may indeed have been "triggered" from an asset allocation program, but the stock continues to trade heavy, right back at overhead supply from $70- $75. Bears are looking for some bulls to pull the plug and send the stock lower to a preliminary target of $62.17.

Jeff Bailey
Senior Market Technician
Option Investor

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