Is the Dow on its way to new all-time highs? We wouldn't bet against it at the moment, having exited a short position in Citigroup the other day just before it and a whole bunch of other stocks took off. A global leader in the smoke-and-mirrors business, Citi seemed like a perfect proxy for a stock market that continues to waft skyward on a turbocharged mixture of hot air and short-covering. Our colleague Bill Fleckenstein would seem to agree. Fleck notes that Citi's structured-credit portfolio has put the banking behemoth in the thick of global credit angst, through such investment vehicles as its Beta Finance, Centauri and Dorada. Concerning just one of them, Beta Finance, Citi's boilerplate notes that leverage is 'only 14.24 times.' 'Thus, Citigroup, a leveraged entity, owns a gaggle of leveraged S&Ls,' writes Fleckenstein. All of them, he says, are down close to 20 percent. Fleck's complete article can be accessed by clicking here. Whatever problems Citi eventually may face as a consequence of its exposure to the structured-credit world, investors appear to be blithely unconcerned at the moment. Yesterday the stock gave up only a dime of Tuesday's spectacular gains, suggesting it may be consolidating for another thrust. If so, the rally would need to come today or tomorrow to keep the short-squeeze going. The chart below shows why. For a rally to achieve the status of bullish 'impulse leg,' we require that it surpass two prior peaks without a pause of more than a day. As you can see, Citi has exceeded one prior peak but not the second, 49.00, which it merely tied at the peak of yesterday's rally. If the downturn continues today, it would imply the rally lacks guts and that short-covering had become more or less exhausted. Still, given our bullish
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