Today I noticed something interesting going on. I noticed how there were buyers, but they were overwhelmed. And that got me to thinking. Who on earth would sell now?
Seriously let’s think about this a bit. If you are in deep do-do with your portfolio would you sell? Probably not. Are there redemptions going on right now? Probably not. So who is selling? Shorters!
But shorters cannot sell to buyers who are not buying right?
What I feel is that any movement up is completely drowned by shorters. Though you may say, hey this is how the uptick rule would behave, yes?
No, because there would be a fundamental difference and it is a what I would call the bait and switch.
Let’s say that we have a buyer coming in at 10. Without the uptick the shorter can come in at 9.9 or 10.1. Let’s say for argument sake that the shorter comes in at 10.1, and the long goes for it. The shorter then tries 10.2, and the long goes for it.
So assuming the shorter has sold 10.1 and 10.2 the average down level is 10.15. The shorter now pulls the switch. They sell at 9.90! The original buyer is now screwed because they bought at a too high level.
Would anybody buy at 9.9? Absolutely because why would I buy at 10.2 if I could buy at 9.9. So the seller sells at 9.9, and their average down point is 10.06, with 30 shares.
The buyer on the other hand sensing a collapse steps back, but buys at lower and lower levels to which the shorter gleefully sells into.
How would the uptick rule have changed this? The shorter could not have pulled a bait and switch. If the last price were 10.20 then they would have sell at 10.21. It would then be a question of whether a long is will to sell at a lower price level.
And right now I doubt there would be a long willing to sell at a lower level! In other words a natural bottom would be formed.
When will we hit bottom?
I bid 1 Dollar for all of my equities! I kid you not here people!
The last time we had a market like this was 1929, and remember then we did not have an uptick rule. Interesting that it only took one year to figure out how good the uptick rule actually was.
One more thing that the current administration screwed up in a long line of things…