Possible Short Term Bounce in Financials Coming?

Today, securities regulators issued an emergency rule on Tuesday to limit certain types of short selling in major financial firms, including Fannie Mae and Freddie Mac.

The rule is the latest effort by the U.S. Securities and Exchange Commission to clamp down on market manipulation that some blame for the sharp declines in financial stocks and the demise of investment bank Bear Stearns in March. The rule will go into effect on Monday, July 21, and last through July 29, although it could be extended to last up to 30 days. The SEC said it will consider rules to address short selling issues across the entire stock market. The emergency rule applies to 19 financial firms including Lehman Brothers, Goldman Sachs, Merrill Lynch, Morgan Stanley, JPMorgan Chase & Co and Citigroup Inc.

To take advantage of this trade if a possible short covering + bounce in financials is coming is the ProShares Ultra Financials (UYG) ETF. Prior to June 24, 2008, the fund had never traded more than 50 million shares in a day. From June 24 to July 10, it traded more than 50 million shares 3 times. It’s traded more than 50 million shares each of the last 4 trading days, including a record breaking 105.3 million shares today.

UPDATE 7/18/2008:
WOW. UYG ran 35% from the time I called it. I recommend taking profits and waiting for financials to bounce with long term holders than short covering.