FRE & FNM broke the critical support level (61.8% Fibonacci Retracement level) after a KBW analyst downgraded the two to the firm's lowest rating, cut price targets on both stocks to zero from $1. KBW said their common and preferred shares would be "worthless" given the nearly $100 billion they will continue to owe the government, even if recapitalized. FRE broke the critical support level of $1.705 and FNM broke $1.483 support level. Both stocks are below the 20D & 50D MA, all other technical indicators show bearish convergence.
I sold all my stocks to take profit after sighting a bearish convergence signal. I plan to buy back at a lower price when the down trend ends. I think the US government will continue to run the companies, and the companies will not go bankrupt. However, the value of their common and preferred equity will probably be re-capitalized. Thus, buying at a very low price limits the downside risk.
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