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Politics : High Tolerance Plasticity

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To: chowder who wrote (22906)	3/14/2005 7:56:29 AM
From: bull_derrick	of 23153

dabum, I agree with your comment about high volume stocks being different than lower volume stocks only in the context of those stocks that form part of an index fund. I was in Long Island two weeks ago and had a conversation with a gentleman next to me at dinner. He owns a business, namely a trading company, which has produced trading programs to arb indexes. He told me that his computer programs are scouring the S&P components plus index all day long. If the components and index step outside an established variance, his computer programs fire out simultaneous buys or sells to the index and the opposite to the components to arbitrage the difference. He said within 2 seconds his computer programs can arbitrage the entire S&P500. With that type of trading going on, the components in the S&P are largely captive in the short term to what trading is going on with the S&P500 contract instead of the index reflecting the conditions of the stock. In terms of stocks not in the S&P or Dow components, I believe the phenomenon I described works equally as well for large volume stocks as low volume ones. Pull up a similar chart of TOL. Insiders are selling like there's no tomorrow. Conventional wisdom, which is a lie, says that large sellers would depress prices yet when Bob Toll smacks the specialist with a bunch of inventory the price goes up. My guess is the OBV and TSV for TOL since December has looked very positive when we all have documented evidence of insider selling and distribution. How many times have you bought at the ask just to see the price drop a minute later? I used to think, darn it had I just waited another minute I could have gotten it cheaper. The reality is that I caused the price to drop by buying the specialist's inventory and the price wouldn't have dropped in the very short term had I not purchased the stock. Attaining a large position by systematically hitting the ask will produce a lower cost basis on a per share basis most of the time and selling to the bid in small increments will produce a larger gain on the selling side. I do about 1200 trades per year and have seen this phenomenon in Nasdaq, Amex and NYSE stocks.

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