There are new developments in the US market last night. The market advanced around 4% last night due to these developments:
1) The FSA, UK independent financial regulator placed a ban on short selling on all financial stocks. The SEC, US stock exchange regulator tightened rules on short selling and may consider an all out ban on short selling.
Implications - Shortselling is to sell a stock at a higher price and to buy back at a lower price, thereby, profiting when the market goes down. The wild swings in the market and irrational selling has been blamed on shortselling. By banning shortselling, the market will have less pressure going down unless investors really sells the stock that they are holding. In the world of investing, there are long term investor, short term investor and the shorters. With the shorters gone and the short term investor probably have exited frrom the market by now, the market should reach a resemblance of stablization. The people that will be affected will be the hedge funds and the insitutional investor.
2) There is rumor that the US treasury is setting up a Resolution Trust Corporation type arrangement that solved the savings and loans crisis in the US during the 1980s. This will help to resolve the bad debts associated with Fannie and Freddie as well as AIG. The implication is that this will stablize the market allowing better liquidity of the market and restore some investor confidence - Which has been in short demand in recent days.
Final implication
This is in technical analysis what we call a key reversal day, when the stock market started low and closed high at an astonishing volume. Normally, a key reversal day signals a change in trend and here is where the technical rebound will probably start. So is the bottom reached? There is no clear answer yet as we are still in a clear downtrend. Until the the Dow reaches 11800 and above than we are safely out of the crisis zone. Thats another 8% upwards to go. For now, we should be in a clear zone from the drabbing for another week or so, until something blows up.
Other good news is that we are in the traditionally weak september months. The december effect of stocks rising during winter period will probably help the market along. Again, we have to look to the housing market to stablize for the whole crisis to resolve itself. Else, we will continue our financial abyass.
1) The FSA, UK independent financial regulator placed a ban on short selling on all financial stocks. The SEC, US stock exchange regulator tightened rules on short selling and may consider an all out ban on short selling.
Implications - Shortselling is to sell a stock at a higher price and to buy back at a lower price, thereby, profiting when the market goes down. The wild swings in the market and irrational selling has been blamed on shortselling. By banning shortselling, the market will have less pressure going down unless investors really sells the stock that they are holding. In the world of investing, there are long term investor, short term investor and the shorters. With the shorters gone and the short term investor probably have exited frrom the market by now, the market should reach a resemblance of stablization. The people that will be affected will be the hedge funds and the insitutional investor.
2) There is rumor that the US treasury is setting up a Resolution Trust Corporation type arrangement that solved the savings and loans crisis in the US during the 1980s. This will help to resolve the bad debts associated with Fannie and Freddie as well as AIG. The implication is that this will stablize the market allowing better liquidity of the market and restore some investor confidence - Which has been in short demand in recent days.
Final implication
This is in technical analysis what we call a key reversal day, when the stock market started low and closed high at an astonishing volume. Normally, a key reversal day signals a change in trend and here is where the technical rebound will probably start. So is the bottom reached? There is no clear answer yet as we are still in a clear downtrend. Until the the Dow reaches 11800 and above than we are safely out of the crisis zone. Thats another 8% upwards to go. For now, we should be in a clear zone from the drabbing for another week or so, until something blows up.
Other good news is that we are in the traditionally weak september months. The december effect of stocks rising during winter period will probably help the market along. Again, we have to look to the housing market to stablize for the whole crisis to resolve itself. Else, we will continue our financial abyass.
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