'No Shorts' Outperforming

Last week we highlighted Bloomberg's "No Short" index of US stocks that can't currently be shorted.  As shown below, the "No Short" index is down 1.43% since the SEC rules were put in place two Fridays ago.  Over the same time period, the S&P 500 has declined by 5.27%, so the rule does seem to be doing what the SEC wanted it to do, regardless of how ridiculous it is.

Comments

[short WFC:]

yes, and the short may be allowed back oct 2 :)
i remember when short term myopic 'solutions' thats dont address the cause were ridiculed now its called 'policy'
1. the

2008 Sep 30 02:55 PM

[rogersails:]

Of course it's helping - for a while. In a normal market people sell short, then they have to buy to cover. For a little while, the shorts will all have to buy to cover to unwind, with no offsetting short sails. Once the short's unwind, they will perform wit, or worse than the market

2008 Sep 30 03:45 PM

[1worldcurrency:]

This is too short a time frame to have any meaning whatsoever, in addition to the issue above. Is it cap-weighted ? What about Wachovia, Wamu? Didn't help them. It is clear from the graphs that all the divergence occurred on the first day, which was enormous short squeeze, and a publicity bonanza. The special protection shown these stocks, shown by the bailout attempt, signals investors that market forces are ignored by the rule makers. The game is rigged. But the underlying fundamentals of the market tend to catch up.

2008 Sep 30 04:51 PM

[GKM:]

So the most oversold piece of the market is out performing the least oversold piece of the market and that's because of the no short list. Well when did they throw gold miners on the no selling list because they've out performed the no short list. Brilliant analysis boys. I'm just glad you aren't charging for this because you absolutely get what you pay for here.

2008 Sep 30 05:09 PM

[drierp:]

I'll second GKM.. financials were toast, down more than anyone else and on high fears.. No shorts + sec actions + possible 700B fix = up 3% more than everyone else.. wow, you're analysis was genius.. or at least it made me laugh.

2008 Sep 30 05:43 PM

[trendsrus:]

Ban the crooks forever. Shorts contribute NOTHING to the market...

2008 Sep 30 06:18 PM

[trendsrus:]

GKM and the others with thier heads in the sand. IF the SEC would take away the market maker exception THEN you would see the reality you delusionally believe impossible. As it stands now, the market makers (the primary manipulators and or avenues of manipulation) are still in business and still shorting...

2008 Sep 30 06:21 PM

[OnW:]

Is it not true that when there are more sellers than buyers, then the market generally declines? Isn't that the way of demand/supply? Doesn't selling short add supply, which then tends to lower price?

2008 Sep 30 08:01 PM

[Fighting Yoda:]

Shorts add liquidity and price discovery to the market – a very very important function needed for smooth functioning of the market. They take the maximum risk – they are outnumbered and out gunned, and despised. Just imagined of the market was shorted enough so the bubble would not have formed. That does not happen because these same individuals likely on the long side of the market at that point.

Shorts have exposed the lies in the balance sheets and flawed business models – Fonie/Fraudie, GS, MS etc. Wamu and Wachovia fell under the weight of their own balance sheets, not by shorts. Lehman was insolvent – all the liquidity that Fed provided could not help it.

Shorts have been completely vindicated they are the heroes.

2008 Sep 30 08:53 PM

[GKM:]

Such naivety from so many. Shorts are pre-booked BUYERS. They can only close their position by BUYING. Longs on the other hand are natural SELLERS. They can only close their position by SELLING. Get a clue.

2008 Sep 30 10:37 PM

[glassbox:]

GKM, its such a stretch to call shorts pre-booked buyers. Don't you know that most shorts that stay short don't intend to 'pre book' a buy - they intend to stay that way until the company goes under.

And by the way, the no shorting rule only applies to new short position established. Given that this rule was only announced when short interest in the market is at the peak, its really silly to even make any conclusion out of this. I will make a conclusion if the rule also applies to all who shorted before it- then, it will be fair to say what the rule has achieved.

2008 Oct 01 02:17 AM

[Augustus:]

The fact that the No Short index has performed better may have more to do with the bailout bill than with being on the no short list. When the govt. directs $700 Billion at one particular sector it sometimes has an effect.

2008 Oct 01 08:44 AM