9:00 am (EST)
As we head towards the opening bell, the market is trying to open on a higher note despite the Alcoa (AA, $7.79, down $0.12) news. Dow futures are currently up 11 points, S&P futures are up by 3.5 while the Nasdaq futures are up 11. We were looking at a sharply lower open as the Dow futures were down over 100 points earlier this morning but things turned around after the market learned that Pulte Homes (PHM, $10.77, down $0.80) was acquiring Centex (CTX, $7.62, down $0.67) for $1.3 billion.
It has been all bears this week as the Dow has lost much of its steam after a four-week rally. However, the wild card today could be the uptick rule news which could provide some momentum. The SEC will consider 3 or 4 proposals to restrict short selling and restoring the uptick rule is one of them. A “bid test” and a “circuit breaker” rule is also being considered.
The uptick rule was eliminated in 2007 after a study showed it did little to prevent the manipulation of share prices. As a short-seller, you had to wait for a stock to make an “uptick” before you could sell the shares short. With the rule gone, many on Wall Street felt this was why short sellers crushed it and made a lot of money in 2008. Without the uptick rule, short-seller’s had an easy time driving share prices down to the single digits so many feel this rule will help stabilize the market.
I don’t normally comment on such issues but this is one where I feel I need to. Why should there be an uptick rule? Just because smart investors who know how to short a stock made some money, Wall Street is calling it unfair. Well, if we have an uptick rule, we should have a “downtick” rule as well.
If you are a bearish by nature and you like to short stocks then why shouldn’t you have the same advantages as someone who is bullish? If, back in the day when Google (GOOG, $358.65, down $9.59) was making 40 and 50 point gains and you were short – wouldn’t you want a downtick rule to help you out? That means before bulls can buy the stock, they would have to wait for it to trade lower.
That’s my two cents for what it’s worth but we don’t have to worry about it anyway because we are option traders.
When we get some details on what could be in store with the uptick rule, the market could rally and we are a lot better off than where we were earlier this morning. It would be nice to see the Dow push back above 8,000 before the holiday and hold. That would give the bulls some hope with some powerful names on deck next week for earnings. Intel (INTC, $15.45, down $0.41) and Johnson & Johnson (JNJ, $51.36, down $0.84) report on Tuesday and they could have something good to say. Then again, the bar is so low that companies are going to have to say something really spectacular to get this rally started again.