Cramer: Stupendous Short Sale Volume Drove Banks Stocks Down

That was an old-fashioned bear raid that drove bank stock prices into the tank last month, Jim Cramer reports:

Here are the hard numbers, courtesy of a source inside the New York Stock Exchange:

Just in the 12 days leading up to the Nov. 24 Citigroup bailout, short selling accounted for over 49% of the total trading volume in that company’s stock. For JPMorgan Chase, it was 41%. Bank of America: 35%. Goldman Sachs: 40%. Morgan Stanley: 37%. Wachovia: 42%. Wells Fargo: 42%.

As a result, these stocks tumbled anywhere between 69% and 27% over that time period--all because of huge volumes of short selling. [Emph. added]

Forty-nine percent of total volumes is a lot of volume! Just to reiterate, it helped drive Citi down by 74% in less than three weeks. The decline didn’t end until the government stepped in with a $20 billion bailout of Citi on November 24.

In the meantime, the selling was almost enough to put the entire U.S. banking system over the edge, which would have been an unwelcome side-effect. Maybe a reinstitution of the uptick rule isn’t such a bad idea. I’m sure NakedShorts will remind me why that’s not feasible. . . . Ah, now I remember. . .

Comments

[DonSuper:]

Manipulation has to stop, and the uptick rule restored...

However, banks could have given this shorts a good lesson buying significant amounts of stock at those depressed prices, to give them a lesson like the one Posche gave shorts with VW stock...

2008 Dec 17 02:34 PM