We warned this morning when the market futures were showing solid gains that the lift of the short sell ban would create some major selling today due to the flood of supply that would hit the markets – and that’s exactly what we got. Which sector you ask that led the way? FINANCIALS! Who do you have to thank? The SEC and Chairman Christopher Cox!
We said all along that banning financial short sells would be absolutely moronic in every shape and form, and it turned out to be true. There was never any short covering when the market saw huge declines to bring us off of our lows. And today, the markets were hit with an influx of supply. Since the ban on short selling of financials, the S&P has declined over 27%. If the government would just leave things alone, there could possibly be a turnaround. But as long as the Fed continues to artificially pump up the prices only to see them fall even further, we are going to see a slow motion crash that takes us down this dreadful path much farther than expected.
So where do we stand heading into Friday? Futures at 9:30pm are already showing -1% losses heading into the market open. However, because financials declined over 10% today, we wouldn’t be surprised to see some short covering tomorrow, which could provide the market with a boost. But we’re not confident enough to try and make that trade. Instead we will continue to look for new short positions to add to our portfolio. Speaking of which we closed out UFI today for a nice 14% gain (shorted at 4.32, covered at 3.71).
My phone has been ringing off the hook lately from family and friends asking whether to get out of this market, and some just letting me know they just did get out all together. Often times when you see everyone running for the exits, good chance we are closer to a bottom then we think. At this point in the decline, I believe the market is moving more on emotion and fear then on fundamentals, which is a good sign, because the ‘weak-hands’ needs to be shaken out of this market before it can truly put in a bottom and finally recover its losses.
Here’s the Nasdaq and S&P Monthly charts….(If you dare!)