Today there were rumors of European authorities contemplating a ban on short-selling. It is believed that today’s rally resulted from short-sellers covering in anticipation of the new rules. However, if you remember, the SEC imposed similar rules in July of 2008. This maneuver simply resulted in delaying the inevitable. Ultimately, stocks continued to decline until March of 2009. All eyes will be on Europe tomorrow.
Perhaps a better explanation for today’s rally was simply the extreme oversold condition in the equity market and an unexpected drop in jobless claims this morning. As of yesterday’s close, over 95% of the S&P 500 was in oversold territory. Gold retreated after the CME raised margin requirements by 22 percent.