Archive

Posts Tagged ‘Short Selling’

Citibank Nationalised, 50,000 Employees Fired And Still The Markets Rise. Why? Ignorance And Delusion.

November 24th, 2008 No comments

Sad Markets

Sad Markets

Citibank, having already announced it is to sack 50,000 employees worldwide is being nationalised by the US government. And still the markets rise – why?

At the end of last week the DJI threatened falling below 7,500 a psychologically significant number. A combination of three factors lead to the rise in markets at the end of last week:

Firstly the news of Obama’s treasury secretary being widely leaked – of course the markets love the idea that the chairman of the NY fed will run the treasury. They could hope for no better friend.

Secondly the 7,500 barrier on the DJI. A lot of people are still thinking this is a market correction gone too far already. They are on the wrong side of the fence and have set themselves nominal figures under which they will buy stocks as they must be “cheap”. For some this is 8,000 for others 7,500. They are arbitrary choices. Buying activity by people with their heads stuck in the sand certainly contributed to the rise in the DJI at the end of the week.

Lastly the majority of active short term players and traders in the market are now betting it will go down but they do not like taking short positions and leaving them open over the weekend. The ban on short selling securities has far from stopped activity whereby one sells a future or a contract for difference or other instrument that has a knock on effect on the underlying market, with a view to profiting from market falls.

These traders short the market every time they see it peaking and then they hold the position and profit as the market falls. But they do not know what news will occur over the weekend and with volatile markets such as these and so they are closing positions on Friday afternoons pushing up end of week market vluations.

The short and medium term outlook for the DJI is still downwards. It will be under 7,500 before Christmas and probably nearer 5,000.

Share