Quote from kiefer:
The rules of the SEC are designed to protect the masses, not the day traders.
1. The "masses" ... ?
Coca Cola (KO) has a float of 2.2 BILLION shares. I think there are a good chunk of "the masses" there.
Since the repeal of the uptick rule - KO is UP approx. 15%, despite the market being down approx. 10%.
The shareholders were protected, first and foremost, by the mgt. of KO adding value to the company.
The "masses" ... ?
Wal Mart (WMT) has a float of 2.3 BILLION shares. I think there are a good chunk of "the masses" there.
Wal Mart was part of the NYSE short sell "pilot study."
Despite your disregard of the study, the study seems to have gotten it right. In a weak general market since the repeal of the uptick rule (7/6/07) - Wal Mart is UP approx. 15%.
"The masses" have been "protected" just fine.
2. "What about the masses represented by the 910 mln float in MER?"
For anyone asking this question I, again, would point you toward the implied vol for the stock. Once the subprime news came out, the stock spent a fair amount of time above an implied vol of 50. At least once each month since August.
An implied vol above 50 means you need to be up on all relevant news, do your homework and start asking some serious "what if" questions.
An implied vol above 75 means you really better have an extremely sound reason to be dealing with this stock - LONG or SHORT.
The implied vols for KO and WMT have not been above 35% in the last 52 weeks.
The "smart money masses" read these tea leaves and shipped out, happily selling to the "Oh, look - MER's RSI is at 10 - its SO OVERSOLD masses." Another dose of bad news and these masses now become the "Ahhhh, FUCK !!!" masses, liquidating aggressively as the stock carves out new lows and new assholes. You may have thought this was a "bear raid."
According to Yahoo, there are just under 40 million shorts in MER. Let's assume the info is old and double the number. 80 million shorts. That leaves 830 million longs with no short seller on the other side.
Who has more fire power to (I'm sure, unintentionally) kill a stock? Clearly the panicky longs !!!
To refine this, some of these shorts have been short since Oct. or Nov. They have not been involved in shorting at lower prices. So you really got to figure it is the NEW SHORTS vs. the OLD LONGS. That ratio is probably easily 20 to 1 in favor of the longs on the book.
What I'm saying is that your "long-term investor" class had ample signs and time to vacate these stocks and go elsewhere. And many did. Some of these bear raids you are imagining were just spells of concentrated or panicked long liquidation.
3. You have said that you have noticed, sort of "out the side of your eye" some price action in thinly traded stocks.
These are, however, stocks that you, yourself, haven't even bothered to trade.
The price action, however, was so "startling" that you were inspired to post here and argue for a reversal of the 7/07/07 SEC decision.
But because these are stocks that you "sort of, kind of" only follow out of the side of your eye, but do not actually trade - you don't even know the actual symbols of these stocks.
Based upon this, you want a RULE CHANGE?
Meanwhile, I DO trade KO and WMT. And despite the fact that these stocks have proven that they (and the shareholders in them) do not need any 'uptick rule protection' - YOU want ME and my trading/investing to be affected (I referenced how KO and WMT have both performed positively in a weak general market earlier).
KO and WMT have performed well, but over the past 8 months they have been, like any stock, overvalued from time to time.
Your argument is that - I can't simply short and profit from a good stock simply being revalued a bit lower because you have SEEN "disturbing" price action in some "thinly traded stocks" that you don't even trade?
By shorting KO, I am initiating panic selling? In KO?
Dude. "MER." The CEO got fired. "C." The CEO got fired. "BSC." The CEO went on TV and said - "all is well" before the weekend where JPM made a $2/sh bid.
The "LEH" deal was, apparently, "we'll be okay - but only if we get this $4b hook up nice and fast." Up until then, their CEO was mum.
With a sector in disarray like this, THERE WAS REASON TO PANIC.
Like I said earlier. When the implied vols started getting to the 70 to 80 range, if you are long - you should have a good and solid reason for being in or getting into the stock.
Like "I really believe LEH will get financing" or "I really believe C's new CEO will turn things around" ... or ... "I really believe JPM or someone will ultimately bid close to $10 for BSC" or "The Fed will take care of everything" ... or ... whatever.
In which case, YOU SHOULDN'T CARE if a new short is voting along side a panicked long - because you think they are both wrong.
If really believe this is how things will play out - you will not get "stopped out." You will buy more.
If, instead, you DON'T KNOW how it is going to play out - vacate the stock. Before the 75% implied vol turns into 125% vol and you are stopped out by the 15% to 20% sell off you complained about in your original post.
