Yesterday the Securities and Exchange Commission (SEC) extended its emergency action restricting naked short selling of Freddie Mac, Fannie Mae and 17 investment banks.
The initial emergency action on July 15 pulled the market out of a downward spiral that had hit two-year lows. After a substantial recovery, nearly 900 points in the Dow Jones Industrial Average, the market turned south again, retracing the move by more than the notable 61.8% Fibonacci level. The extension spurred another impressive two-day rally.
But we have to question where this faith is coming from. Sure it helps to put a bottom below the investment banks but it is based on the notion that “there now exists a substantial threat of sudden and excessive fluctuations of securities prices generally and disruption in the functioning of the securities markets that could threaten fair and orderly markets” according to the SEC that described this as “unusual and extraordinary circumstances.”
