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Posts Tagged ‘Short-Selling’

The Euro Breaks Long-Term Support: Watch Out for Short Covering

May 16, 2010 1 comment

The Euro just broke four year lows over continuing fear over the Greece Sovereign debt crises and the related risks of contagion to Portugal, Spain, Ireland and the rest of the Euro zone.

While the situation is certainly bleak, a large majority of traders are currently short the Euro and you don’t want to sell lows. You can see from the chart below that we just hit a medium term short target and although its definitely possible that we could just keep going in an extension, it’s also very possible that we could see a near-term retracement to 1.26’s as shorts take profit in a crowded trade.

-MJB

(Click to Enlarge)

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Naked Short-Selling

September 30, 2009 Leave a comment

I normally have a lot of respect for the Clusterstock blog. ¬†They have witty and sarcastic commentary bringing the reader’s attention to events that matter to the markets. ¬†This article about naked short-selling, written by John Carney and found here, however, disappoints me because I believe he misses the point.

Mr. Carney’s argument that naked short-selling, the practice of selling shares that you haven’t bothered to borrow in the first place, is ok rests on his claim that whether or not the seller has the shares is irrelevant because the amount of shares that are net short is no different than regular shorting. This is wrong.

Firstly, by eliminating the need to search for shares to borrow, naked shorting can happen a lot quicker, which raises volatility. We may only be talking about a matter of minutes, but if thousands of these transactions are happening at any one time, this can make a huge difference. Secondly, it can create a scramble to find the shares the shorter needs to close out the position, and if there are not enough available, the investor who thought he had bought an amount of shares from the shorter is screwed. This creates dissatisfaction in the market, to the disservice of all. Finally, by not disclosing their position, the number of net Shorters can increase dramatically as they can have multiple “claims” on the same shares, which can amplify the effect of the short interest and possibly cause a run on the stock.