How the Government’s Short-Selling Ban Killed Oil Prices
Sep 8th, 2008 | By Rick Pendergraft | Category: Oil Investment & Alternative EnergyThe recent ban on naked short selling (between July 15 and August 11) propped up the financial sector, the airlines sector, and the dollar. At the same time they killed oil, says Rick Pengergraft.
This from Investor’s Daily Edge:
The date of that announcement by the Fed was on July 15. That directive expired at midnight on August 11. With the big brother not there to protect its little siblings any longer, I expected the financials to get crushed immediately.
While it didn’t quite happen like I thought it would, I want you to look at a few charts. I have taken the liberty of marking July 15 and August 11 with arrows.
Notice that the rallies in the financials, the S&P and the airlines all started on July 15. You should also note that the upside momentum for all three came to a halt on August 11.
The chart of oil that I showed in the article on August 18 showed how oil had peaked just before the July 15 SEC announcement, but the downswing really kicked in with the announcement. Notice on the chart below that oil did stabilize around August 11, but the relief from Hurricane Gustav not being as damaging as projected caused oil to break below the $110 level. I had been watching this level of support as it was the site of old support and also the site of the 200-day moving average.
Looking at the way these dates jump out on the chart caused me to re-think an answer I gave in a recent interview. I was asked how widespread I thought naked short selling was. My answer was that I thought there were lots of institutions doing it, so it was widespread from that perspective. On the other hand, I didn’t think the number of stocks being targeted by naked short sellers was all that widespread. But looking at these charts, I am starting to think the problem is greater than I originally thought.
Source: Two Dates That Stand Out On the Charts
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Rick is currently the Editor-in-Chief of The ETF Options Trader and the Triple Wave Investor. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. He lives near Delray Beach, FL with his wife and three children.
