In the last few days we saw the biggest stock market crash since 9/11 and today the markets are off to their biggest gains on record. The U.S. government announced plans to halt short selling. In finance, short selling or “shorting” is the practice of selling a financial instrument the seller does not own, in the hope of repurchasing them later at a lower price (here is more about it). Short selling is dangerous for the overall health of the market. If a company is not doing well, short selling just worsens the situation by making the stock less attractive to the future investors. This becomes a vicious cycle, in that it drives the stock even lower, since less people are buying.
Most financial professionals agree that halting of short selling will give the market a bit of room to breath. “For sentiment the worst could be over for financials,” said Neil Dwane, chief investment officer for Europe at Allianz Global Investors’ RCM unit.
If you take this advice please make sure that you keep a tight eye on your financials. There is still a long way to go before this extreme volatility is driven from the market. We understand that it may be hard to keep away from the 20+% gains in some stocks, but the patient person will be rewarded.