Citigroup Sparks Big Rally, But the Pros Are Skeptical

Wall Street got some good news from Citigroup and responded with a huge rally. But some investment pros are skeptical that the banking giant—or the market itself—had turned the corner.

"I've lost count of how many of these rallies we've seen over the last year and a half and I don't suspect we'll see anything different here," Mike Larson, analyst with Weiss Research, told CNBC.com. "Would I be chasing this? No."

Sharon Lorimer

Led by financial stocks, the market made its first big move upward in weeks after Citigroup said it had operated at a profit during the first two months of the year.

• Citi Will Have to Sell More Assets: Whitney
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Still, while word of Citi's performance at least temporarily broke a months-long torrent of bad news from the banking industry, analysts weren't ready to say the stock market was at a turning point and about to barrel higher.

"It doesn't mean that the underlying bank is going out of business, but I think the equity is jeopardized by the losses that are piling up," Larson said. "No stock goes to zero in a straight line and to me this looks like yet another bounce in a long slippery slope downward."

The only real gains may be made by those who take advantage of today's rally by selling.

"If you were smart enough to buy yesterday and sell today you made a great profit," Larson said.

In a letter sent to employees Monday, Citi Chief Executive Vikram Pandit said the bank had an operating profit of $8.3 billion before taxes and special items through February—its best performance since the third quarter of 2007.

Pandit declined to say how large credit losses and other one-time items have been that would at least partially offset profit.

Citi shares jumped more than 23 percent while Bank of America was up more than 25 percent. Other banking stocks were also sharply higher.

Financial stocks have been a primary driver in a market collapse that has left the major indexes at their lowest point in more than a decade.

Every report of loan losses and asset writedowns have sent banking stocks to incredible lows—Citi fell below $1 a share last week. And fears that hundreds of billions of dollars in government bailouts wouldn't be enough to save the big banks exacerbated the fears on the Street.

Ben Halliburton, chief investment officer of Tradition Capital Management warned that the advance was likely just another bear market rally.

Short-lived rallies are common during periods of extended declines as the market searches for a bottom.

"I would be surprised to see us trade back over 800 in the near term," he said, referring to the Standard & Poor's 500 index. "The news coming out on the economic front will continue to be rather gloomy."

Halliburton also suggested that the market's gains, especially among financial stocks, could be attributed to short covering, an investment strategy that tends to drive rallies in volatile markets.

Short-sellers are traders who sell borrowed stock and then buy it back later on the hopes that the price will fall. If they believe a stock will be going up, they have to "cover" their positions, or buy shares to repay the loan.

But investors were further encouraged by Federal Reserve Chairman Ben Bernanke who called for a revamp of the country's financial regulatory system.

Speaking before the Council of Foreign Relations, Bernanke said "too big to fail" companies must be subject to more rigorous supervision to prevent them from taking on excessive risk.

Bernanke's remarks come as the Obama administration and Congress begin to devise their overhaul strategies.

—AP contributed to this report.

© 2009 CNBC