More From This User
Profoto Pro-8a Air
Profoto Pro-8a Air test
Specialist Movements Within The Market
There are approximately 500 specialists whooperate on the floor of the New York StockExchange. Specialists make between 84 to192 percent a year on their capitalinvestments.Specialist activities reveals that once he hassold out his investment account andestablished a short position at his stock's highhis long term objective is then to take stockprices down to wholesale price levels in order to cover his short sales and once again toaccumulate stock. Once his investmentaccounts are satisfied, his bias will be biasedtoward advancing or lowering his stock's priceto maximize his personal profits.If specialists want investors to buy stock, theysimply raise stock prices sharply. If they wantto cause massive selling, they drop stockprices precipitously. In the course of a rally,therefore, specialists supply public demandby unloading their inventories and then sellingshort. By precipitating a decline, specialistsare able to use the ensuing public selling tocover their short sales and to accumulatestock for their trading and investmentaccounts.Since specialists can predict the behavior of the public when they raise or lower stockprices, they have only to decide how theywish investors to behave. How they wishinvestors to behave will depend on thedisposition of their inventory and whether theywish to advance stock prices to dispose of inventory or lower stock prices in order toaccumulate inventory. It might be easier for you to understand this process if you placeyourself as a merchant.
1)
Once the specialist has accumulated aninventory in a stock in which he is registeredat wholesale, his objective will be to rallyprices to retail in order to divest himself of thisinventory.
2)
Having sold this stock at retail, he will wantto lower stock prices to wholesale in order tore-accumulate a new inventory of this stock.He will tend to avoid the straight-line decline,which could precipitate heavy selling, therebycausing him to acquire an inventory that hewould be able to dispose of only in the courseof what might have to be a long-term, rather than a short-term, rally. Thus, in the course of a routine decline of 1000 to 3000 points in theDow, as specialists trend stock prices lower,they will generally advance prices as often asthey drop them, the difference being theamounts of the declines will be, on balance,greater than the advances.The specialist employs his short sale in thecontext of the following process:
1)
His objective is to accumulate stock atwholesale and then to rally stock prices.
2)
By rallying stock prices he stimulates publicdemand for his stocks. The larger the priceadvance, the greater the demand hestimulates.
3)
Once public demand has enabled him todispose of his inventory at retail price levels,in order to supply additional demand he thensells short - at what are often times evenhigher retail price levels.
4)
Since the profitability of his short salesdepends on a subsequent decline in hisstock, he will tend to limit the extent of anyadditional advance beyond the price levels atwhich he sold short. For practical purposes itcan be said that once he begins to sell shorthe will try to limit his short selling to within afive to ten point range in an individual stock.Once he halts his stock's advance, demandsoon thereafter begins to dry up.
5)
When this happens, the specialist is in a
position to begin the movement of his stock'sprice toward wholesale price levels.
6)
As his stock declines from its high, he mayencounter heavy public selling. He can thenuse his short position to absorb that selling byshort covering.It is not demand that causes rising stockprices but rising stock prices that causedemand. As you advance your knowledge of specialist activity you will observe that in thecourse of a major rally or decline, volume willincrease as stocks move toward or just thrutheir "
critical numbers
."A specialist will drop his stock's price to acritical number, acquire the increasingamount of shares that are sold to him as heapproaches this price level, and then havingcleaned out his book down to the criticalnumber, he will launch a rally that oftentimescarries the stock to just under or just aboveanother critical level. Whether he stops justunder or just above the critical level dependson the amount of buy or sell orders he seeson his book just beyond the critical number and what his objective is at the time.In the course of a major rally or decline,specialists move prices like a pendulum backand forth across critical numbers until,because of action and price, the action of volume either subsides or increasesdramatically, thereby moving the market intoareas of new definition, from a bear to a bullor a bull to a bear.There are 22 specialists who control thethirty stocks of the Dow industrial average. Asyou examine their habit patterns you will seethat it is virtually impossible for the investor tosolve the problems of timing until you learn todifferentiate and describe to movements notof the Dow but of the individual stocks thatcomprise the Dow.Thus the specialists in four or more Dowstocks may move to within two or three pointsof their highs, where they will wait until atwhat is obviously a prearranged signal, mostspecialists will simultaneously launch their stocks toward their highs. This will then bringin the crescendo of investor demand thatenables specialists to establish major shortsales before dropping stock prices.At market highs, specialists account for approximately 75 percent of all short selling,other Exchange members about 15 percent,and the public about 10 percent. What theinvestor must do is to learn how to recognizespecialist short selling. Once he is able toidentify its signs, he can use it as a decisivesignal that warns him of impending danger.Dow volume is one of the most importantmeans of identifying specialist short selling.When in the ordinary course of business thedaily volume in this index of 30 stocks aloneexceeds 500 million shares the investor should be on the lookout for a short reversalin the Dow average and the overall market.As stocks move to an important high or lowone can expect to see the Dow volumereaches 2.5 billion to 3.0 billion shares for three or more days before a reversal occurs.Thus when stocks are in transit from short or intermediate term lows to their highs, it is ageneral rule that when the daily Dow volumeexceeds 3.0 billion shares it can be assumedDow specialists have liquidated or are in theprocess of liquidating their trading accountinventories and are selling short to supplydemand.As previously mentioned, volume figures arethe most important clue to specialist intent
.
The specialist's merchandising strategies areorganized to minimize public selling during adecline and, therefore, the amount of inventory that they must absorb, place ontheir shelves, and carry with them as theylower stock prices toward wholesale prices.What this comparatively low volume indicatesis that the public has been subtly and silentlypersuaded not to sell stock they would have
sold had they thought for a moment thatprices were headed lower.Rallying stock prices from time to time, andrallying the investor’s hopes so that, althoughthe evidence of declining stock prices is rightthere before his eyes, he will flatly refuse tobelieve the evidence of his senses to it.What is totally alien to the understanding of most investors is that Exchange insiders areable to derive benefits from a crashing stockmarket, but in order for them to enjoy thesebenefits, stock values must go down.The reason the industry fastens the public'sattention on economic fundamentals is thatthey cause the investor to plot a curve for buying at the top of a rally and selling at thebottom.The ability to sell short at the top in responseto public demand and then to cover the shortsales in response to public selling allowsspecialists to create a situation that, in thestock market, would seem at first glance to bemanifestly, impossible, one in which it wouldbe possible, for all practical purposes, toeliminate uncertainty.The specialist’s power is vividly illustrated inthe way he is able to break the investors spiritone day and then, to serve his purposes,generate new faith the next. Thus, thespecialist advances his plot line one stepfurther by showing the investor that what hefeels he is unable to gain in the marketbecause of his lack of skill he can gainbecause of the existence of good luck. Byraising prices high enough the specialisteasily persuades the investor to forget thebad luck he had in the past.Insiders, particularly specialists, operate asmembers of a closed group with a code of conduct and ethics all their own. They arehighly organized because they deal in bigmoney.Volume is the investor's window onto the floor of the Stock Exchange. Properly utilized, itbrings the investor face to face with thespecialist's attitude toward his inventory,whether he wants to dispose of it or add to itand, therefore, raise or lower his price.The problem is that investors have not beentrained to examine the movements of volumeas an indicator of change. Instead theybelieve that high volume in the course of arally is proof of the "markets underlyingstrength." In fact the very opposite is true.Volume is either a manifestation of specialistaccumulation when it is on the downside or an indication of specialist distribution when itoccurs on the upside.How severe a decline will be in stock dependson the extent of the specialists short salesand how well he conserves them. Rallyingstock prices almost immediately after theyhave begun to decline is an institutionalizedsystem for unloading the first batch of stoploss orders that are accumulated byspecialists from their books.The scale of organization inherent in adecline, any decline, imposes on specialists inhighly active stocks functions that demandtheir most scrupulous attention. The conflict of opposing interests between insiders andoutsiders must be carefully disguised so asnot to cause a breakdown in the game planthat would result in an avalanche of selling byoutsiders.The investor is able to learn how to gauge thespecialist, anticipate his intent and hismovements from only two things, the worm of his price and its shadow, volume. Althoughthe specialist is the only one who knows whathis plans are, what he is going to do, andwhen he is going to do it, the investor doesknow what he did, when he did it, and quiteoften, what it means he must do in the futurebecause of what he has done in the past. Theinvestor has one advantage over thespecialist. The specialist can't hide from him.
of 00
Specialists Movements Within the Market by Richard Ney
272 Reads
Info and Rating
| Category: | Uncategorized. |
| Rating: | |
| Upload Date: | 11/28/2009 |
| Copyright: | Attribution Non-commercial |
| Tags: |
Leave a Comment