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Ass Kicking, Drastic Volatility, and the Uptick Rule

Today, I took an ass kicking by Mr. Market.

BXXX dropped -8%, BVN dropped -10%, and ETFC dropped -58%.

Anyways, my real portfolio sank -4% today.

My point of today's blog point is to point out today's bombs, and also discuss the dramatic volatility since the Uptick Rule got elminated on July 6, 2007.  The rule was established in 1938, after the Great Depression, and got eliminated recently.

My chart shows that I think we're near a short-term bottom, but with ARM adjustments hitting a peak in March 2008, things could get worse.

Take a look and give me your thoughts.

- Vooch

P.S.  Click the image to enlarge.
By Vooch at 2007-11-12 23:23 | Stocks | Vooch's blog


Re: Uptick rule elimination and volatility

Vooch, you may be quite right about the uptick rule adding to volatility though it may be too early for it to really kick in. I think a larger correction needs to occur for this effect to be more visible. But I do see how large investors can really drive the stock down by short selling at key times, thus forcing out people that may be buying on margin.

But, the uptick rule was replaced by "Regulation SHO" or something like that.

http://en.wikipedia.org/wiki/Regulation_SHO

As far as I skimmed over it, it means that a broker cannot sell short shares that they do not have access to or have borrowed from others. There are enough loop holes on that, but it means that you cannot have a run on the stock as easily as before the uptick rule was introduced in 1938.

If my understanding is correct, this means much greater short term volatility potential but not so much in long term trending.

But if short term volatility increases, that may mean higher premiums on the options side and that just may be what the SEC was looking to control better? After all, the derivative market is said to be out of control.

By adam at Tue, 2007-11-13 01:48 | login or register to post comments

More risk in your Stokblog portfolio

Vooch,

You noted that your real port. only went down 4%.... do you inherently take more risks with your virtual port?

Are you more conservative, more diversified in your real port?

General question to all - are they Mr. Conversative in real life, but Mr. Go-Go on their virtual port? Is this the Second Life effect?
By schin at Tue, 2007-11-13 08:30 | login or register to post comments

My real portfolio

Someone would have to be absolutely insane to have a real portfolio like my virtual portfolio. The only common stocks in my virtual portfolio and my real portfolio are E and QID. I'm not conservative, by any means, with my real portfolio.


So, yeah--second life effect
By smtkr at Tue, 2007-11-13 17:11 | login or register to post comments

re: My real porfolio

Either insane or insider?

Picking a bunch of TSX.V stocks is not a good idea! But, if you know what you are getting yourself into, it may not be an insane idea either. So, your portfolio was either,

 1. someone that did a lot of research in the companies and track record of the people involved as well as the merits of their current projects, or
 2. someone that picked a bunch of stocks randomly


By adam at Wed, 2007-11-14 14:20 | login or register to post comments

adam:  The Uptick Rule was

adam:  The Uptick Rule was where a shorter had to wait for the stock to uptick (move upward) before they were allowed to short.  This meant people were unable to totally drive down a stock's price without upticking.  After the rule got eliminated, it's much easier to short a stock and drive the price down quickly.  That's why we've got all this volatility.

schin:  Same stocks - different percentages.  For example, HD is 38% of my real portfolio.

- Vooch

By Vooch at Tue, 2007-11-13 13:58 | login or register to post comments

I know what uptick rule was :)

Hi Vooch,

Yes, I know what the uptick rule was when I made the original comment. My original comment though is that "Regulation SHO" seems to do the same thing for stability long-term.

- Adam

By adam at Wed, 2007-11-14 14:13 | login or register to post comments

adam,Agree.  Regulation SHO

adam,

Agree.  Regulation SHO is a good idea, but I heard there's loopholes in it.

- Vooch
By Vooch at Wed, 2007-11-14 16:58 | login or register to post comments