Cramer Says Shorts Caused Fannie's Rally Yesterday (FNM)

May 7, 2008 3:12 PM EDT

On this afternoon's Stop Trading!, Jim Cramer discussed Fannie Mae (NYSE: FNM), which reported a $2.19 billion Q1 loss yesterday morning and announced that it has plans to raise about $6 billion in new capital and cut its quarterly dividend to $0.25 per common share.

As the earnings were released before the market opened yesterday, shares of Fannie gapped about 6% lower in pre-market trading only to rally 15% throughout the day to close at $30.81. Cramer insisted that Fannie's move yesterday was caused by shorts locking in profits, as the report was "too bad for it to be anything but a squeeze". He said shorts were fed up with their bets against Fannie Mae as the company announced a "quadruple threat" - the large loss, new capital, dividend cut and announcement of expected wider losses in '09 compared to '08 - but the stock still moved higher.

Still, Cramer said that he would wait and let Fannie's price come in before making any investment in the stock. Cramer believes that Fannie could announce a larger amount of new capital as the offering is priced, which would obviously cause more dilution.

Shares of Fannie are down about $1.25, or 4%, to $29.28 today.

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