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Stability of the Universe Part 2

Backstory:

  1. DAX turned out to be a loser following Brexit.
  2. European banks pose a risk to financial system to the extent short selling has been banned.
  3. Deutsche Bank is a biggest potential risk among globally systemically important bank according to IMF.

 

This is DB’s chart today↓.

Deutsche Bank 4-hourly chart

Deutsche Bank 4-hourly chart

While this is a small H4 pattern, it is nevertheless a continuation pattern in a stock which traded at high EUR152.28 back in May 2007. I do not encourage to trade this although CFDs are available – short trades might be banned/suspended in which case one may be trapped. I covered this when I wrote about the ban on BMPS short selling.

In my opinion short sellers have to keep this in mind – banning short selling is a tool that every stock market regulator in the world is likely to employ when the going gets tough. This post ‘What you need to know about stock market crashes‘ written in July last year tells you what to expect when stocks are falling.

“Short sellers beware. Anyone who think they can make money on the downside should take note: while authorities have no problem with irrational, exuberant buyers, they will always villianize sellers. Short selling will certainly be banned.”

Coming back to BMPS, there is a lesson here – don’t try to stay until the party is over. Anyone who caught the short from July 2007 high at EUR93, from the halfway mark at EUR46.5 or at any point such as EUR10 or EUR5 should have exited the short. Never go for the killing by waiting around for price to hit zero.

Just think about it – you have an existing short position on this stock -> regulators ban short selling -> the press release doesn’t say what happens to existing shorts -> it scares you -> you got to call up your broker to find out how to exit the position.

Baseline is when the exit closes and you are trapped you are going to be really upset. In a really scary scenario, there is no exit until such a point as the regulator says so. This means that timing is against you, price might be against you.

For older stock market participants, recall the CLOB incident in 1998 where nearly 200,000 mostly Singapore investors trading Malaysia stocks through the Central Limit Order Book got their shares frozen during the Asian Financial Crisis.

 

BUT if DB’s threat is not overstated then one should keep an eye on this as well as BMPS which touched new low of EUR 0.25 today as well as DAX30.

According to Wikipedia, Deutsche Bank has a 4.11% weight of DAX and is the 8th largest among 30 components (21 September 2015).

This is DAX chart at the moment.

DAX30 daily chart

DAX30 daily chart

 

Finally this fascinating infographic from Visual Capitalist.

Courtesy of: Visual Capitalist

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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