Sunday Rock Blog: Time For Shorts to Fry

Taking a look at the (market leading) small caps (IWM), its pretty clear that something violent has just happened. Stocks were in the midst of a healthy correction (pennant pattern) and finding support at the rising 200 dma in late October. After a shaky bounce IWM got slammed through its 200 dma but ultimately reversed in a V-bottom-like pattern retaking its 200 dma. Recently the CCI and stochastics have given buy signals and now that IWM has regained its 50 dma I see nothing but pain ahead for shorts in the coming weeks:

While most people point to the poor performance of former market leaders (like AAPL and GOOG) new leaders are emerging. Take a look at FB over the past few weeks, the rally is relentless and on strong volume. The ~3.5 month base is really paying off now:

Whether they are new leaders or just heavily shorted stocks getting squeezed (shorts fear higher taxes in 2013), 100%+ gains in popular stocks like FSLR, GMCR, and RIMM over the past six months makes for some very positive sentiment. FSLR seems to be just getting started after breaking $26 last week. It should see ~$32 by Christmas:

Shorts seem to be panicking on GMCR as it has soared 100% on huge volume spikes:

RIMM, the stock that everybody loves to hate, bulls sure aren't hating it right now. Volume has been through the roof as RIMM surged above its 200 dma (declining):

The point is, despite all the negative press lately about the "fiscal cliff" stocks have rebounded very strongly from the November lows and appear to be starting a new leg up. While many stocks have struggled lately, others have been exploding higher (see above). I'd be surprised if we don't see a continuation of the recent rally to new 52 week highs on the indexes by the end of the year. Happy holidays to all!

Disclosure: I am long IWM calls and FSLR stock.

PS.  I see all solar rallying strongly here (I am long TAN, SPWR, JASO, ASTI, ENPH, MCP also)

Bullish Solar ETF Chart (TAN) ~$18 neckline

Disclosure: I am long stock and Oct calls on FSLR, SPWR and JASO.

The Bottom in Solar Shares

Today the long awaited preliminary results of the US Commerce Department's investigation into unfair trade practices by Chinese solar companies were released. While the Commerce Department's investigation hasn't yet concluded, and a decision on the charges of dumping by Chinese solar companies hasn't been made yet, they said today that "countervailable subsidies are financial assistance from foreign governments that benefit the production of goods from foreign companies." You'd think this is a good thing for US solar companies, after all this should boost their margins as they see higher module prices in the US. You might think the beaten down, and heavily shorted, shares of FSLR and SPWR would squeeze on this sort of news. But in fact, just the opposite happened. Shares in Chinese solar companies (eg. STP, JASO, YGE) surged 10-20% on the news today while FSLR languished in the red and SPWR sold off 7.5%. Wall Street was clearly looking for larger tariffs on Chinese modules with one analyst claiming that the 3-5% tariffs are too small to be meanginful. I don't claim to know enough about the economics of solar to know whether 3-5% tarifs will be meaningful fundamentally, but psychologically this feels like a meaningful event. If this means that module prices will rise in the US, then great, anything that can stop the death spiral in solar panel prices is welcome. If US producers see higher contract prices going forward, then that will mean analysts will have to revise their earnings estimates higher, also good. Naysayers will say that this will dampen the US solar growth, but much to the surprise of those who follow the stock prices of US solar companies, the US solar market doubled last year. I find it hard to beleive that a 3-5% tarif on modules from China will significantly dampen growth. I could go on an on about how bullish I am on solar for the long run, but finally things seem to be starting to improve on the shorter term.

Despite the weakness in US solar shares, the solar etf TAN managed a gain today on more than triple the three month average volume. I see this as a sign that the tariff news is seen by the market, on the whole, as good for the solar industry. We can speculate as to why investors are buying or covering, but the price and volume action is how the market speaks. Should the strength continue, solar will have carved out a very solid looking inverse head and shoulders bottom. If the bears want to push their solar shorts further, they'll need to quickly reverse today's action. More later...
Disclosure: I am long FSLR, SPWR and JASO.

JA Solar (JASO) looks better than ever

As you know, I've been a fan of JA Solar since they did their IPO in 2007 but my opinion of the stock has varied with he times and the charts. I've kept a close eye on JASO ever since it broke out of its two year range in September, nearly doubling in price over two months. Since that peak JASO has sold off with the sector after a sharp decline in crude bringing JASO back to the breakout point for a perfect buying opportunity. Volume was strong on the initial breakout so I'd expect it to follow through (upward) from here. One word of caution on this chart, the stochastics look bearish and the CCI is giving a sell signal.

I'm no value investor by any stretch of the imagination but with a PE of under 7 and a PEG of 0.34 (five year expected) JASO looks like the cheapest growth stock on the planet. They just signed a massive five year 10GW polysilicon supply deal which is roughly equal to the annual total global production of solar cells. They certainly don't seem to be in any kind of trouble and are planning ahead for the long run, why such a low valuation? Since solar is really a call option on future energy prices, we have to check out crude:

Crude rallied to a new two year high at the close Friday, no issues there. You can draw your own conclusions about this situation. Other issues I like in the solar space are FSLR and the TAN etf.

Disclosure: I am long JASO calls.

Wrong! (QQQQ is going to be 10% off)

When I'm wrong I'll be the first to admit it and boy was I wrong about the broad market the past few months. I was seeing IWM diverge and the Q's roll over at the top of a broadening wedge (see above). Given the general expectation that Q1 will involve a hefty correction in stocks I thought that maybe this move would start in December or sooner. Wrong! My "out there" prediction is going to turn out incorrect by miles (Q's hit $40.50 by xmas). Fortunately I've done well on other positions like the Australian dollar short and JASO so my Christmas spirit will remain in tact! lol. For whatever its worth, I do still believe a severe and sharp correction in stocks is coming and I am not discouraged really at all by the recent breakout in the Q's.

Disclosure: I am slowly adding to a put position in QQQQ.

JASO's got it!

Investors who took heed last month when I recommended buying JASO before it broke out of its solid five month base did well today. After breaking out last week, JASO soared 10% the past two days in a row. As is often the case, the breakout preceded the extremely bullish news released last night by the company. JASO remains my favorite public stock in the solar energy sector and has been so for about two years now, I don't expect this to change anytime soon. While I am impressed by the recent action I expect that the stock will pullback as we approach options expiration Friday. It has closed above it's upper BB two days in a row which is not sustainable and the open intetrest on December $5 strike calls is huge. A great place to enter/add JASO would be the lower $5's later this week.

Disclosure: I own JASO stock but sold Dec $5 calls against it today.

A nice sound rounding base for solar?

I want to be bullish on solar. It seems obvious to me that in the not so distant future the cost of solar cell technology will drop enough as efficiency rises to make it the cheapest, and not to mention cleanest, source of energy. In the last energy bubble solar came close to competing without government subsidy (cost parity was effectively reached with natural gas at the peak by FSLR). I personally believe that the next leap forward for civilization (following the internet boom) will come cheap distributed energy provided by photovoltaics. Thus, I keep a close eye on the sector in the expectation that when the day comes for solar, the winning companies will see their stocks increase by orders of magnitude. Ok, enough of the anticipatory irrational exuberance, what do they look like today?

Well, not so great to be frank. Solar has underperformed the market in 2009 and as a whole is basically flat on the year. The sector is very mixed but I find that the ETF TAN is a good way to follow the industry trend. In the seven month chart above you can see that similar to JASO, the industry has been forming a wide rounding base. While TAN seems to be having difficulty getting any traction upwards, there is a series of higher lows and higher highs in place. Clearly, in order for this trend to continue TAN needs to take out $10.77 relatively soon. A break of $11.67 would be *big time* and target $18.69. I like how TAN has found support at its 200 dma for the past six months or so consistently (plus or minus a few days).

SPWRA is a stock that I bought last week in the sector but I'm not feeling so hot about right now. I picked it up after what I perceived to be an over reaction to accounting issues announced last week. The stock was down about 25% in two sessions and it seemed like a good value to me given their leadership in the single crystal silicon PV market. That being said, take a look at this beautiful bear of a long term chart:

Yikes! I think theres a good chance SPWRA is just washing out long term holders here given the volume last week and the severity of the break. But... this stock was at $165 in 2007 and aside from the global recession and a decline in energy prices nothing fundamental has gone wrong with this company (well and some recent, minor, accounting issues). I mean, many would argue that this company is the blue chip of the solar space. For the cheapest lower efficiency thin film PV its FSLR, but for the high efficiency single crystal PV its SPWRA. However, given the chart, I will have a very short patience with it. In the absence of a sharp rebound in the next week I'll be out and might even try a short. The chart is suggesting a price target in the $10 range.

Disclosure: I own JASO and SPRWA shares.

JA Solar (JASO) looks promising once again

Disclosure: I own JASO shares

Things are looking a lot better

I know a lot of you out there are tempted to sell/short this bear market rally but given the chart above I have to caution against it. Divergences in multiple indicators have been signaling a rally for months and although markets have rallied significantly from their lows I see substantial room to run further in the context of a long term downtrend (the SPX 200 dma is 27% higher). Volume was weak on Friday's new year breakout and because of that I would expect a pullback early next week, but things are coming together for the extended rally I have been anticipating for some time now. The technical picture has improved dramatically with all major averages trading above their 50 dmas which may even start to turn up soon. While the October and November highs could and should provides significant resistance, I'd guess we reach the 200 dma before this bear market rally ends.

One sector that looks particularly good right now is solar energy. This chart is overbought but looks just fantastic. Couple a bottom in energy with a broad stock market rally and the solars will take the lead. After a pullback, perhaps to the 50 dma, I am going to be adding FSLR, SPWRA, JASO and ENER.


Disclosure: I am long DXO and USO calls. I also have calls on JASO, ENER and SPWRA.

Saturday Rock Blog: Think I'm In Love or Why I Think Oil Bottomed at $35 (~$28 on USO)

Energy traders must be falling in love with this chart again. I think it looks quite similar to the top (but upside down) with a failed break followed by a trend break the other way. Although, as extremely bullish as this chart looks I think we are all nervous about the thought of rising energy prices in a recession.


This post is a follow up to these posts and a sister to this post. And for those of you who get nervous charting a derivative, here is the continuous crude contract. Hat tip to ChicagoStock.

Disclosure: I am long DXO, USO calls and my gas tank is full. I also have calls on JASO, ENER and SPWRA.

Shorts have the upper hand

Its looking pretty clear to me that the strength that I witnessed over the past few weeks has left the market. I'm open to the possibility of a renewed rally but those 50 day moving averages need to be recovered pronto. In the meantime I took some profits on FSLR, JASO and TINY. Also got stopped out of those IWM calls. It certainly hasn't helped that oil is caught in a deflationary death spiral. I am still holding on my DXO and USO calls based on the belief that oil is capitulating (bottoming) but it feels like I'm catching a falling knife. I don't think stocks are going to be able to rally until oil stops collapsing.

Good luck out there. Technically speaking, I have to say that the shorts have the upper hand on all time frames now. I'll be on holiday without internet so there won't be any posts until Friday at the earliest, then sparingly till 2009. Hope you all have some happy holidays.

Four Cases of Stocks Up on Bad News

Lately its seems like investor sentiment has been improving but its hard to pin down exactly why. One thing I've noticed over the past week or so is that stocks are shrugging off bad news. They will initially be down on some worst than expected headline number and reverse course later on in the day. Without thinking too hard you can see how this might be a good thing. If stocks aren't going down on bad news then what will happen if there is even a hint of good news? It seems to me like the mood is shifting towards more optimism about the market. When stocks are down it is being perceived as an opportunity rather than a reason to panic. So for you tonight I've got four extra ordinary cases of stocks going up on bad news recently.

1. Stock market rallies on worst than expected job losses, largest in 34 years.

From Bloomberg Friday Dec 5th, "Employers cut 533,000 jobs last month, bringing losses so far this year to 1.91 million, the Labor Department said today in Washington. November’s drop exceeded all 73 forecasts in a Bloomberg News survey. The unemployment rate rose to 6.7 percent, the highest level since 1993. ...

Payrolls were forecast to drop by 335,000, according to the median estimate in the Bloomberg survey. The jobless rate was projected to rise to 6.8 percent. Revisions for September and October increased job losses by 199,000. November was the 11th consecutive drop in payrolls. ...

Stock futures sank. Contracts on the Standard & Poor’s 500 index lost 2.1 percent to 829.90 at 8:34 a.m. in New York. "

Yep the futures sank alright, just before they popped to gain 4%+ on the day. Note the first red arrow in the chart below, the second red arrow is from #4.


2. Semiconductor stocks rallied on disappointing earnings and lowered guidance.

"Texas Instruments(TXN) tore down its estimates for fourth-quarter results late Monday, offering a revenue midpoint that was 30% below third-quarter results.

Similarly, National Semiconductor(NSM) said its fiscal third-quarter revenue would fall 30% sequentially, well below the Street's consensus analyst estimate. "


Despite the bad news NSM popped more than 10% and TXN was +6% along with the entire sector which had gaped lower Tuesday morning on all the bad news. Now some would make a lot bigger deal about the semiconductor strength than I will. In the last two bull markets this sector was a leader and was widely followed by traders looking for guidance. There may be some truth to this philosophy because the last peak for SMH was in July 2007, three months before the all time high in the dow and S&P. Personally, I preffer to follow the small caps for leadership.

3. Solar stocks held on lowered guidance and downgrades.

Tuesday, "shares of several solar companies sunk after German photovoltaic cell producer Q-Cells SE lowered its outlook through 2009 because of an expected inventory glut."

Then First Solar, was downgraded to Wednesday by Stanford Research.

And later that day, JASO CEO Samuel Yang said "over the past few weeks, we have seen a dramatic slowdown in orders, which we believe is related to macro economic conditions."


Well the solars didn't exactly pop on the news but they didn't sell off either. Each dip was met with buyers and TAN, the solar ETF, remained in a two week range. This is more of a case of stocks not dropping rather than rallying but its bullish that these stocks were able to shrug off bad news.

4. Broad market rallies with auto companies on Senate auto bailout rejection.

"Dec. 12 (Bloomberg) -- European and U.S. stock-index futures tumbled as the Senate’s rejection of a $14 billion rescue package for American automakers threatened to deepen the global economic slump. Treasuries rose, while the dollar slid. ...

“When something like this news hits the streets, all the good news is gone,” said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion. “Given the concerns over the job losses if the auto industry were to collapse, and if the rescue fails, it will send a big dampening effect to investor sentiment.”

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, lost 117, or 4.7 percent, to 2,369 at 7:42 a.m. in London. Standard & Poor’s 500 Index futures expiring in March slid 4.1 percent. The U.K.’s FTSE 100 Index is set to open 151 points lower, according to IG Markets. The MSCI Asia Pacific Index lost 3.4 percent. "

We got this news Friday morning, which nuked the overseas markets and US futures. Somehow stocks crawled back and managed to even close green. The dow and S&P gained about .7% while the small caps vaulted over 3%. GM closed down only 4% after having crashed 37% earlier in the day and Ford was up 5%. Now I realize there was alot of speculation in the media about a Treasury funded rescue but I think many agree that would have been expected in the event of a Senate rejection. The big news was that congress rejected the automaker's requests/plans, and stocks went up despite that news.

I think this another good reason to believe a major bottom has been made in stocks. I'm not saying the bear market is over or that the ultimate lows have been made. But I think stocks are due for a prolonged rally that may or may not develop into the next bull market. When I see stocks moving up on bad news I take that as a sign that its time to be buying dips rather than shorting rips.

Disclosure: I have bullish positions in solars, NSM and RUT.

Almost a Bottom in Oil

There is still no sign of a bottom on the oil daily chart (see USO below) but the massive falling wedge is reaching it's apex as volume picks up to levels not seen since the top. It won't take much for oil to break out to the upside and when it does the move should be substantial. As for targets, the 50 dma is more than a 50% gain from here and the 200 dma is a staggering 100% gain. With supply getting cut off and demand stimulus, its hard to see crude not moving higher from here. There are early reports that the collapse in gasoline prices is leading to increased demand from drivers and I'd expect to see more of that. If the US dollar weakens that will add fire to fuel.


Looking back at the 2003-2005 price action, $40 looks like it could be an area of significant support for crude. As you may recall, the low on Friday was $40.50, which I expect should be enough to bounce oil out of this wedge. A fellow trader Xerxes had a great idea in the double oil long DXO which has fallen to under $3.0, and I bought a good chunk of it today to add to some USO calls.

By the way, if crude does take off I would think the solars take the lead of any rally in US stocks. So on top of my USO and DXO positions I also have calls on JASO, SPWRA and ENER. Good luck out there!

Opportunities Abound in Solar

JA Solar, a long time favorite, has recovered my line in the sand: IPO support/resistance at $5.5. Things are looking good for JASO, I could see it hitting $12 easily. Beware earnings are coming up on the 12th but I think risk is limited, note the S&P upgrade today:

"“We expect strong earnings growth over the near-term,” he writes, “while the price of the shares has fallen notably based on various concerns such as margin pressure and the potential need for capital for expansion.” He notes that the stock trades for under 4x his 2009 EPS estimate of $1.50 a share. Montevirgen, however, slashed his price target on the stock to $9 from $20."

I'd also note that Sun Power quietly posts blowout results during the market chaos of recent weeks. SPWR is another one of my favorite solar stocks as its the leading producer of Silicon based cells in the US.

I recently posted about FSLR looking great as well.

What I hear many traders talking about right now is the potential for an Obama election to boost certain stocks and solar is cited as a prime cannidate. While I would guess this is already priced into solar stocks, long term Obama seems to be very serious about subsidising solar. Whether or not you agree with the politics of it, US photovoltaic producers could see some greener pastures ahead.

"Finding the new driver of our economy is going to be critical. There is no better potential driver that pervades all aspects of our economy than a new energy economy ... That's going to be my No. 1 priority when I get into office, assuming obviously that we have done enough to just stabilize the immediate economic situation." -Obama

Disclosure: I own JASO and SPWRA calls.

Awesome Examples of Failed Breakdowns

This is the 400th post, hurray! Both of these failed moves came from blowout earnings report and great guidance, I'd encourage you to look into these reports. FSLR and ICE both gaped higher and ran to the highs today on massive volume. In doing so they reversed significant chart breakdowns from the days prior. As I mentioned on Sunday, failed moves lead to fast moves and that's exactly whats going on with these two. Its hard to see these slowing their ascent for a few days. Click on the charts for more details.And by the way, yes, I am now bullish on First Solar. If you recall my multiple bearish posts before about FSLR, I thought it was an over bloated pig at $300 with a 150 PE. I said my target for it was $120 and it went there. Now their PE is a more reasonable ~25 and FSLR does have some good things going for them; Obama's energy policy, residential expansion, lowest cost per watt and they are demonstrating resiliancy in the face of economic hardship. I currently don't own any FSLR but looking to add and I have some JASO and SPWRA calls.

Stocks are back in freefall or Why stops are essential

There's just no way around it, stocks remain in freefall. Hopes for an intermediate term bottom failed miserably last week when the major indices broke down out of their famed symmetric triangles. While the dow jones and S&P 500 have not made new lows, this appears a technicality with the leading indices (nasdaq 100 and Russell 2000(above)) getting crushed to new five year lows on Friday. This scenario has set up a test of the 2002 bear market lows and brings new measured rule targets into play, all of which are significantly lower. Here's the dow's traingle:

The best thing for the stock market now would be a quick panic of "extreme capitulation" down to the lower 7,000's on the dow or lower 700's on the S&P. With the failure of the early October bottom the market needs some sort of extreme event to entice investors to come back to the market and shorts to cover. Right now we are back into a steady free fall so it is more important than ever to honor stops. The obvious example here is JASO. When JASO broke that 5.3 area (IPO support) the stock was crushed beyond belief, falling almost 40% in two days. The problem is that 100% of investors in JASO are now at a loss and most of them probably would be happy just to get out break even. There will be enormous resistance for JASO to rally now. That's why I suggested a stop at $5.2 when I mentioned it last week. From a technical standpoint it is impossible for me to like JASO while it remains below that IPO price.

I guess the next step here is to exploit (profit from) the weakness yourself. If stocks are gonna get crushed after breaking support then we might as well short that break and go on the offense. Take a look at ICE:
Now I realize ICE has fallen a large amount, my target was met a while ago and the PE and PEG look very attractive especially with all this volatility and volume to boost earnings. But none of that matters if the stock is going to keep making new lows. In fact the irony and absurdity of a stock falling so rapidly in the face of booming business might even accelerate the downside as panic ensues. If stocks are going to be massively devalued here I want at least some exposure to that downfall. I'm trying to keep my eyes and mind open to anything in this crazy market. Right now things look and feel pretty damn foreboding.

Ten reasons I have to buy JASO here

This crazy market sure has created some amazing opportunities, I think one of the best ones is JA Solar (JASO). This is a stock that I have been in and out of many times since their IPO a few years ago. When I first bought it I definitely underestimated the potential of the stock and sold way too early. That was summer of 2007 before the stock split when their growth really started to pick up speed. Well, here are ten reasons why I have to get back into the stock here for the long haul.

1. Its extremely cheap and profitable growth. Using lazy yahoo stats, the current PE is 15 and because their quarterly earnings growth is 321% (ttm), the forward PE is a mere 4. This growth is organic too, revenue grew 170% yoy last quarter.

2. It's a photovoltaic producer, and solar energy is the future.

3. It's China, and Jim Rogers is buying China.

4. Energy has fallen by more than 50%, it can't it go much lower.

5. Buying here is like buying the IPO, it went public just over $5.


6. JASO repeatedly found support at its 50 dma on the way up and resistance there on the way down. Currently JASO is a 100% gain from the 50 dma ($13) where I'd expect it to find resistance.

7. Positive divergence on the daily CCI.

8. It's oversold on the stochastics.

9. There are multiple unfilled gaps just above, any rally will find pockets of air up to $12-$13 (a double), which is where I'd target in the intermediate term.

10. The stock recently found support from post-IPO consolidation levels near $5.50. After breifly breaking to new 52 week lows (below this level) today, JASO sharply rebounded and now has the look of a failed breakdown. Failed moves lead to fast moves.

This situation has set up a very low risk to reward ratio. A stop can be set just below at around $5.2 and a good target would be $12. I would expect it to really take off once $7 breaks and so I've been buying March calls.

Bullish Setups for Knife Jugglers

Where to start? This market is full of amazing buying opportunities. Tonight I'm going to throw a few long ideas out there in stocks that seem to have stabilized and a few more that might get a dead cat bounce. Obviously, its going to be very hard for any stock to rally if the market continues to collapse next week but I think we have reached a point where buying stocks is extremely low risk. There is no reason to think that the bear market is over but there are alot of reasons to expect the market to bounce after the Dow had its worst weekly loss ever.

This weekend everyone is talking about AAPL which had a 9% gain Friday and barely had a loss for the week despite the broader market getting crushed. I see AAPL finding support at $87.5 and not having resistance till $115. I would note however, that AAPL is in a severe downtrend (see the cross of death) and there is no reason to expect anything more than a bounce based on this chart. I'm targeting $115 and keep a tight stop at $87.

The reward to risk ratio on that trade is not very high and you might be looking to hold AAPL for longer than the week or so it should take it to hit $115. A decent looking longer term pair trade is to short three QQQQ's for each AAPL that you go long. The AAPL/QQQQ ratio has found long term support at 2.7 and is showing positive divergence on the CCI. This chart really emphasizes the relative strength in AAPL lately:


Two others that I ran into this weekend were ICE and IBKR. These are both companies that I have liked for a while and the stocks seem to be finding some serious support. I had been tageting $65 on ICE since June and buyers have sure stepped in at that level. It looks good for a rally back up to that breakdown area at $115:


IBKR looks good up $26 but might find resistance at the declining trendline shown in red. Part of IBKR's business is in options market making and you have to think they are making a killing right now in that area. This is one I would want to buy and hold.


Other stocks that I won't bother posting charts for but have been crushed and might get a big dead cat bounce are CHK, CVX, NVDA, JWN, GM, JASO & SPWRA.

Disclosure: I own AAPL calls

Market Could Have Formed an Important Bottom But....

I was going to do a post about how the market may have formed an important bottom today. The charts (technical reversals galore), the VIX spike and the sentiment (GS finally cracking, Gold skyrocket) seem to suggest that we will move higher for a while. I was going to post some charts and make my argument. That was until I read this news:

SEC Is Set to Issue Temporary Ban Against Short Selling

If this actually happens the the stock market will collapse, and maybe not recover. We will get a true financial Armageddon. This is the action of desperate fools. This proposed intervention into supposedly free markets will cause complete chaos because short selling has been a vital part of many aspects of the stock market. These are the effects I suspect that this rule would have:

1. Complete loss of faith in US financial markets due to incompetent regulators. Money will leave the US, investors will seek other unregulated assets (like physical commodities).
2. Liquidity will dry up, shorts provide shares to buy when everyone wants to buy and no one wants to sell. Shorts bid for stocks when everyone wants to sell and no one wants to buy. Market makers will no longer be able to function. Options (insurance) would not be able to be sold.
3. Those who are currently short would now have a very good reason to not cover. They won't be able to short again if they do.
4. No short covering rallies, stocks will just fall and fall as people loose interest and want to sell their investments.
5. Complete chaos, our financial system is built on a number of assumptions. One of them is that shares can be sold short. Everything will have to be re-evaluated, no one really knows what would happen if short selling was made illegal. Brokers will loose business, maybe some will go bankrupt. Will put prices go to infinity?
6. All the attention on short selling would distract people from the real problems, oh your know, the global recession and credit crunch.

I think this type of intervention would have exactly the opposite effect that the morons at the SEC think it would. The law of unintended consequences will be working overtime if this insanity actually goes down.

Fwiw, I am long, no shorts or puts here as of today. So I'm not saying this because I'm worried about loosing money on my bearish positions. In fact this news, if it actually happens, would make me more bearish than ever. I will certainly be exiting all my positions if this actually happens then I'm buying gold and burying it in my backyard.

The SEC chairman should not only be fired, he should go to jail.

Disclosure: Long GS, AIG, ICE, JASO, UNG, DBA

Well the crazy bastards did it:

SEC Bans Short Selling of Financial Stocks

What those idiots didn't know was that the market recovered ON ITS OWN today, and that without this crap we might have made a longer term bottom. Instead, the completely inept people at the SEC went into a panic and now we get to see what happens with their BIG experiment in Socialism. Will the system crumble tomorrow or will we collapse when the ban ends? I guess we will just have to see what happens. Capitalism is rapidly dying.

Nightmare on Wall Street 3: Enter Sandman

With Halloween approaching and blood all over markets I thought that it was time for another installment of Nightmare on Wall Street, part three. The eight below are hourly plots of some of the worst blugeoned stocks over the past two weeks. I want to stress that these are not just some no-name penny stocks that are dropping like stones in freshwater, we saw Washington Mutual drop more than 50% before rebounding a little yesterday afternoon:

And of course we all know about the governemnt sponsored entity (GSE) that manages half the US mortgage market, Fannie Mae (FNM). Thats some serious market value (about $8B) that just got decapitated:

I don't know about youbut when I look at these charts, Metallica just comes to mind. The destruction, the horror, the scale of it all, enter sandman:



Lehman Brothers (LEH), one of the biggest US financial institutions in the US, founded in 1850, is at the center of the most recent panic. LEH appears to be about to file for bankruptcy as evidenced by reports of their inability to raise capital at any cost and their rapidly declining market value (currently $3B (and falling)):

Taking a step back to look at the broader picture, the S&P 500 hasn't really declined all that much in magnitude yet but the chart is anything but bullish. The benchmark index still lies below major resistance at 1265 and the declining short and long term trendlines. Any rallies are sharp and quick to get sold, I doubt the S&P can move much higher before heading back down to test the recent lows:


So there's evidence that this relentless selling is not isolated to the financials. Take a look at Apple, ouch. Some important longer term trends and support levels have been diced on AAPL this week, I have puts:

Not even our good renewable friend JASO is immune to the power selling:


Oh, and how could I forget about AIG, it one of the dow components and the 18th largest company in the world. AIG has lost almost 30% (about $30B in market cap) since Monday morning:


This last one is more for fun since it doesn't demonstrate a significant downtrend in the short term. To keep with the theme, United Airlines (UAUA) did get bludgeoned pretty bad earlier this week when Bloomberg incorrectly reported that United had filed for bankruptcy. The stock lost nearly all of its value in a few minutes before recovering:


These must be long sleepless nights for the dudes on Wall Street. Unfortunately, the waking life does not escape the nightmares in the headlines. It seems we will be hearing news of market gore for some time to come.

In other news, the bears are getting aggressive.