Tuesday, November 27, 2007

More DOW Charting


Has anyone else noticed the wild up and down daily swings in the DOW since mid-summer? I thought it was due to erratic / emotional investors but it may actually be the result of something else.

I was trolling the Yahoo message boards on a particular stock at lunch and I saw a random comment about how the demise of the Uptick Rule on July 6, 2007, was allowing Hedge funds to distort the daily stock trends. I went to my handy dandy DOW graph to look at the YTD to see if I could spot anything to back up that claim and, sure enough, you can sort of see it. To the left of the red arrow (July 6th) it's a smoother line. To the right of the arrow, it gets quite jagged. As always, just click on the image above to enlarge it for easier viewing.

I'm not sure that it means anything important except maybe to give some peace of mind to people who freak about their retirement portfolios when they see the market leap and lurch like that every day. Short selling in general does seem a little... unseemly, though.

For those who are novices at this stuff (like, um, me...), here's the definition of the Uptick rule I found at Investopedia:
A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. The SEC eliminated the rule on July 6, 2007.
(Ding dang, ya'll... how many 'pedias are there???)

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