It may be a while before we joke about the desk drawers labeled "up" and "down" that financial reporters rummage in and fish out a slip of paper labeled "short covering" or "better earnings" or "profit taking" to explain that day's movements.Perhaps we see the first return to that drawer.
"It's an oversold rally after days of selling," said Joseph Saluzzi, co-head of equity trading at Themis Trading. He said that the market action so far in 2009 is likely to continue throughout the next few months. "We're going to see this kind of thing, where you have negative headline after negative headline, until one bit of good news comes out that squeezes the short-sellers."That October post offered a suggestion for future research.
There are research papers to be written on the effect of the short-selling ban on market movements. I'd be surprised if there won't be at least one that will suggest the ban on short-selling made the price declines more drastic.The news coverage raises the odds on such an article being written.
Short-selling is a process by which investors that have sold stocks short so as to take advantage of a falling market need to buy the shares back.Short interest as absorbing barrier? The proof is left to the reader as an exercise.