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mortiz

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Reply with quote  #1 

On July 6, 2007, the SEC eliminated the uptick rule for shorting equities, the details at this link:

http://www.sec.gov/news/speech/2006/spch120406ccc-10a.htm

The complete ramifications of being able to short equities on any tick, up, down or no change may take months to determine, but coincidence or not, there is already some apparent changes in some of the affected data.  Whether these perceived short/tick data behavioral changes are just paranoia on my part will be known in the fullness of time.

First is a ten day moving average of the daily NYSE tick low as reported by Quote.com.  Since the uptick requirement has now been abolished for 11 trading days, the current ten day MA data is entirely comprised of open shorting.  The daily tick lows 10 MA are flirting with -1000, which in the past have usually coincided with multi-day serious price declines.



Darris kindly provided some of his 10 minute tick data and below chart is a snapshot of the data over the past several weeks.  The blue and brown curves EMAs of the combined NASDAQ (tickq) and NYSE (tick) 10 minute tick data... maybe just a coincidence, but the range of this data has drifted lower.  This data set goes back over one year, and the past two weeks have noticeably taken on a lower range for those times when prices were not precipitously dropping.



The next chart is from the NYSE SDOT database providing several interesting data points including the volume of short sales on a daily basis. Had an exchange with Jason Goepfert on this data's recent behavior and Jason contends it is likely not a coincidence the SDOT short volume percentages have increased to high levels in the two weeks following the elimination of the uptick rule for initiating short positions.

Our data only goes back nine months, so for now we can only guess how these recent elevate levels compare with the past.  I am involved in a new project where we are developing software to process raw daily files of this data extending back to April 2004.  So perhaps upon the completion of the project, we will have a better feel for the impact of the uptick rule abolition.



The odd lot short sales have shown a spike in activity of late, illustrated by the following chart.  The odd lot short sales had significant spikes in March and May of 2007, prior to the elimination of the uptick rule, but it look as though the effects may be creeping into the odd lots trading.



The uptick rule abolition was only in force for one week for the most recent NYSE short interest report, but the short interest ratio continues to climb at a brisk rate.



In summary, we will not be able to grasp the actual effect of the uptick rule abolition for months to come, but it is not a stretch to predict the ease in initiating short sales will have an impact upon several indicators in the technician's tool box... stay tuned.

FWIW

Randy
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Rightfield

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Reply with quote  #2 
Hi Randy..... I find it very interesting that the abolition of the uptick rule for shorting has come precisely at a time when both the NYSE and Naz short interest is at all time record highs...in essence its like feeding more wood to an already raging fire. And whether its odd lotters or the total volume of short sales, there is apparently a huge appetite to short even at these record levels!...you've probably seen this chart (courtesy of Jason Goepfert ) of the naz short interest with the SI ratio hitting yet another all time high while the SI itself has gone parabolic...it appears  a very significant naz price bottom marks  these extreme SI ratio  levels  ...of course there is always a new hook, but I still find this chart rather telling.

http://www.sentimentrader.com/subscriber/charts/WEEKLY/SHORT_INT_NASDAQ.htm

RF 

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All that happens is symbol, and as it represents itself perfectly, it points to the rest.----GOETHE

Money knows what money likes...and money likes to make more money.---fib_1618

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