WED. MAY. 12- Changes in Shorting Practices

On Monday, the following link was issued from the SEC:
http://www.sec.gov/rules/final/2010/34-61595-secg.htm


In essence, the SEC adopted Rule 201 of Regulation SHO which is designed to prevent abusive short selling. Quoting directly from the SEC dictum: “Rule 201 of Regulation SHO requires a trading center1 to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent it from executing or displaying any short sale order of a "covered security," absent an exception, at a price that is equal to or below the current national best bid if the price of that security declines intra-day by 10% or more from the security's closing price as determined by the covered security's listing market as of the end of regular trading hours on the prior day. If the security experiences such a 10% or more price decline, the Rule's restrictions will be in place for the trading day on which the circuit breaker is triggered and the following day. In addition, a trading center's policies and procedures must be reasonably designed to permit the execution or display of an order marked "short exempt," regardless of its price. A trading center must also regularly surveil its policies and procedures to ascertain their effectiveness and take prompt action to remedy any deficiencies. Rule 201 applies to any "covered security," which is any NMS stock. Thus, Rule 201 generally applies to all securities, except options, that are listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market.” Ergo, what is notable for day traders here is that if a stock experiences a decline of 10% or more from the previous day’s close, a stock cannot be shorted at a price at or below the prevailing bid price. For instance, if C was 4, down 70 cents with a bid-offer of 4 to 4.01, one could not place a sell order for 25,000 shares to short at 3.99. The order would instead go in at 4.01. The other thing of note is that the effective date for these amendments was May 10, 2010, but all market participants have until November 10, 2010 to adopt the policy. The SEC actually presented several different rules which ranged from a ban of short selling if a stock fell sharply to the uptick rule to the alternative uptick rule that was ultimately approved. So, simply be ready for this rule change because to trading because it is coming.

Markets in Asia were generally higher overnight with Hong Kong up 0.3% and Australia up a similar amount. Prices are higher in Europe, but quite disparate in the nominal amount with the FTSE up 0.2% but the DAX ahead over 1%. Gold continues its breakout in trading ahead 1.5% anew and oil up slightly. The euro is actually making slight gains this morning. Futures are trading slightly higher after trading sharply lower overnight. It’s yet another day of euro tracking. If the euro remains steady, look for the gains to hold but if it gives way, the gains will rapidly dissolve. The band of the trading range will likely narrow with an upside bias for most of the session as the market failed to yield much of Monday’s strong gains despite a weakened euro yesterday.




Reiterating-


If the whole story is not there -

If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.

If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-


Good- The following stocks have good news and/or a strong technical pattern

CCME- closed near a high after raising earnings guidance

ASEI- decent earnings

ACHN- announced positive phase 1b clinical trial of ACH-1625; drug used to treat Hepatitis C

WX- decent earnings

SMTX- good earnings

HMIN- good earnings

CWS- good earnings

NLST- good earnings

CTRP good earnings

RIG- closed near a high


Bad-The following stocks have bad news and/or a weak technical pattern

DIS- poor earnings

ERTS- poor earnings

SPWRA- poor earnings

AONE- poor earnings

DFT- 11 million share offering

BXP- filed $2 billion mixed securities shelf

WLT- closed near a low

CLF- closed near a low

FCX- closed near a low

POT- closed near a low

GS- closed near a low

X- closed near a low

CF- closed near a low

NTY- closed near a low

MS- allegations have been made that MS misled investors about CDOs although hthe company has not been contacted by the US Justice Department



Earnings:

WED MAY 12 BEFORE

M

WED MAY 12 AFTER

ANW CSCO DRYS

SLW URS WFMI



Good luck today.


Epiphany Trading, LLC


www.epiphanytrading.com


Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner