Two questions this week:
1. What do you mean when you say a stock is over-extended?
2. What do the new SEC short selling rules mean for traders, particularly short-biased penny-stock traders? I give my opinion of what it means to me. Check out this WSJ blog post explaining the rule and this more-detailed Bloomberg article.
One thought on “Q&A: What is an over-extended stock and what do the new SEC short selling rules mean for traders?”
From the Bloomberg article: “… was concerned temporary curbs would encourage bearish bets because traders would rush in to execute short sales before the circuit breaker was triggered.”
I’m wondering if the circuit breaker part of the rule might produce a “stair-step” or sawtooth pattern in the chart of a falling stock where there would be a rush to short a stock on initial weakness or the first g/r move but then shorts are prevented from bringing the price down further until the breaker gets released.
I guess time will tell as this rule gets put into place, but I think you’re right that this rule will have more effect on the major market hi-volume stocks.
Also, good find on STTN but what happened on Dec 28th to make the price go from .11 to .40? Reverse-split?