Ambac Financial Group, Inc. (NYSE: ABK), the troubled muni bond insurance and financial guaranty company, was up to $3.39 earlier after opening at $2.95 this morning and after closing at $2.25 on Monday. At about 2 PM, the stock reversed course and moved down 24% to $1.65 with an unofficial close of $4.62 today. How can a stock trade in a range of $3.51 to $1.79, and be up 30% in the morning and down 20% at the close?
Short sellers were probably pushed out of the stock on Monday when Ambac was up over 100%. And Friday the stock closed at $1.10 after closing at $0.64 on Thursday before its earnings report acted as a catapult rather than a mere catalyst on top of regulatory efforts which may split the company up. The company reported an unexpected profit of $558 million in the last quarter compared with a $2.3 billion loss in the same quarter a year ago.
Funds and more sophisticated speculators almost certainly took profits today, leaving retail investors holding the bag. The smart money doubled its investment, maybe even more. Day traders who got in over $3 this morning or those low-priced stock chasers got crushed.
When you see a 100% gain on over 400 million shares followed by a huge gap-up and then a loss for the day on over 700 million shares, you know many felt some severe pain. Getting caught holding the bag in these low-priced exponential momentum gainers is never fun, yet it happens over and over.
Douglas A. McIntyre
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