What Drive The Price? — Stock Trading Analysis (19)
Timing Factor
The public (or herd) believes that company performance drives the price of a stock. This is true but they ignore the fact that the price is always ahead of company performance by several months, like the carriage pulling the horse.
Why? Two groups of people are involved. The top executives of the company who sense what is going on feed the critical information to the large shareholders or their representatives who sit on the board of directors. The rest of us just play by rumors or dated information. In fact, what we see is the dust several months after the train has left the station. For instance, bank stocks started to fall quietly since November 2007 before the world knew there was a financial meltdown.
Scams and Conspiracies
The rules of the stock market are invented by the big boys with government approval. Scams and conspiracies are legally built into the system. Labeled as public investment, the system is designed to attract public funds by seducing them to buy stocks. Ironically, because of the huge money involved, the public views Wall Street with respect and even adoration.
Public seduced to participate
The public never drives the stock price but sustains its rise. There are only two inputs originated from the big players. One is a significant price rise initiated by the big guys for many days or weeks. The public will react when they see it because they are afraid of missing the boat. The other input is the continuous bombardment of good news from the analysts employed by banks, brokerage or investment firms who are also big players.
Individuals of the public never act together, but they will with these two reinforcements, thus sustaining the price surge to form a bubble eventually. When the stock runs out of favor, the big guys simply cash out, the speed depending on how much stock they hold. Great speed will bring public panic causing the stock to drop even further.
Options, Short Sales, Limit Trades
All brokerage companies keep records of the huge volumes of options, short sales, and limit trades placed by the public. Chances are they will share the data in aggregate forms (without your names). Brokerage companies are either big players or their sidekicks. They will act for their own benefit when they see an opportunity.
Options carry an expiration date. Through buying or selling a large volume of stocks, the big guys can delay the target price one day beyond the expiration, causing the option holders to lose money.
Short sales are betting for a price drop. When the big guys see a huge amount of short sales below $10, say, for a given stock, they will buy and quickly push the price up to $11 or above. This will cause the short sellers to rush for cover and lose money. This sudden price rise appears frequently with no bearing on company performance.
Limit trades set a fixed price for a buy or sell. Suppose there is a huge amount of limit buying around $10 for a given stock. A big player with lots of share holdings may want to drive the price down to $8 to get the $10 cash and buy back the stock around $8, thereby pocketing the difference.
Investment, Mutual or Hedge Funds
The explosion of various kinds of funds in recent years has made stock price movements more complicated. The funds are big players with huge cash and stock holdings. How they allocate their assets is a mystery. For instance, if they consider their 20 million share holdings of company averaging $20 per share is too high, they may dump the stock to drive the price down to $8 and buy them back at a lower price, regardless of company performance.
Financial Derivatives
This is a shady system invented by the big boys with little government supervision. Many experts believe that the recent financial meltdown is a result of derivatives tied to housing and mortgage. You should ask the big boys how the system works for them because I dont know.
Money laundering
There are tons of cash generated from illegal businesses around the world. Part of this cash is channeled to the stock market everyday. Why? The stock market will help your illegal cash generate legal profits any day.
Now, can you explain what drives the stock price up or down this week? Company performance? Get real!
For further information, please email to stockfessor@comcast.net
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