Uptick rule

[CoralReef]

I don't really get this "bear raid" concept.

I mean, what do like 1000 traders call each other up, pick a stock, do the count down 5...4...3...2..1 "ok boys, start shorting!" Which wouldnt work anyway because you'd have everybody trying to cover ahead of everybody else.

BTW. Cramer is a clown. He belongs in a circus or a mental institution. Those that follow him are sheep.

 

[abc1]

Quote from HedgefundTrader2:

All you have to do is look at the charts of these companies and tell me how badly they were mauled in last few months due short sellers and bears raiding the loot wiping out investors and retail public en masse... I mean those vicious sell offs where puts were bought ahead of shorting..completely wild wild West..

GOOG, CROX, SIGM, BIDU, AAPL, DRYS

IF we had an uptick rule this wouldn't have happened.

Hmm... strongly disagree with this.

If you had an uptick rule all you would see would be a large volume of sellers which would push the price down as the market adjusted to the volume. Remember a stock doesn't have to trade at a price for the market to move.

Companies like Google and Baidu I've always thought of as hard to price anyway; how does one value a website afterall. Their stock is are also very volatile and like a lot of stock, the realm of punters so intrinsic or fair value (if there is such a thing) compared to where they are priced is anybody's guess.

abc1

 

[abc1]

Quote from drukes1234:

Excuse my naivety but what was the reason for the uptick rule being removed? It's pretty clear the elimination of the uptick rule has contributed significantly to the upswing in volatility, would it not make more sense to re-instate the uptick rule instead of taking the funds rate to 0%?

The removal of the uptick rule is about the best thing that could have happened. In place, it completely goes against the basic concept of an order book, i.e, a market is made of buyers and sellers.

Imagine being prevented selling to someone wishing to buy because you have to wait for them to pay one cent higher to buy from you! It simply defies logic.

abc1

 

[FightTheFuture]

Quote from drukes1234:

.... also, I hate volatility unlike some of you, we all trade different strategies, I'm sure some of you are killing it out there with this volatility.

Better learn how to adapt and take advantage of changes in volatility. Volatility will change regardless of whether there is an uptick rule or not.

Volatility has increased and decreased through the decades of the uptick rule.

 

[nlimit1]

have never had an uptick rule for a reason it is about time equities did the same

 

[moondog]

the rule had to b changed anyway

 

[NUTSNEAL]

Quote from HedgefundTrader2:

All you have to do is look at the charts of these companies and tell me how badly they were mauled in last few months due short sellers and bears raiding the loot wiping out investors and retail public en masse... I mean those vicious sell offs where puts were bought ahead of shorting..completely wild wild West..

GOOG, CROX, SIGM, BIDU, AAPL, DRYS

IF we had an uptick rule this wouldn't have happened.

I believe your conclusions based on analysis are incorrect, but
I could be wrong.

First, I am confident you are correct in that shorting did add to the selloff because selling always adds downward pressure on price whether it is a short seller or a long who is liquidating.

The question, as far as price movement is concerned, is whether the downward selling pressure is enough to over power the upward buying pressure.

Often after a stock has had a five to ten fold upward move, we see nervous longs starting to lock in profits at the same time new buyers are drying up. As price begins to move down, the nervousness among longs begins to increase as their paper profits begin to deminish. This in turn causes more profit taking (selling) and downward pressure on price.
It is not uncommon for prices to be cut in half during this NORMAL profit protection process. Some of this downward selling pressure is from short sellers but a great deal of it is selling by longs. It is also quite common to see a lot of the downward movement as gap down opens of the day session.

I have attached a section of a 55 tick chart of the CME for 2/06/08, a day which saw a day session range of $108.34 for the stock. All during this day (almost during every bar) and every other down day there are plenty of opportunities to short reguardless of whether there is an uptick rule or not.

The uptick rule has an effect on whether a person is able to short at the exact price they desire but in practice it has almost no effect on wheather they are able to short or not.

Looking at the 55 tick chart of the CME (which is quite representative of this type of stock), I see no evidence that an uptick rule would have prevented short selling or had any real effect on price movement. An uptick rule might have some effect on the price movement of a small very thinly traded stock but I don't believe it would have much if any effect on highly liquid stocks.

But I could be wrong. Believe me when I say I am a big believer in perception. With me it is often a case of "What I saw!", "What I thought I saw!" and "What I now think I saw!"

Success to all in your trading.

Nutsneal

 

[failedpoet]

The uptick rule was an artificial hurdle that was an ancient as fractions being used in the electronic markets. However, the fractions were nice though... making the usual minimum spread netted $6.25 versus a $1 now. The next hurdles that make no sense in a free market model are the trading curbs/halts. Hell, a truly free model would allow 24/7 equity trading with news coming out ANYTIME during the day.

The uptick rule discussion is ironic judging from the media source, i.e. Cramer. Although I respect but not always agree with him, Cramer ran a hedge fund which unlike a mutual fund can employ shorting strategies. Most investment banks have a "Chinese wall" between themselves and their analysts to prevent conflict of interest. Unless I'm mistaken, Cramer had "TheStreet.com" while running the fund during the dot.com years. I don't know if there was any conflict of interest but the potential certainly was there. From an ethical POV, he should've chose to stay on one side of the fence but that's another story.

As an aside, I used to work in a backoffice of a daytrading software company. I would observe him pump a stock on his show and observe our clients' after-hours activity, and 9 times out of 10 they WOULD FADE Cramer and I'm sure they still do.

The BUY/HOLD "investors" always assume that THEIR STOCK is going to go up because commercials mislead them with charts showing the MARKET historically going up. Before going into a holy war about this, if they were investors, the underlying fundamentals would throttle the shorts each and every time. But a pundit like Cramer leads many uninitiated into the slaughter. Yet the BSC story irks me because I actually find him entertaining and provocative, but BSC is not a gray issue and this is why ETHICS (almost oxymoronic) is vital in the financial markets as evidenced in this matter.

Back to the point, volatility is the best thing that has happened in the markets. I don't know if a company was brought down on volatility alone because of the uptick rule?!?!? It's like the yin and yang, good versus evil, long versus short.

I realize that the following scenario is SO FANTASTIC that you must suspend disbelief, but I ask a question along with a scenario to make a point that things are not as simple as they may appear or portrayed:

If it were so simple to short (and make money) because of the uptick rule repeal, why wouldn't foreign enemies topple the U.S. economy by shorting the markets especially since the dollar is so cheap? The best thing that could happen in a SHORT trade is ZERO but the risk is so great that it's like playing Russian roulette.

In fact, the currency markets are the best example of that taking place on a macroeconomic level but that's another discussion...

Forgive me if I've oversimplified the argument but the uptick rule is a very sensitive topic for an equity trader. I did not hear Cramer's argument but even suggesting its reinstatement is really the equivalent of blowing smoke up the public's collective ass.

In fact, it's not coincidental that Cramer mostly pumps/dumps high volume stocks where volatility based on daily volume is within reasonable parameters. Talk to me about volatility in thinly traded stocks which usually represent the fringe but cutting edge fields of technology and business. If a stock is going to go up because of purely growth potential why not push these stocks? (Ooof, I'm not even talking about the OTCBB and Pinks!!!) The reason why is that you need enough players ("investors") in the stock where at least ONE will VALUE the stock more than you.

 

[HedgefundTrader2]

Quote from abc1:

Hmm... strongly disagree with this.

If you had an uptick rule all you would see would be a large volume of sellers which would push the price down as the market adjusted to the volume. Remember a stock doesn't have to trade at a price for the market to move.

Companies like Google and Baidu I've always thought of as hard to price anyway; how does one value a website afterall. Their stock is are also very volatile and like a lot of stock, the realm of punters so intrinsic or fair value (if there is such a thing) compared to where they are priced is anybody's guess.

abc1

You value a company based on EPS growth and SALES growth and not on a website. GOOG and BIDU pull in tremendous revenues worldwide and nice clean strong balance sheets.

But these companies are target for short sellers and hedge fund and bear raids because these stocks were 750 and 400 at the start of this and there was lot more potential to drive it down than say a stock like HD valued at 28...

Its the numbers that were targeted not companies. People won't short a $10 stock as they would a $400 stock. Uptick rule would have prevented at least 1/2 the damage.

 

[NUTSNEAL]

Quote from HedgefundTrader2:

People won't short a $10 stock as they would a $400 stock. Uptick rule would have prevented at least 1/2 the damage.

Please look at the 55 tick CME chart I posted and then explain to me how an uptick rule would have prevented 1/2 or really any of the damage???????????????

Nutsneal