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Last week's crisis was seemingly resolved by government action. But was all of it necessary? Bailouts is one thing (let's face it, a run on the banks was a real threat), but banning short selling in financials? What was Cox thinking (what was he thinking when he banned the uptick rule)? Given the massively bearish internals, high VIX, gold rocketing higher, three month note at WW2 levels, TED spread above 1987 crash highs, investor sentiment at historical lows for months, SPX right at long term support, weren't we primed for a reversal anyway? In fact, it is very possible that some of the move we saw on Friday was a "natural" event, given the capitulative backdrop. Now that we removed the liquidity shorts provide in a key sector, we run the risk of hitting a dry spot (no buyers)ahead of schedule in what would have most likely been an orderly reversal. The SEC might have succumbed to fear itself, failing to heed FDR's famous warning.
Overnight futures will now become an important battle ground. Stay tuned.

This entry was posted on Sunday, September 21, 2008 at 9/21/2008 09:23:00 AM. You can skip to the end and leave a response.