Where is the panic?

We are bouncing off the MOB on the weekly chart of the ($SPX).  From my post on June 4th, we have reached the intial downside target. 

 

The daily chart shows that if we bounce enough for our daily stochastic to become overbought, we may have the opportunity to short more.

I will now look at the ($VIX) and the TED Spread to see where we are in relation to where we were at the March low.

First, the ($VIX).

TED Spread :

We are in a worse position than we were in March, yet panic levels are not near where they were.

Why so much confidence in the downside?  Because the trend is down.

Now, I want to comment on the crackdown on short sellers.  Whenever a company blames short sellers for their troubles, it is a huge tell that there are more problems than the company wants to admit.  We have seen this repeatedly.  We saw it with Enron, we are seeing it with Lehman Brothers (LEH).  Now, government agencies want to curb short selling.  This is a tell.  The problems are deep and politicians think curbing short selling will help.  It won't.  Time and price are the only cure to the problems we face. 

Conclusion :

We are not near a bottom.  If we bounce further, it is an opportunity to short more. 

Joel Stahl

Comments

[Richard]

Great insight! The two days were a sucker's rally.

[Jay]

Yes! Look out below!

My understanding of the original SEC intent of the proposed rule to "crackdown on naked short sellers" was to curb a specific fraudulent practice (failure to deliver) that has been used extensively to artifically depress the price of low priced (newly issued) stocks. See this link: http://www.cato.org/pubs/regulation/regv31n1/v31n1-7.pdf.

Now they want to use this rule to "protect" financial stocks from legitimate short-selling. Good luck!