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Specialist Control Over Market Openings And Closings
Controlled Openings And Closings:
According to the Securities And ExchangeCommission Report Of 1963 and I quote,
"
The Control specialists have on prices is nobetter illustrated than at the opening. Although itis impossible to isolate one aspect of thespecialists activities as the most important, anyranking would have to place the arrangedopening high on the list
"
.They go on to say and I quote
"The heart of the problem with the Stock Exchange is thespecialist. If there was to be any reform of themarket it should be with the specialist"
.It’s sad to say but none of the findings or resolutions, which addressed specialistshort selling, has ever been implemented.What the Commission stated was that withtheir controlled opens and closingsspecialists were "
rigging prices
". TheSecurities and Exchange Commission hasbeen a captive of the Stock Exchange andits insiders since its inception in 1934.
Arranged Openings
:There are five important ways thatspecialists handle prices at openings.
1)
When you have a dramatic advance atthe opening while in the midst of a generallydeclining market. The function of thisadvance is quite simple. The specialist hasaccumulated an enormous amount of inventory during the decline, and what thisrally does is two fold.
A)
It keeps the public from continuingselling at what are still retail price levels.
B)
It forces the public to rush in and buystock. This is what enables the specialist tounload his inventory and sell short.It is still the basic scenario of wholesale andretail merchandising. When they drop pricesthey are looking for the ultimate wholesalebottom, possibly conducting several shortadvances along the way to unload inventoryand sell short. Once they have achievedtheir low wholesale prices and are flushedwith inventory budging from there shelves,there next function is to rally to retail tounload the stock at its highs with severalshort declines along the way to re-stockinventory, before reaching the ultimatehighs.
2)
The next opening is a dramatic declineas specialists approach to within 50 to 75points of a rally high. The function of this isagain two fold.
A)
One reason you have a sharp declinelike this before you go to a high is becausethe specialist never allows the public, whichhas been buying at current prices to sell atthe highs. Before going to the final highs thespecialist will conduct not one period of decline but a number of declines, becausehe doesn’t want the public selling stock tohim at the highs where he wants to do theselling. The function here is to shake outinvestors before continuing the advance tonew highs.
B)
The other function of a decline at theopening in the course of rising prices is thatit allows the specialist to clean out the lower price territory of stock. In other words thespecialist sees orders to sell on his book,which tell him if he drops the price of thestock he is going to be able to get thatstock. This accomplishes two things, notonly can he sell this stock when he rallies tothe high, but when he moves down againafter reaching the high there will be lessstock to absorb as he moves lower.
The Securities And Exchange Reportpointed out that if the customers knew theorders they entered on the specialist bookwere actually responsible for the decline heconducted to get that stock they wouldnever have entered their orders on thespecialists book.
3)
The next opening you see is really thesum and substance of how specialistsachieve there most important objective, theaccumulation of stock at wholesale pricelevels. When they start the decline investorsare praying prices will reverse and go backup. Specialists know this and play themalong. Each time they drop prices they thenrally back a bit, may be for a day or two,and then go down again. Investors hold onto their stock. They know they should sellbut they are hoping for a miracle.Then, when specialists are near the bottom,they drop prices sharply, which is what theywere planning to do all along. The firstdecline sets the stage as the investor saysI’m going to get out. Sure enough the nextday the price is dropped again andinvestors begin selling. This can signal thebeginning of a major rally, especially if during the day you see major big blockaccumulations. It could also indicate ashort-term rally to distribute stock beforemoving still lower.The extent of the big block activity or thelack of big block activity provides you withyour clue as to whether specialists havelaunched a sustained rally, or a short-termrally to unload inventory before movinglower. When they do this they hit you with amajor decline one day, they rally a little for acouple of days before hitting you again withanother barrage of major declines. Thiscauses investors to hold on to their stockwith the slim hope that things will turnaround, but they don’t.
4)
The next important opening thatspecialists employ is something you alwayssee in the beginning and middle phases of a bull market. Invariably in a bull market in abull trend you will see stock prices openingdown. Prices will be up at the close andthen down 10, 20, or 30 points at the open,then up again at the close, and again downat the following mornings open. Thenmaybe the market will do nothing for twodays or so, then a little advance, and thensharply higher. This is called
“the sneakingup process
”. The declines at the openkeep the public from buying, and they alsotrigger public selling which allows thespecialist to accumulate stock and thenunload it back to the general public on theway up.Each time he drops the issue he picks upmore stock because he wants to keep hisinvestment accounts that he filled at thestocks lows in-tack. He doesn’t want to sellany of his stock anywhere except at thehighs. So in the course of the bull phase heneeds to accumulate stock to sell to thepublic when he rallies. The other reason hedrops prices at the open is to cover theshort sales he established at the previousdays close. Once he covers those shortsales he is up and on his way again.
5
. The next opening is “
the sneaking downprocess
”, which is basically just theopposite of the proceeding process. This iscalled the opening advance after severaldeclines in a declining market. In adeclining market what they generally try todo is advance at the opening and then dropprices at the close. This keeps public hopealive, there by preventing selling, andencouraging buying at higher prices. It alsoallows the unloading of inventory before theSpecialist moves to lower price levels.
Arranged Closings:
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Specialists Control Over Market Openings and Closings by Richard Ney
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| Upload Date: | 11/28/2009 |
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