The Uptick Rule

The up-tick rule was instituted in 1938 and aimed at preventing such as crash as the one in 1929. Its goal was to prevent short sellers from bringing down the market rapidly and worked by only enabling a short sale if the previous sale was lower, hence the short sale would have to be on an uptick in price.

If I had written this previous paragraph at the end of June, it wouldn't be in the past tense.

On July 6th 2007, the uptick rule was abolished, rendering the ability of short sellers to sell on downticks. On July 19th, when bad news seemed ridiculous to contemplate the DOW closed avove 14000 for the first time ever. After the reality of the mrtgage woes hit home and only 19 days later, the DOW closed at 12861, 8.3% off its high. Dramatic volatility, huge volumes and a plunging market - could this have anything to do with the abolishment of the uptick rule. I do not know.

What I do know is that many fellow traders, who like me, prefer to trade short, are raking in the profits. The past few days have been a dartboard in the market. Shoot and short. The goal this past week has been to find any kind of upward momentum in the market - then short it, and keep shorting it. Short Apple, short RIM, short Financials, short Nike for heavens sake. Just short it.

Joe Investor has most likely never even heard of the uptick rule, and probably has little care for it. But could it be possible that the abolishment of this rule has magnified the dramatic pullback of the market over the past few weeks? It's definitely something worth pondering as we go forward. Will the SEC even go as far as to reverse its decision to abolish the rule? Not likely, but possible. It may be some time until we see a bottom in the mortgage mess that has tormented the market of late. Until then, all we can do is short.

Down-tick.

Goodbye Joe.