MON. SEP. 22- Shorting Is Now Very Hard

Most day traders out there love shorting stocks arguably more than getting long. Why? Because oftentimes, stocks fall much faster than they rise. As a wise friend of one of the officers of ProTrading opined: “It is much easier to destroy wealth than it is to build it up.” Indeed, institutions such as Lehman Brothers, which had operated for almost two centuries saw themselves destroyed in a matter of weeks if not days. Well, as day traders, the only way we can profit from such horrible events (if they are going to happen anyway) is to sell these stocks short. Many bigger institutions have illegally been shorting stocks for a long time now without locating the shares. If one is selling stock he does not have, he has to borrow the shares. Well, if he just sells the stock without borrowing it, he is ostensibly doing a trade with shares that don’t exist. What the SEC did thru Thursday was merely enforce several rules as well as adding a new one- namely, they shored up the clearing process and ordered any fund with a value of over $100 million to daily disclose their short positions. This of course interferes with the market place because it shreds anonymity from the funds although they are indeed forced to follow the rules of borrowing or face the consequences. For the day trader, many clearing firms are tighter with the locate process and there is not as much stock to borrow because everybody is now complying with the rules thus there is not as much stock to borrow for stocks in which locates can be obtained. The big blow, however, came Thursday night in the middle of the night when the Feds decided to disallow shorting of 799 selected financial companies for the next two weeks- a move unprecedented in modern finance. The market is going to go where it is going to go over time, but we’ve seen a short squeeze in the immediate-term as some selling pressure has been taken out of the market. However, the main impact is that it will make many stocks much harder to borrow as well as make the locate process that much more difficult. Thus, while many of us will be frustrated to not be able to short as many stocks as we’d like, know we are simply complying with the rules and making the market the mechanism the government apparently wants it to be to help alleviate the pressures on the financial system.

Overnight, markets in Asia rallied a bit more ,but the rally began to wane in Europe. Futures were getting drubbed overnight before the U.S. government announced that GS and MS were to change their status as investment banks into regular banks thus officially ending Wall Street as we know it. With no official plan announced over the weekend to follow up the government’s pronouncements, stocks look much lower this morning. It will be choppy, but likely down today unless something major happens re the plan or any other trigger in a much harder day for day traders as we are unable to short many of the things we’d like to do.


Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified



Good-

Imbalances- same story as Thursday; a number of stocks spiked on the close. If they open higher than the spikes, short at unch and/or if they open below unch, but rally towards unch, buy thru unch. And it’ll be the opposite move with the sell imbalances.

Imb:
NGD
OZN
BBI
SPF
PSS
MI
BPO
RJF
RF
MF
SLB

BZP- has rallied strongly with oil..if it opens higher and oils sell off, short thru unch, otherwise A-B-A2 depending on which side of unch it opens.

CTBK- has been very strong; looking to short into weakness if banking stocks weaken

NDAQ- very strong Firday; same story as CTBK

AMTD- see above

WRSP –particularly strong Friday; if it opens negative, want to buy aggressively thru unch.

Banks/brokers- all closed strong; they should open down this morning. If they rally, buy any of them (BK, MS, GS, BAC, JPM, et al) thru unch

MS- annoced that Mitsubishi Bank can buy up to 20% of the stock

MSFT- increased buyback


Bad-

Imb-
SIL
BZH
NXG
SNV
HSNI


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HIBB- acted horribly on Friday; if it holds unch, want to buy it but if it opens higher and falls through unch, short it

KMX- bad earnings

AZO- bad earnings


Good luck today.

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