Dec. 20th, 2011
The markets were up sharply today, 3%, on little news.
Typically before a holiday traders close their trading books and hit the slopes. The result is less volume which can exacerbate minor moves. Short covering may have also been a culprit for the strong rally. Short covering occurs when shorts need to reverse their trades and thus go long. When the market started moving north, the shorts began losing money and ultimately they had to close their positions by going long and thus cover their shorts.
7 comments:
I think it is interesting that the market seems to be doing really well yet it is in part due to Short covering. I think sometimes this can also lead to misinterpretation by the typical American because if they don't understand short covering they could be convinced the economy doing extremely well and will continue to do so when it might not. It could give them false optimism and they could make decisions in the market that might not be as smart if they knew what was actually happening.
I find it interesting that due to the upcoming holiday, the markets are up by 3%. But since the market is going up, it will eventually make the shorts start to lose money. This ultimately has a negative effect due to the shorts
Short covering could give them false hopes which, could result in bad decisions in the market.
Even if the markets go up it could only be for 1-2 days before they start to go down again. The economy still seems weak and I wouldn't get to excited about the increase.
the holiday plays a major factor in why the market seems this way.The holiday brings attention to holders which makes decisions based on estaminets.
Hopefully consumers and traders will not be fooled by these unusual statistics in the future and send the economy in the wrong direction.
I think it was pretty obvious that the markets jumped 3% was due to the holidays, and the people going short should have realized that and I assume a good amount of them did.
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