arlier today, embattled mortgage lender Countrywide Financial
(CFC:
sentiment,
chart,
options)
reported its first quarterly loss in 25 years. The loss was driven by
the turmoil in the credit markets, which has shaken things up quite a
bit in the world of financial services across the globe. The firm saw a
third-quarter loss of $2.85 per share, far worse than last year's
earnings of $1.03 per share. The firm's mortgage-banking business saw a
loss of $1.3 billion in the latest quarter, which also included a loss
of 73 cents per share to reflect the impact of the below-market strike
price of convertible preferred issued during the quarter.
Chief Executive Angelo Mozilo noted, "Countrywide's results for the
third quarter of 2007 reflect the impact of unprecedented disruptions
in the U.S. mortgage market and the global capital markets, as well as
continued weakening in the housing market." The CEO did state the
belief that the company will emerge from the situation, since it has
"stabilized its liquidity, strengthened it capital position,
significantly tightened its loan program and underwriting guidelines,
and began the process of right-sizing operations for today's lower
volume mortgage market."
It is this belief that the company will emerge from the ashes of the
subprime issues that has the stock more than 16% higher in today's
trading. However, the impressive rally has stalled a bit as the shares
battle overhead resistance in the form of their 10-day moving average.
This steeply descending trendline has bullied the stock lower since its
near-term high of 42.24 set back in early May. While a close above this
trendline today could be seen as a good signal, it wouldn't sound the
bullish charge, as the resistance has given way in the past.
Should the 10-day trendline give way and allow the stock to advance,
watch for the rally to be short-lived. The stock's 10-week moving
average is declining at a rapid pace and is in position to push the
shares lower. The last time the shares closed a week above this
trendline was June. Furthermore, in order to bring the 10-week
trendline into play, the stock will have to advance through peak call
open interest at the 17.50 level.
Turns out that we could be seeing a bit of a short-covering rally
today. Currently, 13.8% of CFC's float is sold short, so today's news
could have spooked the short sellers into buying back their pessimistic
positions. Of course, CFC's short-interest ratio suggests that it would
take 1 day to buy back all of the shorted shares. This ratio suggests
that today may be the only day that the stock rallies, but we will have
to wait until Monday to see if CFC falls back to its underperforming
ways.
Analysts are also a bit bearish toward the mortgage maven.
Currently, 8 of the 11 analysts following CFC rate it a "hold" or
worse. Upgrades from this bunch could result in a wave of upside
pressure. However, after today's news, it may take quite a bit of good
news to pry the bears from their dens.
Options players are a bit more optimistic when it comes to the
lender. CFC's Schaeffer's put/call open interest ratio (SOIR) of 1.81
is lower than 83% of those taken during the past 52 weeks (though it
does indicate that puts outnumber calls). This optimistic percentile
ranking suggests that the stock could wilt under a wave of pessimism
found in the form of selling pressure.