wily,
WOW! That was a long one!
Actually, I think the guy who wrote this is selling the MMs short when he says the "Smart Money" will catch them off guard with buying at the lower prices. I also think he is way off base thinking the MMs only want to generate volume so they can make the spread. They are not making their record earnings being satisfied with the spread. They are making it with some pretty sharp swing trading.
My observation, which does suggest that at times there is some MM cooperation, or at least a common mind set, is that when a stock starts to get some serious institutional interest the MMs will sell all they can to those buyers, depleting their inventory and perhaps creating short positions. Now of course they need to replace that inventory or cover the shorts, and they know they are not going to get those shares back from those smart guys they just sold too. But they know they can get it back from the smaller investor if they can create a little panic.
My best personal example of this was with AMKR, a stock I began accumulating shortly after the IPO last year. It got up to 15_1/2 a while back, and I was up 100% on my investment. The next day, it eased down to 15, and as soon as they moved it below 15 the bottom fell out. In just a few minutes it was down to 13_1/2, a 10% drop in less than 10 minutes. I sold mine at 14 on the bounce and took my 80% profit. OK, that's not bad, but AMKR recently rose above 39 before the recent pull back.
At the time I did not understand the dynamic I think I'm beginning to get a handle on, but I had found an interesting resource I was trying to interpret:
thomsoninvest.net
On the day AMKR reached 15_1/2, virtually all the messages from the MMs to the institutions were "sell" messages, and the percentage of institutional activity was huge. The following day when AMKR fell to 13_1/2, there was not a single "sell" message to be found. They were all "buy" messages, and the institutions were not playing. A clear signal from the MMs to the big money saying, "Hey, these prices are a bargain, but don't expect to buy any because we have nothing to sell. When we get finished letting the little guys dump their shares on us cheap, then we can do business again."
The MMs pretty much know what the smart money is doing, and they know that when the smart money is buying they have to go elsewhere to buy for themselves.
Dan |
