Short Selling is Losing Its Aggression

This past week has been quite interesting as to a new phenomenom occurring more than 50% of the time, and that is the late day sell-offs that occur with only 5-10 minutes remaining in the market session. Now, over the past year, we have seen quite a bit of selling occurring in the last 30 minutes, but it was very eratic at best. But what I’m talking about here, is decisive price action – either straight up or straight down – while the sell-off direction has been its primary tendency.

A couple of reasons for this, first, it could be the majority of margin calls are taking place at the end of the day, forcing investors to liquidate existing positions (I have NO IDEA as to why anyone would want to be in margin at all in this market, unless you have tomorrow’s newspaper sitting in front of you). Second, those who invest through traditional brokerage houses and those with 401(k)’s could be liquidating their retirement funds in mass, which generally occur at the end of market sessions.  The last possibility is highly unlikely but could be true, that in a stable or slightly positive market session, shorts are expecting a major sell-off the following day so they are shorting with market orders right before the close (again highly unlikely in my opinion).

In any case, I believe this market to be extremely worrisome to jump into, either long or short. While, the market could easily drop another 1000 points at any time, we are also seeing declining volume over the past three days, combined with the fact that we are historically, wayyyyy oversold. That makes this market ripe for a major bounce – but to predict when we will see this with any precision, is a fools game. Oh, and by the way, when we do get that bounce, you can almost bank on it, that we will short the fire out of it.

Here’s the Nasdaq and S&P charts…