Saturday, May 7, 2011.
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Commercial vehicles and two-wheelers buck the trend. Bajaj Auto on Monday reported a 17 per cent increase in total sales to 5,02, units for September as against The Singreni Collieries Company Ltd has registered 3 per cent increase in coal production during the first half of the current financial year. Consolidated Scrutinizers Report Pdf Link: Mishka Finance And Trading Ltd. Scrutinizer report AGM Held as Rama Paper Mills Ltd. The anticipated fallout of US-China trade war has been dragging the price since June.
US-China trade tension and robust domestic demand may strengthen prices. Interest rates on small saving schemes are set to move higher from October 1. We weigh five popular schemes to Her birthday — a red letter day in Indian science So they have to rely on what's known as the "call" from larger retail houses. If a "Big" retail firm like an E-trade calls up a market maker to purchase say 5, shares of a stock, they expect to get an "execution" from that market maker.
If he turns them down, or only gives a partial then the "Big" firm will go to another MM. If this second MM "fills the order" then that "Big" firm has a moral obligation to continue to give future "business" in that stock to that MM who performed his life blood.
This will go on until he "fails" to perform and so on. They "Go" to who they think will perform to fill the order and expect that MM to "match" the "low offer" in the case of a buy bid in the case of a sell. Even though this MM might in fact be the "high bid" and not really want to sell any more. As a wholesaler he must perform or he will get a reputation as a "non-performer" with the "Big" houses and will cease getting "calls" which means he will soon go out of business.
I mentioned above that this activity is very significant to BB stocks. I say this because most of the trades in these BB stocks are "unsolicited" and are done through discount houses. Prior to this trade that MM may be "flat" neither long or short any shares. He fills the order and is now short 1, shares. He may raise his bid hoping to find a seller to "flatten" out his position. Here comes that "Big" firm he just sold the 1, shares to at. He makes this print.
Now he is short 2, at an average of. The market keeps moving and now its. Now he has to make a decision. Just like investors, MM Hate to take a loss. So 9 times out of 10 he will now sell at 1. At this time he would love to see a seller at. But instead the market keeps moving up. Now it is 1. He doesn't want to lose the call so now he needs to sell 4, at 1. Now he is short 8, Market moves up to 1. Now he is short 16, And so on and so on. If the stock keeps moving up, before he realizes it he could be short 50k or k shares depending how big his bank is.
But now he has to figure out how to entice sellers so he can cover this short. It is important to note that if this happened to one MM it has probably happened to most all of them. Some ways MM's entice sellers; Run the stock up with a "tight spread" in a fast market, then "open" up the spread to slow down the buying interest. After it has "cooled off" for a little while lower the offer below the last trade right after a small piece trades on the offer then tighten the spread so that the sellers feel they can take a "quick profit" by "hitting the bid" on the tight spread.
Once the selling starts the MM's will walk it down quickly by only making small prints on the way down with the tight spread. Another way is by running the stock up in the morning, averaging up their short then use the above technique to walk it down in the afternoon. Hopefully after doing this for several days, it will demoralize the buyers.
The volume will dry up and the sellers will materialize thinking that the game is over. They usually try to cover after the frenzy is out of the market. There are many other techniques they use but the above are the most popular. This technique works about 9 times out of 10 particularly in a BB market. However that is because 9 out of 10 BB stocks are BS. Remember what I said above.
Most MM's don't have a clue as to the value of a Company until they get trapped. If the Company has solid fundementals and a bright future. Then the stock will do very well. And the activity that caused the situation will prove to even help the future stock activity because it created an audience. For the most part that is momentum players and daytraders where most of it or what follows is dumb money. Instead the long-term investors use a couple of simple strategies in order to position themselves.
One is to find a stock no one immediately sees has huge potential and accumulate. Long-term investors are not interested in trading against the public mind or the dumb money.
That's where the majority of the money can be made but even more can be made if the base of a stock is held extremely strong by investors. However the second is not to doubt the research which is the underlying basis for going long and holding. More and more investors are winning the game nowadays despite all bashers that float through the Internet that has become part of the game.
Floor traders of market makers often watch CNBC, news wires and bulletin boards in order to follow the market during trading session. However, what they do realize is a lot of dumb money does use this newest nitch charting or TA Technical Analysis to run a stock either up or down. To the MMs this is like taking candy from a baby. Simply they will paint the tape and use whatever tactic to affect the charting bands. Thus the public and dumb money they will have eating out of their hands.
Effectively the MMs can show a strong stock growing weak by manipulating the close price in order to generate selling volume, delaying trading time to manipulate trading activities, or even stalling the ask without honoring orders to hold a stock price.
That is the level that stocks will seek that yields the most volume. Now this is very important because they make money on the volume buying at the bid and selling at the ask.
In other words, by making the market they are buying low and selling high. Now smart money adheres to that rule, so do all the market makers.
So the MMs call up one of his friendly MMs and says some like "the weather is sure rough today. Each failure is compounding the MMs short position so they let it go to the next level.
So what they do is let the stock run up to a price where it runs out of steam.