Downside move dynamics
Real down moves become visible or apparent when large amount of distribution has already happened. Strength is used by big speculators to pass on their holdings acquired at lower price to enthusiastic late stage buyers. When there are no more large buyers left, the absence of buying is what drives price down. What we are witnessing is profit taking after a long run.
Short sellers might delude themselves in believing that they drive the market down. But that is not how the market operates. Prices drop from lack of bids not from too many offers. Buyers don't see reason to pay current prices. This leads to bid drying up. So when a down move starts those who bought late or late in selling their profitable position are willing to sell for less than current prices. This leads to the kind of move which you see yesterday in some stocks. At least that is my understanding of how markets work.
Stakes and big positions are accumulated slowly, over a period of time by big speculator, sometime it is done suddenly, when a catalyst like earning or new product, or regulatory action changes fundamentally the prospect for a security. Once sufficient large positions are built, the elephants have no hesitation in talking and broadcasting about their bullish position, as it helps drive the prices up.
On the other hand selling in most cases is done stealthily, slowly, and while the party still looks full of life. That is when many small speculators or those on sideline become enthusiastic participants in the rally. That is the reason, corrections and tops are slow protracted events and require considerable skill to trade and detect.Buying clues most of the times are very apparent, while selling is well disguised. To complicate the dynamics further, there are often false moves and traps. To understand the market you have to anticipate the elephants next big moves.
When I was new and less experienced traders, I would get caught in such events frequently. Now I play the high probability game, risking more money at the beginning of rally from weakness and playing tactically in later stages and playing small in later stages. Can the market rally from here, sure, anything is possible, but the risk reward for at least next couple of week is not favorable to long side in my judgement. My views might change in few weeks as I am flexible and not married to a hypothesis or a big picture theme.
If this round of selling continues, there will be no safe corners, never be complacent about your long position in such sell offs. Remember that your stock could be next. When they raid the whorehouse, they take the piano player too , as the saying goes.
At 5% correction level in Indices, I will be bullish, at 15% more bullish at 50%+ correction level I will load up the truck.
Later today:
Coming next answer to question by couple of readers- "Bullish on Thursday, bearish on Monday morning". Anatomy of the decision making process.
What Every Fidelity Investor Needs to Know
. A review of a book I finished reading last night.
Stay tuned.
Short sellers might delude themselves in believing that they drive the market down. But that is not how the market operates. Prices drop from lack of bids not from too many offers. Buyers don't see reason to pay current prices. This leads to bid drying up. So when a down move starts those who bought late or late in selling their profitable position are willing to sell for less than current prices. This leads to the kind of move which you see yesterday in some stocks. At least that is my understanding of how markets work.
Stakes and big positions are accumulated slowly, over a period of time by big speculator, sometime it is done suddenly, when a catalyst like earning or new product, or regulatory action changes fundamentally the prospect for a security. Once sufficient large positions are built, the elephants have no hesitation in talking and broadcasting about their bullish position, as it helps drive the prices up.
On the other hand selling in most cases is done stealthily, slowly, and while the party still looks full of life. That is when many small speculators or those on sideline become enthusiastic participants in the rally. That is the reason, corrections and tops are slow protracted events and require considerable skill to trade and detect.Buying clues most of the times are very apparent, while selling is well disguised. To complicate the dynamics further, there are often false moves and traps. To understand the market you have to anticipate the elephants next big moves.
When I was new and less experienced traders, I would get caught in such events frequently. Now I play the high probability game, risking more money at the beginning of rally from weakness and playing tactically in later stages and playing small in later stages. Can the market rally from here, sure, anything is possible, but the risk reward for at least next couple of week is not favorable to long side in my judgement. My views might change in few weeks as I am flexible and not married to a hypothesis or a big picture theme.
If this round of selling continues, there will be no safe corners, never be complacent about your long position in such sell offs. Remember that your stock could be next. When they raid the whorehouse, they take the piano player too , as the saying goes.
At 5% correction level in Indices, I will be bullish, at 15% more bullish at 50%+ correction level I will load up the truck.
Later today:
Coming next answer to question by couple of readers- "Bullish on Thursday, bearish on Monday morning". Anatomy of the decision making process.
What Every Fidelity Investor Needs to Know
. A review of a book I finished reading last night.Stay tuned.
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