Short Sale Ban Lifted

Today was the first day since September 19 that many financial stocks could be sold short. And there was certainly a lot of selling today. The Financial Select Sector ETF (XLF) dropped 10.4%.

If you only consider today's action, you may conclude that the short-selling ban was working. That could not be further from the truth. Financials rose nearly 12% on the day the ban was instituted, but it was almost all downhill after that. Only 4 of the next 13 days were positive. Over the whole period the ban was in effect, the XLF fell 23.6% (from the close on 9/18 to the close on 10/8).

The major indices have seen declines, many of them severe, in the last 7 consecutive trading sessions. We most certainly would have seen a short-squeeze within that period, had short sales been allowed.