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They say a good trader can make money in any market condition, so I’ve been trolling the Internet for opinions on how to play this downturn. I’ve read some interesting articles and I’ve even understood some of them too. It’s amazing how much you can learn the second time around when you’re actually paying attention. A case in point: if a rule changes and you don’t know about it, does it hurt your pocketbook? By gosh, I think it does!

Back in July, the US Securities and Exchange Commission changed the “uptick” rule which may be aiding short sellers exacerbate the recent meltdown. Short sellers borrow shares, sell them, and wait to repurchase the shares at a lower price whereby they pocket the difference. Previously, the “uptick” rule required that a short sale be above the previously traded price. Well, the shackles are now off, baby! It’s how low can you go as long as you can find a buyer.

As a born again buy and hold investor, does this mean I should beat short people with a big candlestick for my portfolio woes? Erm, not so fast. According to Investopedia, short sellers were always able to sell on the downtick with financial instruments such as futures, single stock futures, currencies or market ETFs. Fundamentally, the issue still revolves around global credit risk concerns. Still, this information would have been useful to rethink purchases when market sentiment was in a state of panic.

So how can I make the best of this situation? Well, the pressures of the short sellers are creating volatile market conditions so I’ve been putting lowball bid orders on coveted blue-chip companies. Maybe I’ll get a lucky fill. Also, why don’t I join the shorting game myself? I am inexperienced but there are ETFs that do the job for you and short the market. Check out ProShares‘ Short and UltraShort ETFs. Their tagline is “The only ETFs designed to go up when markets go down”. It’s risky and a short term hold but certainly food for thought if I want to hedge my portfolio against a downturn.

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