For 3 hours this morning, I tried to short some financial stocks. I could not execute a single short trade. No shares were available to borrow. I just came from Karl Denninger’s Blog and he mentions the same thing.
Skimming through what he said, he suggested that the brokerage firms are banning shorts of the stocks on the Feds list. I also wasn’t able to short two financial stocks not on the list, so that may not be the case.
My thought was that there has to be an awful lot of people shorting the financials. Plus if there are no short positions available, the time is ripe for the stock to take off. One reader [Old gold bug] pointed out to me a while back, “When you are right too soon, you are wrong.”
I’m not sure what is going on here, but there is another possible play in motion. The big holders could be taking delivery of the stock. Once the stock is out of street name it kind of kills the broker’s ability to offer it as a short. There is a window of vulnerability here. How long does it take to get the shares delivered to the holder? They can't sell the shares until they receive the certificate.
I really don’t know what to make of it. If Karl’s suggestion is right, then there are going to be “Air Pockets,” where there are no buyers and you have 10-20 dollar drops. A lot of these stocks couldn’t survive half an air pocket.
On the other hand, if everyone is short the market; it is liable to take off.
The thing that no one really has said much about is the SEC changing the rules of the game. Last weekend’s rule change cost me some bucks. I’m getting ready to take my toys and move off shore to play.