Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

TraderBG

Ban On Shorts

Recommended Posts

I'm a bit worried about the ban on shorts in financials. Even though I trade the ES, I'm concerned it will effect the reliability of the patterns I've worked so hard to master over the past couple of years. Is anyone else worried about this? And do you guys think this ban will last indefinitely? Furthermore, without getting into a political debate, I'm also a bit concerned that if Obama gets in office that he will further interfere with the markets with more regulations and what not. Is anyone else concerned about any of these things?

Share this post


Link to post
Share on other sites

Regualtion does not always have to be a bad thing. IMO if credit default swaps had been regulated or been more transparent, then all this morgage lending mess would possibly not have been let to happen.

Share this post


Link to post
Share on other sites

TraderBG I'm not exactly sure how long this ban will last. Not sure if they have announced yet or not how long they expect it to last. However the impact it will have will be interesting.

 

My thoughts, not what will or is going to happen is that with the introduction of this regulation it is like we are beginning at ground zero from this point on. Although it is possible, I think that dropping beneath our previous low whilst continuing the ban is very unlikely. The reason being that big traders a) are not likely to be holding big amounts of stock at this point as leading into last week we were at prices not seen for quite some time. And b) if they are holding large amounts of stock, with the ban of short sales would be unlikely to sell now.

 

Considering there is no money to be made by selling stocks before you own them right now because it is banned, you have to own the stocks before you sell them. So take the moment the rule came in as level zero, you need to move to +1 before you can come back to zero. Being that majority traders were likely short selling in this market for equities in the shorter term, that doesn't leave many buyers holding large amounts of equities prior to the recent low. Prior to that they would have to have been holding from April 2005 according to the S&P index.

 

Now the equities are not the same as the index but as an average make up, that is the case. It makes it very difficult to move beneath that level.

 

Now for the future from here I think it is important, until the ban is lifted, to understand that any downward movement on the ES is going to be caused by traders locking in gains rather than speculating that the market will move lower. As selling to buy at a lower price in equities is not allowed, big traders will be instead selling to lock in current gains. The dynamics change a bit because people are no longer selling to make money, they are selling to keep it.

Share this post


Link to post
Share on other sites

I was just having this conversation, and I really don't know. Possibly via puts on SPY, I wonder if they figured it into the business model. Since the banks that offer it are the ones who make a market in it, they control the spread and can net quite a bit that way...

Share this post


Link to post
Share on other sites

Well, luckily my signals still worked very well today. I got 4 sell signals on the ES all of which were very profitable. I feel a little less worried now, but it's only one day so we'll see. Did anyone have problems with their signals today?

 

Thanks for everyone's relies

Share this post


Link to post
Share on other sites

What's next, a ban on stock sales?

 

By Bill Fleckenstein

 

The Securities and Exchange Commission has a list, and it's checking it twice. It's a compendium of nearly 1,000 companies the so-called watchdog has now pronounced off-limits to short-selling.

 

If this do-not-short list weren't such a travesty, it would be hilarious. Among the companies the SEC wants to "protect" are the ones -- Moody's and McGraw-Hill, to name just two -- that did such a horrendous job rating the mortgage paper that helped cause this debacle in the first place.

 

The Cox virus unleashed

 

In the end, SEC Chairman Chris Cox and friends will discover that this will turn out to be an epic example of the law of unintended consequences. They've probably just succeeded in blowing up a tremendous number of quantitative-oriented money managers and hedge funds. In essence, this targets anyone who runs a long-short fund or arbitrage fund of any kind, and anyone who manages any sort of stock basket.

 

To distill those gory details down to their essence, what the SEC has done is guarantee that less liquidity will be available for markets.

 

I suppose that if this doesn't work, the next step will be to just outlaw selling altogether. After all, that does seem to be the government's response to prices it doesn't like. There was a witch hunt for speculators in commodities on the long side when oil (and various food items) went higher over the summer. Obviously, we've seen that lower stock prices have also precipitated a government response.

 

So when the bond market eventually revolts -- because of the cumulative effect of the Federal Reserve’s monetizing any and all pieces of paper the Treasury buys -- is the government then going to ban the short-selling of government bonds? Will it eventually say you can't sell dollars? How is any rational person supposed to plan for where the government may draw the line as to what sort of "manipulation" it may condone?

 

Meanwhile, one item you'll likely never see on the SEC's to-do list: leading the charge on reforming financial statements. Scrutiny of IBM would be a perfect start, as the company has shown itself to be a financial engineer of the first order. Nevertheless, IBM last Tuesday begged its way onto the do-not-short list.

 

This happened even as IBM has been borrowing money to buy back its own shares while it crows about what good shape it's in. The stock is off only about 15% from the highest price it's ever traded at. And it sports a short interest of 10 million shares -- not that much more than IBM trades on any given day and microscopic relative to the 1.354 billion shares it has outstanding.

 

Any real, untroubled company would be completely embarrassed to be on that list. Thus, in my opinion, IBM's actions are perfectly fitting with how it operates.

 

The on-closer-inspection rejection

 

Of course, anyone with any knowledge of history and an IQ above room temperature knows that many of the financial institutions now in trouble have themselves, not the short sellers, to thank for their plights. I'd like to offer the following example, via a recent Bloomberg story headlined "Ten days changed Wall Street as Bernanke saw 'massive failures'":

 

"The storm in the markets began with a long-deferred nod to reality by Lehman. The 158-year-old, New York-based firm had possible acquirers inspecting its books. They discovered that Lehman hadn't yet written down its portfolio of subprime mortgages . . . as aggressively as some other Wall Street firms."

 

So, in all likelihood, what the short sellers are being blamed for is the harsh reality that Lehman shareholders would just as soon not take "ownership" of. That is not to say there wasn't any short-selling, but rather that short interest in Lehman was never large. In fact, short-selling was rather modest. As of the last reading, it had dropped to just less than 28 million shares from almost 54 million in June. (For reference, the company had 689 million shares outstanding.)

 

Security says, 'Remove your shoes -- and your shorts'

 

Nonetheless, despite any and all facts to the contrary, the SEC and the government have resolved to pursue their idiotic "solution" in terms of banning short-selling of certain stocks for the time being. They also have demonstrated that rules don't mean anything, because they are willing to change them whenever it suits their purposes, no matter how disruptive or foolhardy those changes may be.

 

A friend summed up the situation by commenting that we're in an environment where "short sellers . . . are risking private money betting against badly run businesses and governments are risking public money betting in favor of badly run businesses. You don't need a Ph.D. in finance to know which group of folks believe in truth and free markets. . . . You can expect to see all foreign banks move their toxic waste to their U.S. subsidiaries for delivery to Henry's Helpful Handouts."

 

One wouldn't have to be too cynical to conclude that we now know the real reason Treasury chief Hank Paulson decided he needed a $700 billion bazooka. I don't mind him helping out old friends at Goldman Sachs, and I would prefer that the financial system not implode. But I find this bailout bill completely outrageous. Though I won't hold my breath, I hope it doesn't get enacted as currently proposed.

 

The silver lining: Halting a money-fund run

 

If I were to try to find the piece of last week's actions that was least objectionable, I would say it was putting a halt to the run on the money market funds. I know that places at a disadvantage all the people who prudently owned government-only paper, like many of my readers. But just as, when push came to shove, American International Group had to be bailed out, a run on the money market funds would have been devastating to too many innocent bystanders.

 

The bottom line is that the government has decided it doesn't like where the prices of houses are, where the prices of mortgage-related debt securities are, where the prices of commodities are and where certain stock prices are, so it has elected to change them all by fiat. It won't work, and one of these days, the bond market will be absolutely shattered.

 

If Congress manages to agree on a bailout bill, the financial crisis will probably be over (but I'll reserve judgment until I see the action in all markets in the wake of the legislation).To that extent, the government's actions will keep the economy from getting "extra-worse" on the back of a stock market crash and a run on the money funds.

 

Having said that, when folks discover just how weak the economy is, especially now that we've blown out all kinds of participants in the stock market, we may still get some sort of a crash or serious sleigh ride south, though it's really hard to draw conclusions at the moment.

 

We obviously have been close to a crash in the stock market and a seizing up of the financial system. But regardless of what the "experts" say (most of them, after all, saw none of these problems coming), my fear is that the worst is still in front of us.

 

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/whats-next-a-ban-on-stock-sales.aspx

Share this post


Link to post
Share on other sites

I was curious to see what would happen with the ban on short selling specific stocks. But several examples (from the ban in July in the UK) gave me the impression that, apart from a possible dry-up in liquidity, it will not prevent price from falling.

 

Here's one of Fortis' past glory (one thing less to be proud of in Belgium!):

 

The first chart shows the trend of the past year. The second shows the last couple of weeks with the red circle being the moment when they outlawed naked short selling on several financials in Belgium.

fortis_2year.thumb.GIF.3a8108dda3d7dace5d62bbb804b5200e.GIF

fortis_1month.GIF.ac8d8292dc081af16a88532b01241a65.GIF

Share this post


Link to post
Share on other sites
I'm a bit worried about the ban on shorts in financials. Even though I trade the ES, I'm concerned it will effect the reliability of the patterns I've worked so hard to master over the past couple of years. Is anyone else worried about this? And do you guys think this ban will last indefinitely? Furthermore, without getting into a political debate, I'm also a bit concerned that if Obama gets in office that he will further interfere with the markets with more regulations and what not. Is anyone else concerned about any of these things?

 

Seems to be some talk about a speculator tax?

 

When oil rose close to $150, it was all the speculator's fault too.

Now that it's back below $100, I don't see anybody complaining anymore :roll eyes:

Share this post


Link to post
Share on other sites

Japanese government on the other hand has been giving tax breaks to attract private money into the stock market. You are definitely right about diminishing liquidity with extra taxes.

 

We only pay 10% for profits related to stock trading. But yet, there is approximately $15 trillion of Japanese private savings stashed away in banks without the intention of investing!

Share this post


Link to post
Share on other sites

Fidelity told us we are limited to putting 30% of our account into an inverse ETF. Apparently this is because the SEC is trying to protect us from the risk of ETFs, as if we can't figure that out for ourselves. Might other brokers have different rules? I'm hoping....

If not, it's a bummer. I'm new to this, I've only been working in a practice account, but I have done very well with Inverse ETFs. Now I find that I am very limited in what I can do with them.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Date: 29th March 2024. GBPUSD Analysis: The Pound Trades Higher But For How Long? The global Stocks Markets are closed due to Easter Friday (Good Friday). The NASDAQ continued to follow the sideways trend while other indices again rose. The SNP500 reaches an all-time high, but the NASDAQ remains under pressure from Tesla, Meta and Apple. The Euro continues to trade lower against all major currencies including the US Dollar, Euro and Japanese Yen. The British Pound is the best performing currency during this morning’s Asian session. However, investors are largely fixing their attention on this afternoon’s Core PCE Price Index. GBPUSD – The Pound Trades Higher but For How Long? The GBPUSD is slightly higher than the day’s open and is primary due to the Pound’s strong performance. At the moment, the British Pound is increasing in value against all major currencies. However, the US Dollar Index is also trading 0.10% higher and for this reason there is a slight conflict here. If investors wish to avoid this conflict, the EURUSD is a better option. This is because, the Euro depreciating against the whole currency market avoiding the “tug-of-war” scenario. The GBPUSD is trading slightly lower than the 2-month’s average price and is trading at 49.10 on the RSI. For this reason, the price of the exchange is at a “neutral” level and is signalling neither a buy nor a sell. The day’s price action and future signals are possibly likely to be triggered by this afternoon’s Core PCE Price Index. Analysts expect the Core PCE Price Index to read 0.3% which is slightly lower than the previous month but will result in the annual figure remaining at 2.85%. The PCE rate is different to the inflation rate and the Fed aims for a rate between 1.5% to 2.00%. Therefore, even if the annual rate remains at 2.85%, as analysts expect, it would be too high for the Fed. If the rate increases, even if only slightly, the US Dollar can again renew bullish momentum and the stock market can come under pressure. This includes the SNP500. Investors are focused on the publication of data on the UK’s gross domestic product (GDP) for the last quarter of 2023: the quarterly figures decreased by 0.3%, and 0.2% over the past 12-months. This confirms the state of a shallow recession and the need for stimulation. The data, combined with a cooling labor market and a steady decline in inflation, increase the likelihood that the Bank of England will soon begin interest rate cuts. In the latest meeting the Bank of England representatives did not see any members vote for a hike. USA500 – The SNP500 Rises to New Highs, But Cannot Hold Onto Gains! The price of the SNP500 rises to an all-time high, before correcting 0.33% and ending the day slightly lower than the open price. Nonetheless, the index performs better than the NASDAQ which came under pressure from Tesla, Meta and Apple which hold a higher weight compared to the SNP500. For the SNP500, these 3 stocks hold a weight of 9.25%, whereas the 3 stocks make up 14.63% of the NASDAQ. The SNP500 is also supported by ExxonMobil’s gains due to higher energy prices. The market will remain closed on Friday due to Easter. However, the market will reopen on Monday for the US and investors can expect high volatility. Investors will also need to take into consideration how the PCE Price Index and the changed value of the US Dollar is likely to affect the stock market next week. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HFM Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Michalis Efthymiou Market Analyst HFMarkets Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • MT4 is good and will be good until their parent company keep updating the software, later mt4 users will have to switch to mt5.
    • $SOUN SoundHound AI stock at 5.91 support area , see https://stockconsultant.com/?SOUN
    • $ELEV Elevation Oncology stock bull flag breakout watch , see https://stockconsultant.com/?ELEV
    • $AVDX AvidXchange stock narrow range breakout watch above 13.32 , see https://stockconsultant.com/?AVDX
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.