Tuesday, October 7, 2008

The Ineffectiveness of a Short Sale Ban: Russell 2000 Anecdotal Evidence

This chart is the IWM exchange traded fund (ETF) which tracks the Russell 2000 stock index. Note the large spike up to ~$78. That was September 19th, which some of you might remember as the day the SEC out lawed short selling a list of mostly financial services stocks. It doesn't take a computer program to see the nearly 30% decline that has occurred since the ban.

Like I have said before: no short sellers leaders to less buyers on the downside and less sellers on the upside. What we have experienced here is the market in the absence of shorting, and it is the stupidest wild whipsaw ride I have ever experienced as a trader. The SEC should seriously consider letting the ban expire this Thursday; perhaps then markets will start to behave again and prices will actually mean something for a change.


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