Friday, July 18, 2008

"Naked" Market Outlook

Don't be fooled by the last two days of positive momentum, nothing fundamentally has changed in the US economy to validate such positive behavior.

While certainly banks having given themselves some more breathing room and oil has been dropping like a paperweight, macroeconomic characteristics such as GDP growth, unemployment, and housing starts do not show any sudden changes.

More than likely, we are seeing a quick response to the government's new short selling rules, which no longer allow "naked" shorts on 19 financial stocks. Traders now have to prove they have arranged for these shorts before they can do so.

Many consider this rule to effectively prevent shorting of these 19 stocks, and certainly a good reason why the financial sector is suddenly doing so much better.

Here is a link to the list (See Appendix A): SEC Release
Comment: It's surprising how hard it was to actually find the full list.

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