Sunday, September 21, 2008

Technical Picture - Historic Week ( Ban on Shorting Goes Global)

The above chart, courtesy of Marketwatch, illustrates all of the major market phenomena at play last week. For a complete run down of the last week's historic market events click here.

Despite last week's capitulation, the underlying credit crisis remains and will take years correct. With that in mind, I suspect that near term, we'll rally back up to the trend line, but pressure will come back in when the shorting ban is lifted.

A close examination of the COMPQ tells us that bearish momentum is reversing as depicted by price/volume and the ADX. However, the gap up stalled at the 50 DMA and a quick fade ensued. The black candle signals that we opened higher than we closed, but we still have an unfilled gap EOD as highlighted in green. I'd like to see that gap filled sooner than later.

The SEC's sudden ban on shorts in financials imposed a monstrous move in the cboe put/call ratio.
The McClellan oscillator also made a gigantic move from extreme oversold back to neutral in the space of two days.

The VIX carved out back to back WRBs, first a shooting star, and next a hanging man (to be confirmed). The ban on shorts will remove some liquidity from the markets and will likely result in a decrease in volatility short-term.

Ban on Short Selling - The Saga Continues

The ban on short selling financials is going global. Canada and Germany jumped in late Friday and now Australia has taken it one step beyond, by banning the shorting of all stocks on its exchange. Taiwan will ban short selling of 150 of the index's heavyweights when they trade below the previous session's closing levels for two weeks starting Monday. The FSA in the UK is being urged to extend its ban to other volatile sectors. And in the US, major companies with large financial services businesses, such as GE and American Express are begging to be added to list of 799 companies. The French will monitor shorting activity closely, but have yet to announce a ban.

I fear that the ban will be extended beyond the 2 week range and that day-trading will become increasingly constrained.

3 comments:

bl said...

Jamie,
Might force traders to trade to the upside only except et short funds. We will see 2Oct end of short ban

Trader-X said...

The no short-sale list expands by 30, including GE and GM.

Jamie said...

Yeah, looks like the original list was rushed. Also, seeing a number of our larger Canadian banks finally made the list as well.

Looking to see if we pick up some momentum when we break the trading range since the ban was announced.