Panic in the street (Wall Street) led to a sell of that dropped the markets over 2% yesterday. This was based on a Fed announcement that the economic recovery was going slower than hoped for and that they would keep interest rates low for an extended period of time.
Really? This is the reason for the sell off?
There is nothing in the Fed announcement that is surprising. What we do have is an opportunity of for market manipulation, and market manipulation is what we got. Once the selling momentum gets going, other big traders feel they have to sell to avoid being caught. The equities they sold (pretty much everything) were not any worse than they were last week and will be next week.
Now, when the manipulators smell the blood in the water they start to short everything. They know that the little bit of uncertainty caused by the Fed announcement is going to put a damper on buying and they can start the downward spiral. As it picks up, others actually dump positions with the intention of reestablishing them at a lower price point. If you look at the statistics, you find that short sales were up 200 million shares since Monday. Now there is, in today's market always a significant amount of short selling as hedge funds basically take and drop short term positions. However, when the blood is in the water we see a tremendous increase an when it is successful, as it often is, the stock market goes down.
Now, at some point these short positions have to be covered and that will theoretically lead to a market rebound. However, I think the American public is simply tired of it and as the manipulation continues they are taking money out and putting it in bonds.
In my opinion, allowing short selling serves no legitimate purpose. It is not investing, it is gambling, but gambling that impacts investors. It allows some people to make money simply by manipulating stocks that otherwise might would probably behave quite differently.
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