Where Will Fannie Mae Shares Find Support?

Federal National Mortgage Assctn Fnni Me FNMA and fellow government-sponsored enterprise (GSE) Federal Home Loan Mortgage Corp FMCC have both lost roughly a third of their market caps Tuesday following an appeals court ruling upholding a decision that hedge funds are not allowed to sue the government for its net worth sweep of Fannie Mae and Freddie Mac’s profits.

At this point, the best hope for Fannie and Freddie investors is that Donald Trump’s new Treasury Secretary Steven Mnuchin will step in and begin to recapitalize the GSEs. But traders wanting to bet on Trump-fueled comeback for Fannie and Freddie want to avoid catching the falling knife. At this point, technical traders are likely looking to Fannie Mae’s chart for any indication of where the battered stock could find some buying support.

Related Link: Steven Mnuchin May Now Be Fannie Mae And Freddie Mac Investors' Last Hope

Despite Tuesday’s selloff, Fannie Mae shares are still up more than 80 percent since Election Day, suggesting there could be plenty more downside ahead. However, the first level traders are likely watching is the $2.50 level that served as the stock’s 52-week high prior to its post-election breakout. In fact, Fannie Mae shares at least briefly bounced near the $2.50 level in early Tuesday trading.

If Fannie Mae closes below $2.50 on Tuesday, traders will likely be looking next at $2.00. If Fannie Mae’s November low around $1.60 and its February 2016 low of just under $1.00 are the first two points of an ascending support line, that line would now be in the $2.00 region.

Below $2.00, the September low of $1.57 could be the next potential support, followed by the stock’s multi-year low of $0.98.

Fannie Mae shareholders are already suffering heavy losses on Tuesday. Investors are hoping the $2.50 bounce is a sign the worst of the selloff is now over. The stock’s chart suggests any further weakness into the close could be a bad sign of things to come.