SKF: How The Ban On Shorting Played Out

(Click On Charts To Enlarge)

The SKF is an UltraShort Financial Fund that attempts to mirror roughly TWICE the performance of the financials on the DOWNSIDE. Chart #1 is a repost of the Bullish Wolfe back in July (bearish for financials). The steep slope of that target line (#6) looked impossible to achieve, but it got MADE on July 15.

The elements of a Wolfe Wave, basically, are (1) a strong directional move; (2) a pattern that develops in the direction of the Lead-In (in this case, down), (3) a Wave 5 Fakeout to a new high or a new low (in this case a new low), then a HUGE RIP in the other direction to the target Line #6.

The basic idea is to get the proverbial "everyone" wrong-footed on the breakdown, at the Wave #5 fakeout.

After the Bullish Wolfe Wave got MADE on July 15, the SKF immediately tanked, which became the Lead-In for another Bullish Wolfe Wave! In Chart #2, we can see that we got the Wolfe Wave pattern (#1-#4) and then the Wave 5 Fakeout on September 8 (Green #5) getting everyone thinking that the financials would rally because this UltraShort Fund had broken down. Wrong, and it "should be" wrong. That's the hallmark of a Wolfe Wave: to fake "everyone" out.

The SKF broke out to the upside, al-lmost got to the target line in mid-September, then the "bad news" hit for SKF (UltraShort). The fundamentals trumped the technicals at that point.

September 18, after the market close, it was announced that no shorting would be allowed in the financials until October 2, later extended to the October 8 close. As a result, who in their right mind would want to own the SKF, and ULTRASHORT fund? No one!

Let's look at what happened. The September 19 open for the SKF was a dreadful CRASH opening. It gapped down 24.6%, from 115.44 to 87.63. Tremendous fear of being short the financials because "everyone knew" that the financials would rally if no one could short them. WRONG. It was another downside fakeout, then the technicals trumped the fundamental news.

The CRASH opening turned out to be the exact LOW for the SKF! Actually, 87.00 right after the opening. Despite the intervention, i.e., outside interference in the markets, the SKF rallied and the Bullish Wolfe Wave target MADE on October 9, one day after the shorting ban was lifted, indicating that the finacials tanked on their own without anyone shorting them. The no shorting ban not only didn't prevent the financial stocks from tanking, it very like exacerbated the decline or at least contributed to it.

Independent of all of that, I thought that the TWO Bullish Wolfe Wave targets in the SKF getting MADE was interesting, and VERY interesting that the gain in the UltraShort Financials (SKF) was a whopping 136% gain from the $87 "no shorting" opening on September 19 to the eventual high of $205 on October 10.

This is a great example of how those who go against "conventional wisdom" can make so much money. Whew! I wish that I could tell you that I was one of those who did, but I didn't. I made some on the UYG (UltraFinancials) off the October 10 low, but not anywhere near what I should have. Coulda..Shoulda...Woulda...we all "coulda" been geniuses. LOL.